Operations Management: Processes and Supply Chains, 12th Edition

Key Decisions on Making Forecasts

Before using forecasting techniques, a manager must make two decisions: (1) what to forecast, and (2) what type of forecasting technique to select for different items.

Deciding What to Forecast

Although some sort of demand estimate is needed for the individual services or goods produced by a company, forecasting total demand for groups or clusters and then deriving individual service or product forecasts may be easiest. Also, selecting the correct unit of measurement (e.g., units, customers, or machine-hours) for forecasting may be as important as choosing the best method.

Level of Aggregation

Few companies err by more than 5 percent when forecasting the annual total demand for all their services or products. ...