As we now know, inventory is required because of the irregular buying patterns and uncertainty in the market place. To compensate for this uncertainty organisations are making use of forecasting techniques to predict what they will sell and based on these predictions they produce products to satisfy expected customer demand. The main purpose of forecasting is to improve planning and to ensure availability of goods to satisfy customer demand.
Forecasts are used by:
- Production;
- Purchasing;
- Marketing;
- Setting of sales quotas;
- Personnel;
- Finance; and
- Top management.
Forecasting can be defined as the process of organising and analysing information in a way that makes it possible to estimate what will happen in the future.
In forecasting we have certain elements to ascertain these, including:
- The timing of the order;
- Size and consumption of the order;
- Data accuracy on products required; and
- The delivery points.