How Much Effort Should We Put Into Forecasting?

There is no business process as full as unnecessary costs and wasted efforts as forecasting. However, forecasting can have a hugely positive effect on business performance, customer service, and the bottom line.

The simplest forecasting method is "the random walk" which uses the most recent observation available as the forecast, ie if you sold 10 units last week, the new forecast is 10. If you sell 12 units this week, the new forecast is 12. If demand in your business has seasonality, you can use a seasonal random walk which uses the observed value from last year as the forecast for the time period (or season) this year.

The random walk is one of many very simple forecasting models, and uses the minimum amount of effort and manipulation to prepare a forecast. The accuracy of a random walk forecast is what professionals can achieve by essentially doing nothing. The performance of more sophisticated forecasting models should always be compared to the performance of a "no effort" model like the random walk. If more sophisticated - and costly forecasting methods do not beat a simple model like the random walk - why invest the effort and cost they require?

Synchronous experts maintain a complete supply chain perspective, and can help your organization get the benefits of forecasting without going overboard for the sake of forecasting. Send us an information request to Sales@SynchronousLLC.com or review our portfolio of service offerings on our web site www.SynchronousLLC.com