Forecasting predicts the future business behavior that impacts the business plans, operations, and outcomes. As a result, poor forecasting will lead to the bad behaviors of the business and will affect deeply the decision-making at the time. Forecasting also examines the demand and business trends, analyzing by qualitative and quantitative business data collected from internal and external sources. I conclude that the forecasting is significantly important to support executives in planning and making decision for their business survival. I have had an opportunity to join the executive team at my previous employment where I really utilized the forecasting model system based via the interactive executive dashboard to determine our goals and business operations. Based on that experience, I strongly believe that forecasting is important because it is used to estimate the business behaviors and trends including customer activities (Lapide, 2006).
There are three basic techniques used for forecasting management; (a) Time-series, (b) Regression Analysis, and (c) qualitative technique (Mentzer, Myers, & Stank, 2007). These three techniques can be used for the forecasting management of all business types including manufacturing, retail, service providers, local government, etc… However, depending on the size of the organization and the dependent variables of the business, technique can be selected carefully for use of forecasting management. In my organization, considered a service provider, I do believe that the regression analysis may not need to be used, but instead, we use quite often the qualitative technique because the regulations have changed annually and the funding level has also changed every year. In addition, a toll-tag company,as a service provider, may use all three techniques because the regression analysis may give the better forecasting based on relationship of the dependent and independent variable data such as gas price, economy downturn, etc…
There are three types of demand that impact the sales forecasting management. According to Mentzer & Moon (2004) and Mentzer et al (2007), the characteristics of the independent demand, derive demand, and dependent demand will help to determine the system and process for the company to deal with the global logistic, supply chain costs, and customer services. For a food retail type of business, I think the sale forecast model, the advertisement, the amount of food product, and types of food products, affect the business trends and behaviors. The product which is in high demand directly from end-users will determine the supply needed, while the advertisement will help bring up this level of demand. To me, the independent demand which is the amount of the food products sold previously will help the sale forecast and the supply demand. The derive demand in food retail industry reflects the effectiveness from other supply companies in the chain such as the marketing strategy, amount of inventory, etc.
Mentzer, J. T., Myers, M. B., & Stank, T. P. (Eds.). (2007). Handbook of global supply chain management.Thousand Oaks,CA: Sage Publications.
Mentzer, J. T., & Moon, M. A. (2004). Understanding demand. Supply Chain Management Review, 8(4).
Lapide, L. (2006). Demand management revisited. Journal of Business Forecasting, 25(3).
By Phat Pham