8 Forecasting methods

Most situations use one of three types of forecasting model to help predict demand:

• Qualitative techniques can be used when there is no prior data. These would include expert panels or conventional market research, where this is appropriate.
• Time series analysis takes historical data and looks at the patterns in it with the intention of understanding future demand if the same patterns repeat. The analysis can range from the relatively simple approaches of understanding averages (‘moving averages’), to much more complex multi-variate techniques and probabilistic analysis.
• Causal analysis can be used to develop more sophisticated demand predictions. Data is used to help understand the factors that drive demand.

For a practical understanding of local demand, simple time series analysis is probably the most appropriate, but strategic planning activities will often use more sophisticated causal models.

We have spent quite a bit of time understanding demand. We will now focus on understanding how we manage capacity to meet demand.