Forecasting Method

2.2.3 Forecasting
Forecasting refers to calculate or to determine the probability of the future demand. In most forecasting methods the assumption is that the past demand pattern or behavior will continue in the same pattern in future (Frank et al., 2003). Forecasting is an essential part of most private and public organizations. Quantities of the items that need to be forecast and their correctness can have a direct impact on the performance of the company. Forecast accuracy can have many positive results on the overall performance of the organization, for instance; low inventory level, less manufacturing cost, higher customer satisfaction level and low level of obsolescence. While on the other hand, inaccuracy in forecast can lead companies

1. Qualitative: Qualitative forecasting methods are basically more subjective and based on human own judgment and experience. It is very helpful when there is very little historical data available about the demand. Human own; judgment, intuition, survey and past knowledge are used in order to do forecast for future demand. This method can be very effective when dealing with new product or new technologies
2. Time series: Time series forecasting method is done by using historical demand information. The basic concept of the time series method is that the past demand is good indicator for doing forecast of future demand. This method is very effective for the products with steady demand and when the demand pattern does not vary that much from one year to the next year. These are one of the simplest methods to implement in practical field and can provide good starting point to do forecasting (Chopra & Meindl 2007, 186-190) (Emmett & Granville 2007,

Causal: Causal forecasting methods is based on the assumptions that the demand forecasting linked or related to certain factors, for instance environmental factors such as changes in the interest rates, and other economic situations or conditions. Causal forecasting methods find the connection between demand and environmental factors and evaluate what environmental factors will be used to forecast future demand. For instance, product pricing is highly correlated with demand of the product. This forecasting method would be difficult to use because sometimes it’s not easy to find right casual variable (Chopra & Meindl 2007,