Forecasting is to ensure customer satisfaction. It’s essential that the company understands what customers want and the amount they require. If an organization can predict the future demand for its products, making a manufacturing plan is made simpler and more cost-effective.
The process of analyzing and interpreting current and historical data to determine future trends. It uses the use of a systematic and scientific approach is known as forecasting. Thus the process of estimating future demand of a product by an amount or value is called demand forecasting.
The goal of forecasting is helping the company manage its present as well as make plans for the future. Just by looking at the most likely future demand patterns. But, forecasting does have limitations. For instance, we can’t determine a pattern for technology or products. If there is any existing patterns or information.
Business Forecasting Goal
The purpose for business planning is that it be as precise as much as is possible. It is to ensure that the resource planning can be carried out efficiently and thus, maximize efficiency of resource. Forecasting for business helps establish the relationship between many variables that are involve in the production for the item. Each forecasting scenario has to evaluate independently, along with forecasting methods.
The classification of business forecasting
Forecasting for business has many dimensions and variations based on the use and its application. The three most common types are:
Economic Forecasting:
These forecasts are link to the wider macro-economic as well as micro-economic conditions. However that prevail in the present business environment. It involves forecasting the rate of inflation, interest rate and GDP. at the macro-level and the operation of specific industries at the micro-level.
Demand Forecast:
The company conducts analyses of their database or conduct a market survey. In order to comprehend and anticipate the future demand. Operational planning is using demand forecasting.
Technology Forecast: This type can be used in order to predict the future technological advancement.
Timing line in Business Forecasting
Forecasts and their conclusions is valid within a particular time frames or horizons. The time horizons are classified in the following manner:
Long-Term Forecast:
This kind of forecast is create with a duration greater than 3 years. These types of forecasts are employe to plan long-term strategic plans. Regarding capacity planning, expansion planning and so on.
The Mid-Term forecast:
This kind of forecast is design to cover a period of 3-months to three-years. These kinds of forecasts are used for in layout and production planning along with sales and marketing plans. In addition to cash budgeting as well as capital budgeting.
Short-Term Forecast:
This kind of forecast is comprise of an interval of time ranging from 1 day up to 3 months. These kinds of forecasts are employ for day to day manufacturing planning, inventory management. As well as workforce application planning etc.
Qualities of a Good Forecast
A sound forecast will give enough time and a reasonable accuracy. It will also give reliability in order to prepare for the anticipated demand. A reliable forecast should be easy to comprehend and include details that are relevant to production (e.g. units, etc.)
Forecasting Methods
Forecasting is classified into two main categories: methods and routes. Techniques are further divide into qualitative techniques and quantitative methods. Quantitative techniques include the time-series method such as regression analysis, regression analysis, etc. While qualitative methods are based on Delphi methodology, supreme judgement. Forecasting routes is based on bottom-up route and top-down route.
Capacity Planning
The design and planning of the production system includes input requirements, process of conversion and output. In addition to the forecast, long-term planning, the organization must undertake capacity planning.
Capacity is the capacity to reach storage, produce or even store. In an organization capacity, it is the capability of a system to generate output within a certain timeframe. In the field of operations, capacity management is the quantity of the input resources. That are in place for producing output in a given time.
In general, the term capacity refers to the maximum production capacity. This is achievable in a regular working time.
Capacity planning is crucial for determining the optimal use of resources. And is a crucial part of the in making decisions. Such as expanding existing processes, modifying existing product lines, or the introduction of new products, etc.
Strategic Capacity Planning
A method to define and quantify the production capacity is known as strategic capacity plan. The strategy of capacity planning can be a method of planning to manage capital-intensive resources like machines, plant or labor.
Planning for capacity in the strategic direction is crucial. Because it aids the business in meeting the needs of the future of the company. The planning process ensures that operating costs remain at the lowest feasible level, without impacting the quality. This ensures that the business remains in the market and is able to meet its long-term growth strategy.
Capacity Planning Classification
Capacity planning that is based on the timeline can be classified into three categories:
- long range
- medium range,
- short range.
Capacity for Long-Term:
Long range capacity of an enterprise is contingent on other capacities. Such as production capacity, design capacity sustainable capacity, and effective capacity. Capacity for design refers to the highest output achievable as stated by manufacturers of equipment in ideal working conditions.
The production capacity is the maximum production. Thus that can be achieve by equipment in normal operating conditions or at any time of the day.
The term “sustainable capacity” refers to the most efficient production rate that can be achieve in the real world. And taking into consideration normal breakdowns and maintenance.
Achievable capacity is ideal production rate under pre-defined jobs and work schedules, regular breakdown or maintenance, etc.
Medium Term Capacity:
Strategic capacity planning carried out by organizations. For between 2 and three years in an interval is known as medium-term capacity planning.
Short Long Term Capacity:
The strategy planning that an organization undertakes on a daily, weekly or quarterly period is known as short-term capacity planning.
The purpose of Capacity Plan
The main purpose in capacity-planning is to satisfy the present and future demand with the least amount of waste. The three kinds of capacity planning that are based on the goal are capacity planning. For lead along with lag strategy and the match plan.
Factors that affect capacity planning
Effective capacity planning depends on factors like the production facility (layout design, layout, and place of operation). As well as the product line or matrix production technology. Also Human capital (job design, pay) and operational structure (scheduling and quality assurance). As well as external structures (policies, safety regulations).
Forecasting vs Capacity Planning
There is a possibility in which capacity planning based using forecasts could not match. For instance, there may be a situation in which the demand exceeds production capacity. In this scenario, a business must meet its requirements by purchasing goods from the outside. If the demand is greater than production capacity, company is able to utilize the capacity of its manufacturing to maximum. If demand is lower than production capacity. It is possible to cut production or even share the production with other companies.
