What Affects Forecasts Other Than Past Usage
Most computers systems calculate forecasts of future demand based on past sales or usage. The theory is that what you sold or used in the past is a good indication of what you will sell or use in the future. But there are other factors that can affect future demand of products such as:
- Promotions or events
- Customer estimates of future needs
- Salesperson and management expectations of changing market conditions
Promotions or Events
Promotions and events temporarily affect the sales or usage of a product. Promotions include short-term price reductions, demonstrations and special advertising. Events cause a temporary increase or decrease in usage but do not occur at the same time each year. Therefore, they cannot be forecast using traditional seasonal forecast formulas. When dealing with promotions or events:
- Develop a list of the promotions and events that you think will affect the future demand of products
- Estimate the increase or decrease in usage resulting from each promotion or event
- Record the actual results after the end of a promotion or event. Did it affect demand as you thought it would? This information will help you adjust future forecasts to consider past results of this promotion or event.
- Adjust out the effects of the promotion or event from usage history. You do not want this temporary increase or decrease in demand to affect forecasts in the immediate future.
If a customer has the ability to estimate their future needs of products, at the beginning of each month
- Compare the customers estimate to their actual purchases
- Report back the results to the customer. This may help them provide more accurate predictions of their needs in the future. Also, consider offering incentives to customers for more accurate forecasts
- If a customer’s estimates prove to be accurate, add their predictions to your demand forecast. However, when you add a customer’s predictions to your forecasts, be sure not to include their purchases in your usage history. After all, you don’t want to consider their purchases twice: once in a formula based on past usage history and a second time in their predictions.
Salespeople and Management
The process in evaluating predictions from salespeople and management is similar to the process of considering estimates from customers:
- Collect estimates from each source of information
- Compare each prediction to actual sales or usage
- Report back the results to the source of information
This will help to identify which salespeople or members of management can provide accurate information. Use this data to determine the best possible estimates of future demand of products!