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Forecasting in Business

Many companies use forecasting to determine product/service demand. However, forecasting can be very inaccurate. Some companies report forecast errors as high as 30% - 40%. Your company current uses a time series analysis to predict demand.
1. Do you feel that your company would benefit from using forecasts even if they experienced forecasting errors in the 30% - 40% range?
2. Discuss some potential causes of forecast errors.
3. Provide an example of a product/service that your company could provide in which a time series analysis would be appropriate.
4. Provide an example of a product/service that your company could provide in which a time series analysis would not be appropriate.
5. How would implementing a JIT system help alleviate the need for a highly accurate forecasting system?

Solution Preview

1. My company would benefit from using forecasts even if they experienced forecasting errors in the 30%-40% range. My company makes plastic molded toys. It is important to know which types of toys will sell. Even if the forecasts have between 30% and 40% errors the information will be useful in production planning. In my company, the forecasts are made based on information received from distributors. In several years, the forecasts have been off target by more than 50%. The result is large stocks of unsold inventory that leads to losses for the company. From this point of view even if the forecasts are off by between 30% and 40% they provide a good guide for production planning.
2. Some potential ...

Solution Summary

The answer to this problem explains issues relating to forecasting in business. The references related to the answer are also included.

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