Background:

Forecasts are vital to every business and for every significant management decision.  Forecasting is the basis for the planning and control process.  Forecasts are part of all of the following subsequent decisions within production and operations:

1. Aggregate planning

2. Capacity planning

3. Facility layout

4. Supplier selection & purchasing

5. Inventory management

6. Scheduling

Although Scott Adam's Dilbert cartoons make light of the forecasting process, forecasting is not an easy task and cannot be taken lightly.  Notice the items that a forecast impacts from the list above.  In fact, a forecast impacts the entire hierarchical planning process.

Questions for Thought:

1. Have you ever worked at a job where no one really knew how forecasts where arrived at or who did create the forecasts? Explain what you experienced.

2. Do you recall the forecasting method at any of the companies you have ever worked at?  One basic and common method used is the % increase model (e.g., take last periods demand and increase it by a % - 100 units last time then this time it will 5% more or 105 units).

3. What are some of the consequences of inaccurate forecasts being used?