Demand Forecasting
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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
| | Short Range Forecasts: Span the next few hours and days; focus on each, individual SKU or service produced |
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:
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