For an organization to provide customer delight it is important that the organization can understand what customers want and how much do they want. If an organization can gauge future demand, then manufacturing plan becomes simpler and cost-effective. The process of analyzing and understanding current and past information to understand the future patterns through a scientific and systemic approach is called ‘Forecasting’. And the process of estimating the future demand of product in terms of a unit or monetary value is referred to as demand forecasting.
The purpose of forecasting is to help the organization manage the present as to prepare for the future by examining the most probable future demand pattern. However, forecasting has its constraints, for example, we cannot estimate a pattern for technologies and product where there are no existing patterns or data. In supply chain a large number to process and people are involved between the suppliers and end-customers. This leads to an inaccurate forecasting and inventory at supply chain levels. It is important to it is essential that the forecasting is made at the consumers level to improve accuracy and communication.
The very objective of forecasting in Operations Management is to be as accurate as possible, so that planning of resources can be done in a very economical manner and therefore, propagate optimum utilization of resources. Forecasting helps in establishing relationship among many variables, which go into manufacturing of the product. Each forecast situation must be analyzed independently along with the forecasting method.
Economic forecasting is related to the broader macro-economic and micro-economic factors prevailing in the current business environment. It includes forecasting of inflation rate, interest rate, GDP, etc. at the macro-level and working of particular industry at the micro-level. Organizations conduct analysis on its pre-existing database or conduct market survey so as to understand and predict future demands. Operational planning is done based on demand forecasting.
Technology Forecasting: This type of forecasting is used to forecast future technology upgradation requirements of an organization. This forecast would consider the present technological standing of the organization and the future technological scenario to predict any upgradation changes that may be required in the future.