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SCRC Article Library: 3 - Step Process: Approaches to Forecasting : A Tutorial

3 - Step Process: Approaches to Forecasting : A Tutorial

Published on: Jan, 26, 2011

by: Cecil Bozarth, PhD

3 – Step Process

STEP 1: Divide Items into Three Major Categories
STEP 2: Apply the simplest tools needed to do the job
STEP 3: Spend effort on the “difficult few”
Other Considerations
Q2 Forecasting

h2. STEP 1: Divide Items into Three Major Categories

STEP 2: Apply the simplest tools needed to do the job

STEP 3: Spend effort on the “difficult few”

Other Considerations

  • Begin to develop the database needed to support quantitative analysis:
    • Sales and order history
    • Promotions, price discounts offered, etc.
  • Measure forecast accuracy and put in place a formal review step to review what forecasting methods did / did not work
  • Reassign items to categories / adjust methods based on what is learned in the formal review
  • Like any business process, forecasting should be subject to continuous improvement efforts
h2. Q2 Forecasting

  • Quantitative-Qualitative Forecasting
  • Basic ideas behind Q2 forecasting:
    • Wherever possible, forecasters should first develop a quantitative forecast, then use this for the basis for more qualitative analysis.
    • Historical data is never a perfect indicator of what will happen in the future, but this doesn’t excuse us from considering it!
    • By following the Q2 principle, forecasters can:
    • Keep their intuition grounded in the data.
  • Expose the assumptions behind qualitative forecasts (ex. – “Why do we expect demand to be three times higher than last year?”).

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