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NEW DEVELOPMENTS IN BUSINESS FORECASTING
(This is an ongoing column in The Journal, which is intended to give a brief view on a potential topic of interest to practitioners of business forecasting. Suggestions on topics that you would like to see covered should be sent via email to llapide @amrresearch. com. Ed)
Most people think that forecasting is about esoteric forecasting methods hat only technically savvy statisticians can understand and use. What typically comes to people's minds are time series-based methods that use reams of historical data, sorting through it to determine repeatable patterns that can be used to project the future. To use them, two, preferably three or more years of data are needed to support the methods to ascertain recurring yearly patterns.
Wouldn't it be easy for forecasters if this perception about forecasting was real? That there was, indeed, plenty of historical data to analyze. Unfortunately, in most cases nothing could be further from the truth. Many times these time-series methods can't be used because there is not enough data about a product's historical demand, a product's demand is sporadic, or the product has never existed before in its current incarnation. In this column we'll discuss a simple method for forecasting an important class of these products: short product lifecycle products.
Utilizing special techniques for these types of products is important because given that they are sold for only a limited amount of time, accurate pre-launch forecasts are needed to assess how much to initially make and supply, helping to avoid large surpluses at the end of their lifecycle. In a similar way, accurate updated forecasts generated during the early phases of a lifecycle are needed to support manu-facturing and distribution decisions, avoiding shortages and surpluses of the product during and after the selling period. Thus, it is important to use data collected early in a product's selling lifecycle to help identify hot sellers and slow movers, and where those are occurring.
WHAT IS A SHORT LIFECYCLE PRODUCT?
A short lifecycle product is one that is only...