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

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

• 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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