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Sales Forecasting

Sales Forecasting

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Sales Forecasting

Sales Forecasting

1. Key Concepts

Sales forecasting is the process of organizing and analyzing information in a way that makes it possible to estimate future sales.

Sales Forecasting 2. . Demand Uncertainty Elements of demand uncertainty: ‡ timing of order ‡ size and composition of order ‡ data accuracy on: ‡ products required ‡ delivery points ‡ timing. Principal Issues 2.1.

. Principal Issues 2. Components of Demand Components of demand: ‡ Trend: ‡ growth or decline over an extended period of time ‡ Cyclical: ‡ wavelike fluctuation around the trend ‡ Seasonal: ‡ pattern of change that repeats itself year after year ‡ Random: ‡ not accounted for by the other components (trend.Sales Forecasting 2. or seasonal). cyclical.2.

Sales Forecasting 2. and consumer interviews ‡ Delphi technique: ‡ a body of experts. Sales Forecasting Methods (1) Qualitative sales forecasting methods rely more on judgment and intuition than on historical data: ‡ surveys of buyer intentions. consulted separately. .3. such as questionnaires. Principal Issues 2. telephone polls. is asked to arrive at a consensus opinion ‡ sales force composite: ‡ based on the combined estimates of experienced sales personnel.

Sales Forecasting Methods (2) Quantitative sales forecasting methods make use of past data to predict future sales: ‡ market tests to gauge consumer response (usually to a new or modified product) under actual conditions ‡ trend projections/analysis (also called Time Series) involves forecasting sales based on the historical relationship between sales and time.3. which is expressed as a growth rate (percentage) and each measure is plotted on a growth curve: .Sales Forecasting 2. Principal Issues 2.

sales) as a result of changes in one or more independent variables (i.e...3. advertising) .e. Principal Issues 2.Sales Forecasting 2. Sales Forecasting Methods (3) ‡ moving average: all observations are given equal weight and only a few of the previous observations are considered ‡ exponential smoothing: gives greater weight to more recent observations and considers all past observations ‡ regression analysis can be used to forecast a dependent variable (i.

3.Sales Forecasting 2. a reduction in the supply of tin cans produced by the metal industry would effect the supply of canned tuna that would be produced by the fish canneries). .. Principal Issues 2.e. Sales Forecasting Methods (4) ‡ input-output models forecast the impact of the change in the outputs (sales) of one industry on the out-outs of the purchasing industry (i.

. and Minitab ‡ forecasting packages specifically designed for forecasting applications. MYSTAT. Sales Forecasting Methods (5) Computerized forecasting models include: ‡ spreadsheets. that can perform calculations automatically with changes in entered data ‡ forecasting application software: ‡ statistical packages.3. such as Forecast X. Principal Issues 2. SAS.Sales Forecasting 2. Forecast Pro. such as Microsoft Excel (with the Data Analysis Toolpack) and Lotus 123. such as SAS.

Principal Issues 2.4.Sales Forecasting 2. Major Uses of Sales Forecasts (1) Sales forecasts are used for: ‡ production: ‡ production scheduling ‡ inventory control ‡ purchasing: ‡ determination of procurement requirements ‡ scheduling of purchases to get favorable prices .

Major Uses of Sales Forecasts (2) ‡ marketing: ‡ formulation of marketing strategies for products ‡ setting of sales quotas ‡ scheduling of advertising expenditures and sales promotions ‡ personnel: ‡ planning of manpower requirements ‡ finance: ‡ establishing of operating budgets ‡ cash flow planning ‡ capital budget / expenditure decisions . Principal Issues 2.Sales Forecasting 2.4.

Principal Issues 2. Major Uses of Sales Forecasts (3) ‡ top management: ‡ overall planning and control of operations of the company. .Sales Forecasting 2.4.

5.Sales Forecasting 2. Advantages Forecasting (1) Accurate sales forecasting offers several advantages: ‡ reduced excess inventory ‡ fewer stock shortages which result when demand exceeds supply ‡ fewer unnecessary production line changes to fulfill unanticipated demand ‡ less overtime hours through improved predictions in personnel requirements . Principal Issues 2.

5. Advantages Forecasting (2) ‡ improved customer service levels as supply and demand balance ‡ more economic purchasing power. . Principal Issues 2.Sales Forecasting 2.

Sales Forecasting 2.6. .e. Principal Issues 2. Forecast Accuracy Factors that influence forecast accuracy: ‡ availability of product demand history ‡ capability of computer system ‡ other available history (i. Distribution and Manufacturing). economic indicators) ‡ responsibility for forecasting: a team effort is required (Sales.. design changes. changes in customer base. promotional actions. new products.

reviewed and revised? ‡ What would constitute an acceptable tolerance of forecast error? .Sales Forecasting 3. Checklist Sales forecasting considerations: ‡ What are the items to be forecast? ‡ How far into the future should the forecast extend? ‡ What is the length of the time period for stating the forecast quantity? ‡ How frequently should the forecast be made.

Sales Forecasting 4. . the forecasting model will show a distorted view of the past. Suggestions (1) Prior to forecasting sales. scrub the data by removing the effects of unusual events that are not likely to happen again. Otherwise.

. Suggestions (2) Examples of problems that may require data adjustments: ‡ ‡ ‡ ‡ unusual weather addition or loss of major customers special promotions changes in price or package size.Sales Forecasting 4.

.Sales Forecasting 4. Suggestions (3) Determine the most accurate forecasting method: ‡ regularly use a number of different methods to generate forecasts ‡ maintain historical accuracy information on each method ‡ use the most accurate method to generate ³official´ forecasts.

.Sales Forecasting 4.and C-items with a significant deviation between forecast and actual demand need to be reviewed by management. Suggestions (4) Make an ABC-analysis of the items to forecast: ‡ A-items are reviewed each month by management ‡ only those B.

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