Principles, Methods and Limitations
forecasting is making predictions on future sales based on past and present
data and by analysis of trends. This paper explores the application of
forecasting principles and methods in real life by studying Apple’s sales
forecasts on iPhone X shipment. This paper further explores the impact of sales
forecasts on other forecasts such as labor, as well as overhead receipts and
disbursements. Since the financial environment has a direct impact on future
business trends, this paper further explores how gross domestic product (GDP),
rate of inflation, rate of unemployment and interest rates affect sale
forecasts. Further, this paper evaluates the prerequisites of a good forecast
that a manager should uphold when budgeting sales and production outputs. It, then discusses general economic
condition, consumers tastes and desires, industrial behaviors, changes within a
firm and the period that a particular forecast should last.
Principles, Methods and Limitations
Sales forecasting refers to predicting future sales patterns
based on past data and that in the present and by analyzing trends. Given its wide range of product
differentiation, the Apple Company is one of the firms that conduct sales
forecasts from market professionals. On December 18th, 2017, Sinolink
Securities Co. analyst Zhang Bin said that handset shipments over that
periodwas as low as 35 million which is actually 10 millionless than he previously estimated. JL Warren Capital LLC
said shipments would drop to 25 million units in the first quarter of
2018 from 30 million units due to reduced orders by Apple suppliers.
forecasting is a scientific process based on principles and has specified
methods classified in broad categories that include quantitative and
qualitative approach, average approach, naïve approach, time series methods,
econometric forecasting methods, judgmental methods and artificial methods. All
these methods have are common in the sense that they all are based on data
gathered in firm’s past and present transactions and in that they involve
analysis of trends in their prediction.
Ideally, when a firm is expecting high sales in the future, it
is likely to consider boosting its production. This implies that better
technology should be employed and if necessary, hires new workers. A change in
technology may lead to loss of jobs by some workers. A affirms expansion calls
for more human and technological resources. More production which arises as a
result leads to an increase in the amount of money in circulation. Cash
receipts are expected to increase with expansion from an increase in accounts
receivables. Cash disbursements also increase as a result of new financial
obligations that come with growth.
Sales forecasts are influenced by a lot of factors in the
financial environment. A good manager should be aware of them well in advance
and take the necessary precautions besides carefully choosing the steps to
take. The general economic condition in
a particular country, the consumers taste and preferences, the behaviors
of other companies in the industry, the changes within a firm if any and the
period up to which the forecast should last.
The general economic condition is a function of the gross
domestic product (GDP), the rate of inflation, the rates of unemployment and
the interest rates. The GDP is an indicator of economic health. Since a GDP
takes into account the market values of goods, it is paramount for a manager to
carefully scrutinize the changes in GDP over time before settling on a sales
forecast or any other budgeting item. Given the size of the firm, in case of an
international firm, it is important to consider the GDP of all the countries to
which the firm sells its products. It is also prudent to study that (the GDP)
of target countries.
Inflation rates, on the other hand, leads to rising of prices.
The high prices lead to lower demand especially of secondary goods. A manager
must carefully check for the possibility of inflation in a given period given
it comes along with market instability and it can actually lead to catastrophic
losses to a firm. Appropriate budgeting should be ensured at all times with
provisions and policies that protect a firm from receivership.
High levels of unemployment are fatal as they reduce the consumers’
ability to purchase some goods leading to substitutions where cheaper goods are
sought. This incapacitation of consumers jeopardizes the firm’s future
existence. A prudent manager should carefully study unemployment levels and
trends before settling on sales forecast.
Interest rates are also a factor to consider given they
determine a consumer’s disposable income. High interest rates reduce the
purchasing power of the buyers of a given product. A manager should therefore
study interest rates trends and base his sales forecasts in the prevailing and
the expected fluctuations in the interest rates.a firm should at all times be
prepared to change its course of action in little time so as to fully exploit
their opportunities and to avoid losses whenever possible.
The consumer tastes and preferences are a very fundamental
aspect that every manager should carefully scrutinize in their sales forecast.
The Apple Company, for example, experienced lower demand of iPhone X than
expected since it lacked “interesting innovations” such as facial recognition
which were considered later. It is upon a company to constantly adapt and keep
up with fashion and trends in general. A thorough and constant study of the
market is therefore fundamental in ensuring that the consumers are satisfied by
the products provided by a given firm.
Industrial behaviors must also be carefully considered in amking
sales forecasts. The Apple Company did not consider the competition from
Samsung’s Galaxy Note 7 besides Huawei, Oppo and Xiaomi from China. The low
demand was, to a very large extent, contributed by stiff competition in that
the consumers did not see the need to buy the more expensive iPhone X since
cheaper substitutes with the same features were readily available in the
market. Studying other companies in the same industry as a company in question
is paramount for a company to withstand competition without incurring losses.
Changes within the firm also have a direct impact on sales
forecasts. Changes in advertising policies and methods, exit of prominent
corporate personalities and worker strikes are also important factors to
consider. A manager should anticipate
for, be prepared and have contingency plans to counter fail that arises from
within the firm. Effective resource management should be upheld at all times by
the management. A firm should therefore protect traditions upon which its
success is built. It should as well shun retrogressive practices that impair
the company’s efforts to grow. The manager should ensure the firms existence
into the foreseeable future by ensuring that the workers are motivated to work
even harder and get better results. The period up to which the sales forecast
should last is also a very important aspect that every manager must consider.
Establishing whether the sales forecast are for a short or a lond period is
what guides a manager on what to do and what to avoid. Given the disparity of
the dynamisms expected in the long run with those expected in the short run, a
manager should carefully consider the period up to which the forecast should
last. Shorter periods are better to budget for than long-term periods.
Sales forecasting is very important in the extent to which it
influences the performance of firm. Properly- carried out sale forecasts
attract high returns as they lead to higher efficiency given that wastage is
reduced as all the financial requirements of a firm are considered in advance.
Planning in advance also enable the management to foresee risks in advance and
therefore prepare adequately for them. It is therefore prudent for managers to
hire professionals whose job should be to survey the market and constantly
analyze the financial environment and advise the management accordingly.
The advantages of sales forecasting are reduced wastage of a
firm’s resources, putting the firm in a good position to fully exploit its
opportunities and avoid a considerable number of financial crisis. Managements
should therefore stick to the laid-out procedures of budgeting for both the
short run and long term requirements of a firm to ensure its continuity and
better still, its growth.
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Analysts Cut iPhone X Shipment Forecasting Citing Lukewarm Demand.
Retrieved from https://www.bloomberg.com/news/articles/2017-12-25/analysts-cut-iphone-x-shipment-forecasts-citing-lukewarm-demand