Steps in Forecasting Process

A forecasting process involves six steps in order to make forecasts for an organization or specific business area. For this paper, sales area of Toyota Motor’s business is selected where forecasting tool would be valuable for planning. The first four steps of forecasting process for this organizational area are discussed below-

Step 1: Determine purpose of forecast

The main purpose of developing forecasts for sales department is to estimate Toyota’s sales in future or upcoming years (Shim & Siegel, 2007). For sales forecasting, the details about past sales records of the company, general economic and industry trends as well as change in customer requirements will be needed.

Step 2: Establish a time horizon

Medium-term forecasting is more suitable for sales and operation planning in business, so sales projections will be made for next two years (3 to 24 months). To handle seasonality in demand for Toyota, medium–term time horizon will be helpful to build up seasonal inventory and production planning.

Step 3: Selection of a forecasting technique

The third step of forecasting process is to select a forecasting technique. But in this case, two forecasting methods one from qualitative and one from quantitative methods are selected for sales forecasting. From quantitative method, trend analysis method is chosen for developing sales forecasts. It is because trend analysis can be effective to estimate future sales for Toyota with more accuracy by analyzing relationship between historical sales patterns and time (Boone & Kurtz, 2010). Along with this method, Delphi method is also selected as qualitative method for forecasting sales. This qualitative method is chosen because it can be effective to develop sales projections with the help of expert opinions (Hirschey, 2008).

Step 4: Gather and analyze data

In next step relevant data is gathered to develop forecasts. Here, historical sales record of Toyota will be used to gather data for trend analysis. While, data for qualitative forecasting would be gathered by taking opinions from a diverse set of experts about the future demand trends in global automobile sector (Boone & Kurtz, 2010).

Appropriate Forecasting Method

From two selected forecasting methods, Delphi method is more appropriate tool for Toyota to develop sales projections. This method will be more suitable to forecast sales than quantitative method due to use of expert opinions on different qualitative factors like global industry trends, change in customer preference, economic condition etc. (Hirschey, 2008).

Advantages and Disadvantages of each Forecasting Method

Trend Analysis Method:

Advantage:

• Quick and easy way to make forecasts (Boone & Kurtz, 2010).
• Better understanding of historical business data.

Disadvantages:

• If condition changes then sales projection based on trend analysis may become worthless.
• The value and accuracy of this model largely depends on the stability of product’s environment (Shim & Siegel, 2007).

Delphi Method

Advantage:

• More participants can be involved to make forecast.
• This method can provide accurate forecasts due to consideration on different opinions (Frechtling, 2012).

Disadvantages:

• Lack of supporting evidences for proving forecasting decisions.
• High cost of development and maintenance
• It requires a great deal of time for implementation (Ross, 2004).

References

• Boone, L.E & Kurtz, D.L. (2010). Contemporary Marketing (15th ed.). USA: Cengage Learning.
• Frechtling, D. (2012). Forecasting Tourism Demand. UK: Routledge.
• Hirschey, M. (2008). Managerial Economics (12th ed.). USA: Cengage Learning.
• Ross, D.F. (2004). Distribution: Planning and Control : Managing in the Era of Supply Chain Management (2nd ed.). Germany: Springer.
• Shim, J.K & Siegel, J.G. (2007). Handbook of Financial Analysis, Forecasting, and Modeling (3rd ed.). USA: CCH.