Forecasting: Introduction & Its
Department of Mechanical Engineering
Characteristics of Forecasting
Principles & Need of Forecasting
Areas of Forecasting
Advantages & Disadvantages of Forecasting
Applications of Forecasting
Case Study : Henkel
• It is the technique of estimating the relevant future
events and problems on the basis of past & present data.
• It is a systematic guess of the future course of events.
• It provides basis for a planning.
Sales forecast:- Estimate of a firm’s revenue for a
specified time period.
Why are we interested ?
Affects the decisions we make today
Where is forecasting used in POM ?
Forecast demand for products and services
Forecast availability/need for manpower
Forecast inventory and material needs daily
Free from ‘bias’
Error analysis limited
Characteristics of Good Forecast
Easy to Use &
Six Key Principles Of Forecasting
Need of Forecasting
Lead time require that decisions be made in
advance of uncertain events.
is important for all strategic i.e. changing the
engineering design and planning decisions in a
Forecasts of product demand, materials, labour,
financing are an important inputs to scheduling,
acquiring resources & determining resource
6. Check forecast
accuracy with one
or more measures
4. Select a forecast
model that seems
appropriate for data
forecast for period of
8a. Forecast over
9. Adjust forecast based
8b. Select new forecast
model or adjust
parameters of existing
7. Is accuracy
1. Identify the
purpose of forecast
3. Plot data and
2. Collect historical
Importance of Forecasting
Pivotal role in an
Organization Key to
Development of a Effective
Implementation of Co-ordination
Project Primacy to
Areas Of Forecasting
New Laws &
Advantages of Forecasting
The anticipation of future problems and events to
accelerate early achievements of objectives.
Limitation of Forecasting
Forecasting is to be made on the basis of certain assumptions
and human judgments.
Too much of expectation will cause disappointment and
impair the initiative of the executives.
It requires high degree of skill and the process must be
undertaken by specialists.
Long-term forecasts will be less accurate as compared to
Heavy cost and time
Applications of Forecasting
1. Supply chain management
• includes the movement and storage of raw materials, work-in-
process inventory, and finished goods from point of origin to point of
2. Economic forecasting
• is the process of making predictions about the economy
• defined as the specification of the time, location, and magnitude of
a future earthquake within stated limits", and particularly of
"the next strong earthquake to occur in a region
• The process of climate change and increasing energy prices has
led to the usage of Egain Forecasting of buildings
5.Land Use Forecasting
• undertakes to project the distribution and intensity of trip
generating activities in the urban area
6.Player & Team Performance in Sports
• PECOTA, is a sabermetric system for forecasting Major League
Baseball player performance
7. Political Forecasting
• aims at predicting the outcome of elections
• the process of estimating the number of vehicles or people
that will use a specific transportation facility in the future
9. Telecommunications Forecasting
• Telecommunications service providers perform forecasting
calculations to assist them in planning their networks
10. Product Forecasting
• is the science of predicting the degree of success a new
product will enjoy in the marketplace.
11. Sales Forecasting
• attempts to predict the future characteristics of useful
technological machines, procedures or techniques
• is the application of science and technology to predict the state
of the atmosphere for a given location.
14. Flood Forecasting
• the use of real-time precipitation and streamflow data
in rainfall-runoff and streamflow routing models to forecast flow
rates and water levels for periods ranging from a few hours to
days ahead, depending on the size of the watershed or river
CASE STUDY : HENKEL
Henkel is a manufacturer which operates in three business areas:
- home care products
- adhesive technologies
The Henkel group has a workforce of approximately 48,000
employees in over 120 countries around the world, and is amongst
the 500 most profitable companies.
To improve the accuracy of their sales forecasts of existing and
upcoming products. The goal was not an incremental improvement,
but a “step-change” in the forecasting accuracy.
Company’s Problem :-
The main reasons to change the existing forecasting model
was the low forecasting accuracy and difficulties with
evaluating the potential of new products.
Price promotions performed by competitors influenced
Henkel’s data-only based predictions and made them
Social forecasting at Henkel :-
• The key to increasing the forecasting accuracy is the use of incentives
in Social Forecasting.
• Each month the top 10 forecasters can win iPads and other valuable
prizes. These top 10 forecasters also gain recognition.
• The difference in a survey is that participants are not rewarded for
their mere participation but for their actual forecasting accuracy.
These incentives greatly increased the forecasting accuracy as we
will show below.
The average accuracy of Social Forecasting is 85.3%, while
Henkel’s method achieved only 69.3%.
Narasimhan, S.L., D.W. Mcleavey, and P.J. Billington. “Production
Planning And Inventory Control”. 2. New Delhi: Prentice Hall of India
Learning Private Limited, 2009. 25-52. Print.
Groover, M.P., Emory W. Zimmers JR. “CAD/CAM:Computer-Aided
Design and Manufacturing”. 25. New Delhi: Prentice Hall of India
Private Limited, 2002. 324-332. Print.
Mukhopadhyay, S.K. ”Production Planning and Control”. 2. New
Delhi: Prentice Hall of India Private Limited, 2004. 27-63. Print.
Reddy, J.Mahender. ”Demand forecasting : methods, applications &
cases”. 1. New Delhi: Light & Life Publishers, 1981. 152-192. Print.
Internet Source :-