Question

what is the strengths and weaknesses of demand planning forecasting system? Do you believe the weaknesses can ever be overcome? If so how? If not, why not.

The issues could be but not limited to management, corporate culture, or the nature of what is being forecast.

Answer 1

Organizations use forecasting methods of production and operations management to implement production strategies. Forecasting involves using several different methods of estimating to determine possible future outcomes for the business. Planning for these possible outcomes is the job of operations management. Additionally, operations management involves the managing of the processes required to manufacture and distribute products. Important aspects of operations management include creating, developing, producing and distributing products for the organization.

Advantages of Forecasting

An organization uses a variety of forecasting methods to assess possible outcomes for the company. The methods used by an individual organization will depend on the data available and the industry in which the organization operates. The primary advantage of forecasting is that it provides the business with valuable information that the business can use to make decisions about the future of the organization. In many cases forecasting uses qualitative data that depends on the judgment of experts.

Efficient Supply Chain Scheduling- If you can forecast not only the amount of sales you’ll have but also when they are likely to occur, you can better schedule your production, warehousing and shipping. This helps you plan scheduled maintenance shutdowns away from busy sales periods and have adequate materials and labor on hand throughout the year. When you know about a coming spike in demand, you can contact your suppliers to make sure they have enough materials to keep your production lines running. You also can contact customers who don’t have time-sensitive inventory needs and ask them to accept orders earlier or later than a specific time when you know you’ll be busy. This also helps you better manage your warehouse and shipping needs.

Better Labor Management- Having too few workers to handle a spike in sales orders can lead to slow order fulfillment, pushing your customers to find other vendors to fill their orders. Even if this is only a temporary problem, once a customer buys from another vendor, you might lose that customer for good. Adding inadequately trained workers can increase quality control problems and product returns or a loss of customers. Having too many workers idle wastes money, and each extra worker on your staff increases your risk of a workers’ compensation claim.

Adequate Cash Flow- Knowing the peaks and valleys of demand helps you better manage your cash flow, ensuring you have enough money on hand to pay bills. Poor cash flow management can lead to an inability to pay vendors and suppliers on time, leading them to cut you off. An inability to make your product leads to an inability to supply your customers. Demand forecasting lets you reserve cash or negotiate bridge loans or credit terms in advance.

More Accurate Budgeting- In addition to your master budget, you should create cash flow, overhead, manufacturing, labor and marketing budgets. The more accurately you can forecast demand, including the timing of your sales, the more accurate you can be with budgeting. If you have a flexible budget, such as tying marketing spending to sales, you can shift paid marketing efforts such as advertising and free marketing efforts such as a social media campaign between slow and busy periods.

Disadvantages of Forecasting

It is not possible to accurately forecast the future. Because of the qualitative nature of forecasting, a business can come up with different scenarios depending upon the interpretation of the data. For this reason, organizations should never rely 100 percent on any forecasting method. However, an organization can effectively use forecasting with other tools of analysis to give the organization the best possible information about the future. Making a decision on a bad forecast can result in financial ruin for the organization, so an organization should never base decisions solely on a forecast.

There is no weakness that can't be ovecome. The thing is just that a little work is needed for the weekness to overcome. With little changes the forcasting can be more accurate. But there is always a chance of percentage error in that, as no human made thing is error less. With more accuracy of forecasting the problem can be solved and forecasting method can be more accurate.