BUS4098 Week 2

Demand Forecasting

The two most important items to keep in mind as you work through the simulation are also the two

most important things that businesses deal with every day. The �rst is trying to come up with accurate

ways of forecasting demand. The second is the way in which the accrual accounting system distorts

information and sometimes hides critical facts from the management and others.

Forecasting demand is more than just taking the numbers from the fourth page of the Footwear

Industry Reports (FIR) and dividing them by the number of teams in the industry. However, that can be

the starting point. Demand forecasting is all about where you go from there. Accurate demand

forecasting is critical to any business that has lead time in providing its goods or services. If you

underestimate demand sales, pro�ts are lost and your rivals bene�t when they sell to customers who

should have purchased from you. If you overestimate, you will end up with a bulging warehouse and no sales revenues to pay for making all those pairs of unneeded shoes.

Re�ning a demand forecast requires a �rm to estimate how average sales projections will change

based on decisions that the �rm makes and on the decisions that rival �rms make in the same market. It

is relatively easy to know your own �rm's decision, but you can only estimate the choices of rivals.

Prior to inexpensive tools of today, performing sophisticated forecasts of alternative demand

scenarios was too expensive for all but a few �rms. Today everyone, including your footwear company,

can have a sophisticated demand forecasting tool for estimating a wide range of potential decision impacts on demand.