Issues in Sales Forecasting

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Issues, Problems and Techniques involved in forecasting Sales of New Products

James D. Jackson

There are countless issues, problems, and considerations in forecasting for new product. First, we must understand what a sales forecast is and what is designed to do. A sales forecast is an educated guess of future performance based on sales and expected market conditions. The value of the forecast is that we can predict and prepare for the future objectively. The objective is to review the past, be focused in the present and follow the trends of the past and present to predict the future.

Typically due to things that are out of our control, it is very difficult to forecast precisely. Mathematically, however, it is very possible to forecast sales with accuracy. Best case scenario, if the weather and other factors are predicted correctly, the forecast will have a better chance at being accurate. Obviously no one can forecast the damage a snow storm or tornado may cause and for how long. The following are are few of the major events that will affect the sales forecast: sales:

Seasonality, the economy, politics, fashion changes, average household income, demographic changes, the weather, and production requirements.

The major challenge, is who is actually prepared to do the forecast. Is it the newly hired college graduate? Or is it the gray-bearded old man that has been with the company for years? Typically, over time, it may be a combination of the two. Forecasting is not a science and it is usually inaccurate. Knowing that a forecast is very often inaccurate does not mean that nothing can be done to improve the forecast (Principles of Supply Chain Management, J. Wisner, K. Tan, G. K. Leong, 2005, p.142).

In this paper, I will address several forecast methods that were of particular interest to me, and the issues and problems associated with each one. There are a number of ways to introduce new products. Forecasting relatively only improves the chances of a products success. Hopefully, whoever is doing the forecast, forecasts lower on the projected sales outcome rather than the other way around. Well before the product forecast can be done there must be surveys conducted to see if there is a demand.

Before a product can be marketed, analyst must research the areas where the product intends to be sold to see if there is a demand for the new product. Mainly products are created based on the demand. People often use the terms ‘demand’ and ‘sales’ interchangeably (Demand Forecasting: Evidence-based Methods, J. S. Armstrong, 2006, p.140).

As a store manager for Walmart, I have to forecast sales, four weeks in advance. I review data from the previous year to include: the weather, items sold, and the revenue that was generated, to make an informed decision. If the weather is going to be worse, this year versus last year, for my store, there will normally be a dramatic drop in sales.

Typically, in that situation, the very next clear day, sales will bounce back. I’m still amazed at how accurate good forecasting is. It’s unbelievable how 365 days later, you can predict, with relative accuracy, the number of people that will come through the door and the amount of sales that are expected to be made.

Sales forecasting is making an educated guess, based on last years sales and current economic trends, to determine the right amount of employees to work on any given day, and what products have the best chance of selling. If someone is good at forecasting, they can maximize the profits for any organization and make themselves very invaluable. At Walmart, Market Managers have to determine from their analysis, the appropriate number of wages to spend per week, send that number to the store managers, and the store managers, as I mentioned earlier, have to plan accordingly.

We begin the financial analysis with the sales forecast...
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