Reading 4 – Demand Forecasting

MGMT 3344 – OSCM
Reading 4 – Demand Forecasting
DKI rev Jul 2016 1
The first step in planning for the future of any enterprise is forecasting the
future demand for products and services and the resources necessary to produce
them.
Sales Forecast Time Buckets

 Medium Range Forecasts: 8 weeks, focus on a family of products
 Long Range Forecasts: 12 months or more and include all products (least
accurate)
The appropriateness of any given forecasting method depends to a great extent on
product life cycles. Examples: Telecom devices = short term; air conditioners = long
term.
Forecast Accuracy/Error: Refers to how close the forecasts come to actual data
The accuracy of forecasts can be determined only after the passage of time
Forecasts that are very close to actual data have a high accuracy and the forecast
error is low
Long-Range forecasts are necessary to support strategic decisions regarding the
planning of capacities, products, processes, technologies, and people.
Seasonality: A data pattern that repeats itself after a period of time – e.g. soft
drinks increase in hot weather; boat sales increase in late-winter/early spring; flu
shots spike preceding cold weather
MGMT 3344 – OSCM
Reading 4 – Demand Forecasting
DKI rev Jul 2016 2
Short-range forecasts provide operations managers with information to make
decisions about:

 How much of each raw material s/b ordered for delivery next week?

In today’s operations environment there are two ideal goals:
 Do not carry extra inventory
 Produce every product or service every day – what common, small business
does this? Got one in mind?
Sales forecasting in small and/or start-up businesses is difficult. Why?
 Do not normally have experienced people
 May not have historical data
 Forecasting of new products is always difficult
MGMT 3344 – OSCM
Reading 4 – Demand Forecasting
DKI rev Jul 2016 3
Help is available to small businesses from outside sources:
 Industry associations
 Chamber of Commerce
 Local, regional, state and federal govt. agencies
 U.S. Dept. of Commerce
 U.S. Dept. of Labor
 Internet
Thinking Time:
You are the Demand Forecaster/Production Scheduler for a start-up, snow shovel
manufacturing and distribution company
What factors do you need to consider when making decisions regarding the
following?
 Sales Forecasts by SKU (4)
 Capacity requirements
 Raw Material Requirements
 Seasonality?
 Inventory levels (RM & FG)
 Production Schedules
MGMT 3344 – OSCM
Reading 4 – Demand Forecasting
DKI rev Jul 2016 4
Thinking Time:
You are the UCA VP of Student Services. For the next school year, August thru
July, you must forecast the demand for the services of: Housing, meal plans,
parking, health services, HPER, orientation, student center and university
events.
List the factors you will use to forecast demand for these services.

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