Introduction
This article focuses on the link between forecasts and specific resource allocation decisions. The importance of the tie between forecasts and resource decisions cannot be overstated for manufacturing organizations. Without the link between forecasts and resource allocation, it would be impossible to acquire resources to make on-time deliveries to customers. Also, without a sales forecast there could be no long-term production planning of future sales to allow for sufficient capacity and labor needs. In short, having product available to meet sales would not be possible without a sales forecast. Strategically, the success of manufacturing organizations is tied to the effectiveness of the link between the forecast and the resource allocation plan.
The purpose of this article is to give strategic managers practical suggestions for better understanding the limitations of forecast methodology. Once managers understand the limitations of the forecast methods, they can then identify those strategic resource allocation procedures that are most helpful to reduce the impact of forecast error. By understanding these methods, both managers and forecast experts can reduce the impact of forecast errors on resource allocation decisions.
A secondary purpose of the paper is to identify needed research on the strategic impacts of forecasting on managerial decision making. Little research in forecasting has been done to aid in understanding the managerial side of forecasting. Much of the focus has been on forecast methods, sources of forecast error, and reducing forecast error. There is much potential for the improved use of forecasting, but little evidence of where to begin to better align forecasters and strategic managers. This paper will begin by examining previous forecasting research. A brief review of basic forecast theory is included along with literature on the impact of forecast error on strategic decisions. A discussion of the sources of forecast error and the costs associated with forecast error follows. Forecasts alone have little or no value, but what is important is how they are used in making managerial decisions. This study describes three basic forecast paradoxes that impact strategic resource decision making. Suggestions are made for reducing the impact of forecast error on strategic decisions. The paper concludes with suggestions for future research to aid in understanding the managerial side of forecasting.
IntroductionThis article focuses on the link between forecasts and specific resource allocation decisions. The importance of the tie between forecasts and resource decisions cannot be overstated for manufacturing organizations. Without the link between forecasts and resource allocation, it would be impossible to acquire resources to make on-time deliveries to customers. Also, without a sales forecast there could be no long-term production planning of future sales to allow for sufficient capacity and labor needs. In short, having product available to meet sales would not be possible without a sales forecast. Strategically, the success of manufacturing organizations is tied to the effectiveness of the link between the forecast and the resource allocation plan.The purpose of this article is to give strategic managers practical suggestions for better understanding the limitations of forecast methodology. Once managers understand the limitations of the forecast methods, they can then identify those strategic resource allocation procedures that are most helpful to reduce the impact of forecast error. By understanding these methods, both managers and forecast experts can reduce the impact of forecast errors on resource allocation decisions.A secondary purpose of the paper is to identify needed research on the strategic impacts of forecasting on managerial decision making. Little research in forecasting has been done to aid in understanding the managerial side of forecasting. Much of the focus has been on forecast methods, sources of forecast error, and reducing forecast error. There is much potential for the improved use of forecasting, but little evidence of where to begin to better align forecasters and strategic managers. This paper will begin by examining previous forecasting research. A brief review of basic forecast theory is included along with literature on the impact of forecast error on strategic decisions. A discussion of the sources of forecast error and the costs associated with forecast error follows. Forecasts alone have little or no value, but what is important is how they are used in making managerial decisions. This study describes three basic forecast paradoxes that impact strategic resource decision making. Suggestions are made for reducing the impact of forecast error on strategic decisions. The paper concludes with suggestions for future research to aid in understanding the managerial side of forecasting.
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