Operations Management for MBAs, 5th Edition

CHAPTER 8 SUPPLEMENT

Forecasting

FORECASTING PURPOSES AND METHODS

There is usually a close relationship between competing successfully and being able to predict key aspects of the future accurately. Clearly, it is not practical to try to plan without some prediction of the future. Even planning a simple party requires predicting how many people will show up, how much they will eat and drink, what kind of snacks and beverages they will enjoy, and how long they will stay. A business introducing a new service needs to predict the demand for the service, how prices and advertising will affect this demand, how competitors will respond, and so on.

Thus, we see that an accurate estimate of demand for the output is crucial to the efficient operation of the production system and, hence, to managing the organization's resources. For example, a supermarket chain that is contemplating the addition of a new store must have a reasonable estimate of demand in order to determine how big the store and the parking lot should be, what ancillary departments (such as a bakery, pharmacy, deli, and bank) should be included, and how many shopping carts and check-out lanes should be specified in the plans. Once the facility is constructed, a more specific, perhaps weekly, forecast of demand will be needed so that the manager will be able to schedule workers and order merchandise. The same is true for ...