Operations Management Forecasting (1)

Operations Management: Demand Forecasting

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Operations Management: Demand Forecasting

Demand forecasting is usually a difficult undertaking especially for a newly established firm. Nevertheless, it is vital for any firm to have good methods of forecasting demand. The essence of demand forecasting is not trying to predict the future. Instead, demand forecasting is a method that helps a firm develop a financial model, which it can improve with time. Short-term demand forecasting refers to a forecasting for the demand in the near future in a detailed manner to facilitate stock-taking and account planning. Short-term demand forecasting is characterized by high volatility of data. Therefore, short-term demand forecasting does not need sophisticated forecasting methods. In fact, use of sophisticated forecasting methods in short-term demand forecasting may be counterproductive as they may yield highly inaccurate results. Therefore, when undertaking short-term demand forecasting, one should assume that external factors, such as the prevailing competitive and economic environment, would remain the same (Stevenson, 2018).

On the other hand. Long-term demand forecasting is used to provide demand forecasts of three to five years into the future. This enables an organization to ensure its long-term plans align with business goals. Therefore, small firms usually focus on profit, growth, or both profits and growth. The complexity of developing long-term forecasts is the major challenge that firms may face during the development of the forecasts. The basic information and situation facing an organization would determine whether to use long-term or short-term forecasts. For instance, a fashion brand that intends to design various products to a client would use short-term demand forecasts. The firm can acquire information on the current trends in the market and determine the designs it should supply to the client.

In conclusion, forecasting plays a major role in ensuring processes of an organization progress without a hitch. It enables the organization to plan how it would meet future demand of its products (Gilliland, Tashman, & Sglavo, 2015). Therefore, it may be used to chart the growth and expansion of the organization.

Reference

Gilliland, M., Tashman, L., & Sglavo, U. (2015). Business forecasting: Practical problems and solution. Hoboken, NJ: John Wiley & Sons.

Stevenson, W. (2018). Operations management (13th ed.). New York, NY: McGraw-Hill Irwin.