Read full document

zsdas

Page 1 of 33


CHAPTER 8

FORECASTING AND DEMAND
PLANNING

Have you ever gone to a restaurant and been told that they are sold out of their “special,” or gone to the university bookstore and found that the texts for your course are on backorder? Have you ever had a party at your home only to realize that you don’t have enough food for everyone invited? Just like getting caught unprepared in the rain, these situations show the consequences of poor forecasting. Planning for any event requires a forecast of the future. Whether in business or in our own lives, we make forecasts of future events. Based on those forecast, we make plans and take action. Forecasting is one of the most important business functions because all other business decision is based on a forecast of the future. Decisions such as which markets to pursue, which products to produce, how much inventory to carry, and how many people to hire all require a forecast. Poor forecasting results in incorrect business decisions and leaves the company unprepared to meet future demands. The consequences can be very costly in terms of lost sales and can even force a company out of business. Forecast are so important that companies are investing billions of dollars in technologies that can help them better plan for the future. For example, the ice –cream giant Ben & Jerry’s has invested in business intelligence software that tracks the life of each pint of ice cream, from ingredients to sale. Each pint is stamped with a tracking number that is stored in an Oracle database. Then the company uses the information to track trends, problems, and new business opportunities. They can track such things as seeing if the ice cream flavor. Chocolate Chip Cookie Dough is gaining on Cherry Garcia for the top sales spot, product sales by location, and rates of change. This information is then used to more accurately forecast...