Question

1. What is the significance of demand forecasting for operations managers, i.e. how do operations managers use demand forecast data?
   
2. Explain the difference between qualitative forecasting and quantitative forecasting methods? Under what conditions would you recommend using qualitative forecasting method.

Answer 1

Demand is a crucial aspect of any organization and demand forecasting helps an organization to take important decisions by reducing risks. The significance of the demand forcasting in any organization is as follows:

(a) Fulfilling objectives: Managers use demand forecasting to fulfill pre-decided objectives of the organization. An operation manager, with the help of demand forecasting, predicts the current and future demand of their services and products and proceeds forward accordingly. Demand forecasting helps the managers to take necessary actions based on forecasting without compromising with the company's objectives.

(b) Preparing the budget: By estimating expected revenues and costs, managers use demand forecasting to prepare the budget. For example, it is estimated that demand for a product would be 100,000 units and its selling cost is $10, so the expected revenue becomes $1,000,000 and therefore, in this way, it helps the organization to prepare its budget.

(c) Stabilizing Production: Based on the demand forecasting, an operation manager controls the production rate and the recruitment activities of the company. Moreover, accurate predictions helps in saving a lot of company's resources. And if the predictions show high demand, the company will proceed accordingly with its recruitment rate and production rate.

(d) Expanding organizations: Based on the forecasting, operation managers decide whether to expand their business ot not. If forecasted demand is quite high, a company might think to expand its business. Likewise, if the forecasted demand is low, the company will reduces its investments.

(e) Taking Management Decision: Operation managers use the concept of demand forecasting to make crucial managerial decisions like determining the raw material required, deciding the plant capacity, ensuring availability of capital and labour.

(f) Evaluating Performance: It helps the organizations to evaluate their performance by making corrections. For example, if the demand is less, the company will decide and review the reasons for why the demand forecasted is low and then, can plan accordingly to either improve the quality or target the righr segment or spend more on advertisements etc.

Quantitative Forecasting Methods	Qualitative Forecasting Methods
1. Unlike qualitative forecasting methods, these methods use statistical tools in order to predict or forecast the future value of a service or a product	1. Qualitative methods of forecasting are generally based upon interviews, surveys and opinions.
2.In order to estimate the future demand of a produt or a service, these methods rely on historial sales data along with some various other factors.	2. These methods depend upon the opinion of various groups of people who are associated with a service or a product in order to forecast the future demand.
3. Quantitative forecasting methods are generally used for making long term forecasts. Some of the quantitative methods are time series analysis, regression model, baromaetric method etc.	3. Qualitative forecasting methods are generally used to make short term forecasts. Some of the qualitative forecasting methods are Delphi method, specialist opinion, market experiments etc.

Qualitative forecat methods are generally used when the period of forecasting is small, generally zero to 3 months and the data is scarce. These methods are also used in forecasting the demand of a new product because there is no previous sales data available for this and quantitative method can't be used here.