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Forecasting

Katrina A. Zalatan & Randall G. Chapman
Your LINKS is evaluated on financial, operating, and customer-related results. Planning is the process you go through to make decisions to achieve these results. Forecasting is a critical part of the planning process. This tutorial is divided into two parts. Each part ends with a "hands-on" exercise. Here is an outline of tutorial and the questions that comprise each exercise: Starting On Page: PART 1: What is Forecasting?
Exercise Question: 1 2 3 4 5 Topic: Inputs to forecast sales Input sources Inputs to forecast parts Forecast accuracy implications Gross margin forecasting

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Page: 3 3 3 3 3

PART 2: How Does Sales Forecasting Relate to Other Supply Chain Management Decisions? 7
Exercise Question: 1 2 3 4 5 Topic: Costs of underestimation Underlying demand patterns Forecasting assumptions Safety stock Costs of overestimation Page: 8 8 9 9 9

Zalatan & Chapman: LINKS Tutorial #4

Page 1

Revised November/2012

Product 1 Total Sales Volume. You'll create the following forecasts1: Forecasting Decisions Short-Term (i.. You were 100% accurate. forecasting refers to your ability to predict sales volumes. That's the ideal. Channel #1 Product 1 Product 2 Region 1 Firm Month Region 2 Region 3 …sales forecasts for next round ("the short-term") by channel. you sell exactly that. What is Forecasting? In LINKS. great forecasts are very close estimates of what actually happens in the future. Channel #2 Product 1 Product 2 Region 1 Region 2 Region 3 Long-Term (i. you forecast that you'd sell 100 units of product 1-1 in channel 1 in region 1 in round 4. Every simulation round. 1 Zalatan & Chapman: LINKS Tutorial #4 Page 2 Revised November/2012 . Product 2 2-Rounds Hence 3-Rounds Hence In all cases.1.. Some LINKS Simulations require only short-term sales volume forecasts. For example.. by product and… …the next two rounds after that ("the long-term") by product. and when round 4 came around. Next Round) Sales Volume Forecast. with consequent accuracy of less than 100%. by region. you’ll prepare sales volume forecasts for each of your products.and 3-Rounds Hence) Sales Volume Forecasts Total Sales Volume.e. Other LINKS Simulations require both short-term and long-term sales volume forecasts. 2. Next Round) Sales Volume Forecast.e.e. Short-Term (i. But forecasts could also be too high or too low in varying degrees.

customers should drive your generate demand strategies and the design of your entire supply chain. needs.2. Supply Chain Management Strategies Manufacturing/Finished Goods (FG) Inventory Procurement Distribution Transportation Information Technology Zalatan & Chapman: LINKS Tutorial #4 Page 5 Revised November/2012 . Anticipated Competitors' Strategies Your Sales Forecasts Your Firm's Plan Generate Demand Strategies Product Offering Service Offering Wants. Generate demand strategies should also drive your sales forecasts: Customers/Markets Size & underlying demand trends 1. & priorities 2. How does sales forecasting relate to other supply chain management decisions? Each simulation round. Ideally. you and your team will discuss and develop strategies (broad courses of action) and decisions for each supply chain management area in LINKS: Product Development Procurement Manufacturing Distribution Transportation Service Generate Demand Information Technology.

below): SALES FORECASTS Starting FG and parts inventories Inventory strategies (safety stock policies) Finished Good Production Historical sales information ("the base") Vendor delivery & parts failure rates REPLACEMENT PARTS FORECASTS Component Procurement Accurate sales forecasts enable all supply chain elements to work together as an integrated system.Sales forecasts have implications for many other supply chain management decisions upstream (shaded diamond boxes. something critical to the success of your company.A LINKS Case. Zalatan & Chapman: LINKS Tutorial #4 Page 6 Revised November/2012 . So what exactly is the impact of sales forecasting? Explore this by working through EXERCISE 2 .