One of the steps , nay the very first one, in the process of management is planning .Planning is understood as the process of setting goals and choosing the means to achieve these goals. Planning is essential for, without it, managers cannot organize people and resources effectively.
Meaning and Definition
Forecasting is fundamental to planning .Forecasts are statements about future, specifying the volume of sales to be achieved and equipment , materials and other inputs needed to realize the expected sales .A popular definition of forecasting is that, it is estimating the future demand for products and services and the resources necessary to produce these outputs. Starting point in forecasting is sales or demand forecasting. Sales forecasts trigger all other forecasts in production function.
Need for Sales Forecasting
Following are some of the reasons, why operations managers must develop forecasts:
1. New Facility Planning : Strategic activities such as designing and building a new factory or designing and implementing a new production process, might take a long time, say five years. This requires long range forecasts of demand for existing and new products, so that, operations managers can have the necessary lead time to build the processes to produce the products and services when needed.
2. Production Planning : The rate of production must vary to meet the fluctuating demand from time to time (usually6 month to month) .A time period of several months may be necessary to change the capacities of production processes .Intermediate range demand forecast, helps operations managers get the lead time necessary to provide the capacity to produce the products to meet the variable monthly demands.
3. Work Force Scheduling: Where the demand for products and services varies from week to week, it is necessary to vary the work force levels to meet the varying demands by using overtime, lay-offs or hiring. For this, operations managers need short-range demand forecasts to enable them to have the lead time necessary to provide work force the changes to produce products or services to meet the weekly demands.
4. Financial Planning: Sales forecasts are the driving force in budgeting is used by many operations managers to plan and control the financial performance of their production department.
Without proper planning no area of operations, consequent production, Marketing cannot sustain competition and growth. Therefore the managers must possess the necessary skills and techniques to do a proper and realistic planning without which there cannot be any growth.