What is Production Forecasting? Definition
The definition of production forecasting is quoted in following statement.
"Production forecasting is estimating the future demand for products and services and the resources necessary to produce the output.."
Image Credits © Steve Pepple.
Now let's discuss and understand the meaning of production forecasting.
Meaning of Production Forecasting
Production forecasting means to estimate the future demand for goods and services. It also estimates the resources which are required to produce those goods and services. These resources include human resources, financial and material resources. So, production forecasting means to estimate the 6M's of management.
The production manager first estimates the future market or demand for the companies goods and services. Then he estimates the Men (human resources), Money (financial resources), Materials, Machines and Methods, which will be required to produce those goods and services.
Production forecasting estimates the future technological developments. It estimates the customers needs and preferences along with competitors' strategy in the future. So, production forecasting is an estimation of a wide range of future events, which affect the production of the organization.
First production manager studies all the past and present events. Then he makes estimations about the future. So, most of the production forecasts are made for existing goods and services. However, some new products will be introduced into the market in an upcoming future. Forecasts for these new products are called predictions.
Production forecasting requires a lot of skill, experience and judgement of the production manager. He must use many statistical techniques and tools to make his forecasts accurate.
Production forecasting is a combination of objective calculations and subjective judgements. That is, it involves systematic collecting and analyzing past and present data. This is done objectively with the help of statistical techniques and tools. Production forecasting also involves subjective judgement of the production manager. That is, he has to use his intuition and judgement for forecasting.
The success or failure of an organization depends upon the accuracy of its production forecasts. All the plans and strategies of the organization are based on the production forecasts. Production forecasts help to reduce the business risks.