Operations Management: An Integrated Approach, 5th Edition

STEPS IN THE FORECASTING PROCESS

Regardless of what forecasting method is used, there are some basic steps that should be followed when making a forecast:

1. Decide what to forecast. Remember that forecasts are made in order to plan for the future. To do so, we have to decide what forecasts are actually needed. This is not as simple as it sounds. For example, do we need to forecast sales or demand? These are two different things, and sales do not necessarily equal the total amount of demand for the product. Both pieces of information are usually valuable.

   An important part of this decision is the level of detail required for the forecast (e.g., by product or product group), the units of the forecast (e.g., product units, boxes, or dollars), and the time horizon (e.g., monthly or quarterly).

2. Evaluate and analyze appropriate data. This step involves identifying what data are needed and what data are available. This will have a big impact on the selection of a forecasting model. For example, if you are predicting sales for a new product, you may not have historical sales information, which would limit your use of forecasting models that require quantitative data.

   We will also see in this chapter that different types of patterns can be observed in the data. It is important to identify these patterns in order to select the correct forecasting model. For example, if a company was experiencing a high increase in product sales for the past year, it would be important to identify this growth ...