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Chapter 3 Part 2: Comment

1. Certain features are common to all forecasting techniques, including the assumption that past causal systems will continue into the future. However, unplanned events can impact forecasts. 2. A good forecast should be timely, accurate, reliable, expressed in meaningful units, in writing, simple to understand, and cost-effective. 3. Accurate forecasts are important for the supply chain to avoid shortages and excesses that negatively impact customer service and profits. Organizations can improve forecasts through collaboration with supply chain partners and information sharing.

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91 views

Chapter 3 Part 2: Comment

1. Certain features are common to all forecasting techniques, including the assumption that past causal systems will continue into the future. However, unplanned events can impact forecasts. 2. A good forecast should be timely, accurate, reliable, expressed in meaningful units, in writing, simple to understand, and cost-effective. 3. Accurate forecasts are important for the supply chain to avoid shortages and excesses that negatively impact customer service and profits. Organizations can improve forecasts through collaboration with supply chain partners and information sharing.

Uploaded by

RJ DAVE DURUHA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 3 Part 2

The following topics includes features common to all forecast, elements of a good
forecast and forecasting and supply chain that 3 broad but important topics when
studying and understanding the complexity of forecast.
FEATURES COMMON TO ALL FORECASTS
A wide variety of forecasting techniques are in use. In many respects, they are quite different
from each other, as you shall soon discover. Nonetheless, certain features are common to all,
and it is important to recognize them.
1. Forecasting techniques generally assume that the same underlying causal system that
existed in the past will continue to exist in the future.
Comment A manager cannot simply delegate forecasting to models or computers and then
forget about it, because unplanned occurrences can wreak havoc with forecasts. For instance,
weather-related events, tax increases or decreases, and changes in features or prices of competing
products or services can have a major impact on demand. Consequently, a manager must be alert
to such occurrences and be ready to override forecasts, which assume a stable causal system.

2. Forecasts are not perfect; actual results usually differ from predicted values; the presence
of randomness precludes a perfect forecast. Allowances should be made for forecast
errors.
3. Forecasts for groups of items tend to be more accurate than forecasts for individual items
because forecasting errors among items in a group usually have a canceling effect. Opportunities
for grouping may arise if parts or raw materials are used for multiple products or
if a product or service is demanded by a number of independent sources.
4. Forecast accuracy decreases as the time period covered by the forecast—the time horizon
—increases. Generally speaking, short-range forecasts must contend with fewer
uncertainties than longer-range forecasts, so they tend to be more accurate.
An important consequence of the last point is that flexible business organizations—those
that can respond quickly to changes in demand—require a shorter forecasting horizon and,
hence, benefit from more accurate short-range forecasts than competitors who are less flexible
and who must therefore use longer forecast horizons.
ELEMENTS OF A GOOD FORECAST
A properly prepared forecast should fulfill certain requirements:
1. The forecast should be timely. Usually, a certain amount of time is needed to respond to
the information contained in a forecast. For example, capacity cannot be expanded overnight,
nor can inventory levels be changed immediately. Hence, the forecasting horizon
must cover the time necessary to implement possible changes.
2. The forecast should be accurate, and the degree of accuracy should be stated. This will
enable users to plan for possible errors and will provide a basis for comparing alternative
forecasts.
3. The forecast should be reliable; it should work consistently. A technique that sometimes
provides a good forecast and sometimes a poor one will leave users with the uneasy feeling
that they may get burned every time a new forecast is issued.
4. The forecast should be expressed in meaningful units. Financial planners need to know
how many dollars will be needed, production planners need to know how many units will
be needed, and schedulers need to know what machines and skills will be required. The
choice of units depends on user needs.
5. The forecast should be in writing. Although this will not guarantee that all concerned
are using the same information, it will at least increase the likelihood of it. In addition,
a written forecast will permit an objective basis for evaluating the forecast once actual
results are in.
6. The forecasting technique should be simple to understand and use. Users often lack
confidence in forecasts based on sophisticated techniques; they do not understand either
the circumstances in which the techniques are appropriate or the limitations of the techniques.
Misuse of techniques is an obvious consequence. Not surprisingly, fairly simple
forecasting techniques enjoy widespread popularity because users are more comfortable
working with them.
7. The forecast should be cost-effective: The benefits should outweigh the costs.

FORECASTING AND THE SUPPLY CHAIN


Accurate forecasts are very important for the supply chain. Inaccurate forecasts can lead to
shortages and excesses throughout the supply chain. Shortages of materials, parts, and services
can lead to missed deliveries, work disruption, and poor customer service. Conversely, overly
optimistic forecasts can lead to excesses of materials and/or capacity, which increase costs.
Both shortages and excesses in the supply chain have a negative impact not only on customer service but also on
profits. Furthermore, inaccurate forecasts can result in temporary increases
and decreases in orders to the supply chain, which can be misinterpreted by the supply chain.
Organizations can reduce the likelihood of such occurrences in a number of ways. One,
obviously, is by striving to develop the best possible forecasts. Another is through collaborative
planning and forecasting with major supply chain partners. Yet another way is through
information sharing among partners and perhaps increasing supply chain visibility by allowing
supply chain partners to have real-time access to sales and inventory information. Also
important is rapid communication about poor forecasts as well as about unplanned events that
disrupt operations (e.g., flooding, work stoppages), and changes in plans.

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