3 - Step Process: Approaches to Forecasting : A Tutorial
Published on: Jan, 26, 2011
3 – Step ProcessSTEP 1: Divide Items into Three Major Categories
- 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
- 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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