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SCRC Article Library: Basic Rules of Forecasting: Approaches to Forecasting : A Tutorial

Basic Rules of Forecasting: Approaches to Forecasting : A Tutorial

Published on: Jan, 25, 2011

by: Cecil Bozarth, PhD

Basic Rules of Forecasting

p. Forecasts
Forecasts Are No Substitue for Calculated Values
Two Distinct Approaches to Forecasting

h2. What Are the Basic Rules of Forecasts
  • 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.
h2. Forecasts Are No Substitue for Calculated Values

Recall our earlier example…

POS forecasts were used to calculate the replenishment forecast at the DC


Disconnect

h2. Two Distinct Approaches to Forecasting

Qualitative Methods

  • Used when situation is vague & little data exist
    • New products
    • New technology
  • Involves intuition, experience
  • ex., Forecasting sales to a new market

Quantitative Methods

  • Used when situation is ‘stable’ & historical data exist
    • Existing products
    • Current technology
  • Heavy use of mathematical techniques
  • ex., Forecasting sales of a mature products

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