Forecasting With Indices

Forecasting With Indices QRB/501 August 8, 2011

Forecasting With Indices Forecasting With Indices

Businesses use forecasting to estimate future market value and manage the ambiguity of the future. Forecasts support short-term and long-term decision-making by providing valuable information used to make decisions. The two methods of forecasting are the quantitative method (objective approach) and the qualitative method (subjective approach). Quantitative forecasting uses historical data to predict future data points. The time series method of forecasting is a quantitative method that uses the time series of past data of the variable for forecasting. Qualitative forecasting uses the judgment of expertise in an appropriate field to generate the forecast. University of Phoenix Summer Historical Inventory Data Index When forecasting for inventory need, indices are beneficial. As a business matures, and has the chance to gather monthly data to use the information in the form of an index to examine trends and forecast future need. According to Sevilla and Somers (2007), Quantitative indexes and rating systems are used to give information about general trends and to allow us to make comparisons and judgments (p. 133). By examining the graphed version of University of Phoenix Summer Historical Inventory Data, one can see definite trends for seasonal comparison. Summer Historical Inventory Data Typical Seasonal Demand for Summer Highs Demands (in units) Month 1 2 Year 1 18,000 19,800 Year 2 45,100 46,530 Year 3 59,800 30,740 Year 4 35,500 51,250 Year Forecast 39,600 37,080

Forecasting With Indices 3 4 5 6 7 8 9 10 11 12 Avg. 15,700 53,600 83,200 72,900 55,200 57,350 15,400 27,700 21,400 17,100 22,100 41,350 46,000 41,800 39,800 64,100 47,600 43,050 39,300 10,300 47,800 73,890 60,200 55,200 32,180 38,600 25,020 51,300 31,790 31,100 34,400 68,000 68,100 61,100 62,300 66,500 31,400 36,500 16,800 18,900 30,000 59,210 64,374 57,750 47,370 56,638 29,855 39,638 27,323 19,350

S umm er Historical Inventory D ata

300,000

250,000

200,000 Amount

Year 4 Year 3 Year 2 Year 1

150,000

100,000

50,000

0 1 2 3 4 5 Mo nths 6 7 8 9 10 11 12

Forecasting With Indices

S umm er Historical Invento ry D ata

300,000

250,000

200,000 Amount

Year 4 Year 3 Year 2 Year 1

150,000

100,000

50,000

0 1 2 3 4 5 Mo nths 6 7 8 9 10 11 12

The graphed data shows that this company starts preparing for summer by the third month with increases in inventory peaking around May. To ensure that this company prepares for the summer months, it needs to be sure to increase units bought to accommodate increase of sales during months five through seven. According to the graph, there is a decrease during the last half of the year. Obviously, the summer historical data will show a decrease during the winter months. Inventory forecast for next year Although the summer inventory has grown for the last four years, the growth varies from month to month annually. The monthly forecast for next year is the average of the four years monthly actual. Each monthly forecast is year one monthly actual plus year two monthly actual plus year three monthly actual plus year four monthly actual, divided by four.

Forecasting With Indices Conclusion Companies use results from indices and historical data to make important buying decisions. Indices are beneficial because they keep track of numbers over time. Calculating and retaining the numbers over time can help the businesses predict future need by examining past sales figures.

Forecasting With Indices

References Sevilla, A., & Somers, K. (2007). Quantitative Reasoning: Tools for Today's Informed Citizen Emeryville, CA: Key College Publishing. University of Phoenix. ( 2011). Summer Historical Inventory Data. Retrieved from University of Phoenix, QRB/501 website.