Basic Rules of Forecasting
- Forecasts are almost always wrong.
- Important to measure forecast accuracy and take actions to improve when necessary
- Near-term forecasts tend to be more accurate.
- Forecasts for groups (product categories, multiple stores, etc.) tend to be more accurate.
- Forecasts are no substitute for calculated values.
Recall our earlier example…
POS forecasts were used to calculate the replenishment forecast at the DC
- Used when situation is vague & little data exist
- New products
- New technology
- Involves intuition, experience
- ex., Forecasting sales to a new market
- Used when situation is ‘stable’ & historical data exist
- Existing products
- Current technology
- Heavy use of mathematical techniques
- ex., Forecasting sales of a mature products