Steps in Production Forecasting Process
Steps in a production forecasting process are depicted in the image below.
Image Credits © Moon Rodriguez.
The stages or steps in a production forecasting process are listed as follows:
- Fix the forecasting objectives.
- Decide what to forecast?
- Determine the time frame.
- Collect the data for forecasting.
- Select the forecasting model
- Build and test the forecasting model.
- Prepare the forecasts.
- Prepare the forecasts.
- Compare events with the forecasts.
Now let's discuss each step of production forecasting process one by one.
1. Fix the forecasting objectives
The production manager must first fix the forecasting objectives. That is, he must know exactly why he is doing production forecasting. Forecasting objectives answers the question like, why are we forecasting? Here, the answer to this question may be; we are doing forecasting to help us in marketing planning, or we are doing forecasting to help us in the plant capacity planning, etc. If we know exactly why we are forecasting, then we can collect proper data for that purpose. This will result in more accurate forecasting.
2. Decide what to forecast?
After finding out why to forecasts, the production manager must answer the question, what to forecast? That is, are we forecasting the volume of production, value of sales, the amount of finance required, number of workers required for future production and so on. The production manager must decide the units of measurement such as volume, value, etc. for forecasting.
3. Determine the time frame
The production manager then fixes or determine the time frame for the production forecast. That is, he must answer the question, for what period are we making a forecast? In other words, whether the forecast is made for a week, a month, three months, six months, one year or more.
4. Collect the data for forecasting
The production manager must fix the database. That is, he must decide from where he will collect the data for forecasting. In other words, he must decide whether to collect data from internal sources or external sources. He must also decide whether to use quantitative data or qualitative data. So, in this fourth step, the production manager decides about the type of data which he will use for forecasting.
5. Select the forecasting model
In this step, the production manager must decide the method or model of forecasting which he will use. There are many methods of forecasting. There are qualitative and quantitative methods. The qualitative methods such as Nominal Group Technique, Delphi technique, etc. are more suitable for new products. However, for existing products, with stable demand, quantitative methods such as Simple Moving Average Technique should be used.
6. Build and test the forecasting model
In this step, the production manager uses a part of the available data to build a forecasting model. A model is a statistical or mathematical formula. He uses the other part of the data to test the model. That is, he will apply the formula and see whether it gives the accurate answer or not. If not, he will make necessary changes to the formula until he gets satisfactory results.
7. Prepare the forecasts
After selecting the forecasting model, the production manager must prepare the forecasts for a specific period for the particular product. The period may be weekly, monthly, etc.
8. Present the forecasts
In this step, the production manager gives or presents the forecasts to those who will use it. He must also supply detailed information about, how the forecast was made, from where the data was collected, what are the assumptions of the forecasts, etc.
9. Compare events with the forecasts
Here, in this final step, the actual events or performance is compared with the forecasts. The deviations are corrected, wherever possible or the forecasts are modified.