Question

Forecasting and demand management

1. Forecasting is a prediction of the future for items of interest. What are some of the challenges associated with using predictions to determine future activities?
2. The second law of forecasting is: Detailed forecasts are worse than aggregate forecasts. Why is this critical to understand this when assessing forecasting validity?
3. Provide an example of independent demand, dependent demand, and the relationship between the two.
4. Within a supply channel model, why are forecasts important, and how should they be utilized with upstream and downstream suppliers and customers?
5. When considering Event horizons, outline how weather forecasting fits into the 3 ranges
6. Is predicting the Stock Market based on seasonal timed behaviors, cyclical behaviors, or irregular variations?

Answer 1

the challenges associated with using predictions to determine future activities:-

• the forecasting is itself a prediction and there are many challenges when we predict something the major challenge are the tools there are no common tools to predict. as there are many managers involved in predicting or forecasting so there are amny interpretations of an information or trend.
• moreover with the intrusion of technology in every task of the management but still managers do not use the statiscall tools instead they use behavioural or qualitative analysis to forecast.
• for a small size organization it is easy to collect data and perdict but it becomes complex task for the organization to collect and predict data. and when we talk about large scale business it even more complex to collect data for each product from each region and then predict future activities.
• there are tools to predict the data that are collected currently but there are no tools to store the data of the past that may help to predict the future activity more precisely.
• predictions are done for the near future they cannot be done for the a far future as it is hard for anyone to predict the future potential of anything. future is unpredictable.

the forecast works on 2 rules-

1. the forecaste is for closer future

2. forecast is more accurate when made for groups

when we predict the forecast for the longer period of time we need to have a aggregate forecast. but generally keeping in mind the changing trends we do not predict for the far future, we predict for the near future so we need deatiled forecast. It is said that we should forecast for the shorter period. when we predict for the shorter period detailed forecast is made. It is done for one basic reason that when the time horizon is bigger the detailed forecast could ead to confusion but aggregate forecast would be specific. as the time horozon increases the ROI decreases. its hard to understand the when we need forecast validity beacuse at that time the forecast that shows more of figures and detailed view is preffered over the forecast that has specific predictions and specific approach but parctically it should be opposite.

Independent demand- it is the demand for the finished goods like computer, bicycle tv, fridge etc,

dependent demand- it is the demand for the product or components to assemble them into a product, keyboard, chips, etc.

the relationship between the dependent and independent demand is that once you buy an item that belongs to the independent category purchasing it whole again is not possible but you can purchase a part of it and again make it work through.