Report Final

THE INTERNATIONAL INSTITUTE OF PLANNING AND
MANAGEMENT
Thesis Topic
“Role of Forecasting on Inventory Management”
Submitted to: Prof Satyabrata Dutta Gupta
External Guide: Mr. Gaurav Dagwar
Submitted By: Ashish Bhoot
Batch: PGP/SS/2008-10
Alumni No.: IIPM/SS/08-10/PUN/MKTG/024

SYNOPSIS
Name: - Ashish Bhoot
Batch: - PGP/SS/08-10
Phone No: - 9822710284
SPECIALIZATION: - MARKETING/FINANCE
Email ID: - aashish.bhoot@gmail.com
Area of Research: - Pune
Title of Thesis: -“Role of Forecasting on Inventory Management”
Problem Definition and Hypothesis: -
Inventory can range from raw materials, cash, finished goods, etc. Effective inventory
management will optimize the supply chain, eliminate cash flow and reduce the
possibility of occurrence on inventory shortage caused by variable orders. Consequently,
it is of utmost importance to optimize inventory management to satisfy the company’s
strategy goal.
Scope of thesis: - In order to maintain proper inventory of Quanta Batteries, Amara Raja
Batteries Ltd. required proper and accurate forecasting.
Forecasting can be done by Market Research. Scope of research is to find-
1) To find the market potential of Sealed Maintenance Free (SMF) Battery.
2) To find market share of Amaron Quanta SMF Batteries.
In a broader point of view, it is a cost reduction procedure that can have an impact on the
economies of the company directly and on other departments indirectly.
Research Methodology: -
Primary research: - Primary data is collected directly from Distributers and Sub-
Distributers using data collection method like survey by asking questions, Questionnaire,
Personal Interview. For my study I am using all this methods as per preference.
Secondary Data: - Secondary data is the data that is already available with the company.
Justification of choosing the research proposal: - Inventory plays important role in the
Capital Management. Inventory management is a very simple concept - don't have too
much stock and don't have too little. Since there can be substantial costs involved in
straying above and below the optimal range, careful inventory management can make a
huge difference in the profitability of a business. Although the concept is simple, the
process of getting the right balance can be quite a complex and time consuming task
without the right technology.
By going through this Thesis I will come to know detail about Importance of Inventory
management also I will do Market Research to give Forecasting regarding requirement of
SMF batteries in near future.
Details of external guide: - Mr. Gaurav Dagwar

Area Incharge
Amara Raja Electronics Limited.
EXTERNAL GUIDE’S APPROVAL LETTER
Date -02-02-10
To,
Dean,
Indian Institute of Planning and Management.
Pune.
Dear Sir,
On humble request of your college’s student Mr. Ashish Bhoot studying in PGP/SS/08-10
batch, I thereby agree to become his external guide for completion of his thesis on the
topic “Role of Forecasting on Inventory Management”
I hope that he would complete his thesis on time, with sincerity and in good faith.
Thank You.
Yours Sincerely,
Mr. Gaurav Dagwar

Area Incharge
RESPOND SHEET 1
Name - Ashish Rameshchandra Bhoot
Batch - PGP/SS/2008-10
Alumni ID - IIPM/SS/08-10/PUN/MKTG/024
Phone No. - 09822710284
Email ID - aashish.bhoot@gmail.com
The Topic of the Study - “Role of Forecasting on Inventory Management”
Date when the Guide was consulted - 01/02/2010
In the first meeting following points were discussed -
 Objective of Study
 Topic Finalization
 Synopsis
The Result of the first meeting -
 Objective Studied & Finalized

 Topic Finalized
 Synopsis Designed
Mr. Gaurav Dagwar

Area Incharge
RESPOND SHEET 2
Phone No. - 09822710284
Date when the Guide was consulted – 30/06/2010
Progress of the Thesis -
 Discussion on prospect and challenges of working on the topic for

thesis
 Preparation of the thesis objective and the ground
 Preparation of the draft Questionnaire for changes to be made and

question those are required to be added
 Deciding upon methods of data collection and estimation of the time

required for the same
 Discussion and review on the collected secondary data
Mr. Gaurav Dagwar

Area Incharge
RESPOND SHEET 3
Phone No. - 09822710284

 Finalizing the Questionnaire and review of change made
 Sourcing of secondary data from different sources like – Books,

Magazines & Internet
 Segregating and preparing Secondary data relevant to the topic
 Discussion & review on the collected secondary data
Mr. Gaurav Dagwar

Area Incharge
RESPOND SHEET 4
Phone No. - 09822710284
 Fill up Questionnaire with target and later discussing the same with
the External Guide
 Analyzing the data and discussing the result with the External Guide
 Preparation of final Thesis Format
Mr. Gaurav Dagwar

Area Incharge
RESPOND SHEET 5
Phone No. - 09822710284

The topic of the Study - “Role of Forecasting on Inventory Management”
 Processing data for better interpretation and discussing the same with
External Guide
 Preparation of the main body of the thesis and the other section of the
thesis & reviewing the same from the External Guide
 Find review of the thesis work right from the beginning by the
External Guide
Mr. Gaurav Dagwar

Area Incharge
RESPOND SHEET 6
Phone No. - 09822710284
The topic of the Study - “Role of Forecasting on Inventory Management”
 Discussing the findings with the External Guide and finally coming up
with the conclusion
 Sending the thesis to the External Guide for his review, comments and
final content
Mr. Gaurav Dagwar

Area Incharge
Letter of completion
This is to certify that Mr. Ashish Rameshchandra Bhoot (Batch -
PGP/SS/2008-10, Alumni ID - IIPM/SS/08-10/PUN/MKTG/024) has
successfully completed his work on the thesis topic “Role of Forecasting on
Inventory Management” in fulfillment of the MBA curriculum as prescribed
by the International Institute of Planning & Management.
Mr. Gaurav Dagwar

Area Incharge
ACKNOWLEDGEMENT
The research Thesis on “Role of Forecasting on Inventory Management” has
been given to me as part of the curriculum in 2-Years Master’s Degree (PGP) in Business
Administration.
I would like to thank “INTERNATIONAL INSTITUTE OF PLANNING
AND MANAGEMENT” for providing me such an opportunity to gain practical
knowledge during the course of Thesis.
I’m very much grateful of Prof. Satyabrata Dutta Gupta for their guidance and
support during the course of Thesis.
I had completed this study under the guidance and supervision of Mr. Gaurav
Dagwar; I will be failed in my duty if I do not acknowledge him for the esteemed
scholarly guidance, assistance and knowledge, which I have received from him towards
fruitful and timely completion of this work.
I’m very thankful to all Amaron Batteries Dealer & Distributers for their guidance
& providing information to me.
Mere acknowledgement may not redeem the debt we owe to professors of IIPM
for their direct/indirect support during the entire course of this Thesis.
I’m also thankful to my friends who helped me a lot in the completion of this
Thesis.
INDEX
SR Contents Page
No.
1 Introduction 1
2 Definition of Inventory 2
3 Purpose of Inventory 4
4 Forecasting 10
5 Need For Forecasting 12
6 Requirement of a Good Forecasting 15
7 Types of Forecast 19
8 Seven Keys to Better Forecasting 24
9 Introduction of Company 35
10 Why prefer SMF Battery than Lead Acid Battery? 39
11 Data Analysis 40
12 Conclusion 46
13 Annexure A – Questionnaire 47
14 Annexure B – Coding & Data 50
Introduction
Inventories are stocks of materials of any kind that are stored for future use,
mainly in production process. Thus, today’s inventory is tomorrow’s production.
However, semi-finished goods awaiting use in the next process or finished goods awaiting
release for sale are also included in the broad category of inventories, which are nothing
but idle resources. Therefore, inventories are materials or resources of any kind having
some economic value, either awaiting conversion or use in future.
The task of inventory planning can be highly complex in manufacturing

environments. At the same time, it rests on fundamental principles. The system used for
inventory must tie into the operations of the firm. Inventory planning and management
must be responsive to the needs of the firm. The firm should design systems, including
reports that allow it to make proper business decisions.
For maintaining the proper Inventory everyone should require proper Sales
Forecasting. Sales Forecasting is the process of estimating what your business’s sales are
going to be in the future. Sales forecasting is an integral part of business management.
Without a solid idea of what your future sales are going to be, you can’t manage your
inventory or your cash flow or plan for growth. The purpose of sales forecasting is to
provide information that you can use to make intelligent business decisions.
1|Page
Definition of inventory
Inventories are stocks of materials of any kind that are stored for future use,
mainly in production process. Thus, today’s inventory is tomorrow’s production.
However, semi-finished goods awaiting use in the next process or finished goods awaiting
release for sale are also included in the broad category of inventories, which are nothing
but idle resources. Therefore, inventories are materials or resources of any kind having
some economic value, either awaiting conversion or use in future.
Apart from these, there are also many indirect materials, such as maintenance
material, fuels and lubricants, etc. which are used in a manufacturing organization. They
are also classified as inventories of material for future use. But they differ only in their
use and classification from raw and other direct materials. All of them earn nothing, yet
they are required to be stocked and to be used as and when the needs arise. Inventory is
the stock of any item or resource used in an organization. An inventory system is the set
of policies and controls that monitor levels of inventory and determine what levels should
be maintained, when stock should be replenished, and how large orders should be.
Types of Inventories:
(a) Raw Material and Production Inventories: These are raw materials and other
supplies, part and components which enter into the product during the production
process and generally form part of the product.
(b) In-Process Inventories: These are semi-finished, work-in-progress and partly

finished products formed at various stages of production.
(c) MRO Inventories: Maintenance, repair, and operating supplies which are
consumed during the production process and generally do not form part of the
product itself (e.g. oils and lubricants, machinery and plant spares, tools and
fixtures, etc.) are referred to as MRO inventories.
(d) Finished Goods Inventories: These are complete finished products ready for
sale.
2|Page
(e) Movement or Transit Inventories: It arises because of the time necessary to
move stocks from one place to another. The average amount can be determine as:
I=S*T
Where, S represents the average rate of sales (say, weekly average)
T, the transit time required to move from one stage to another in a week.
I the movement inventory needed.
As for example, if it takes three weeks to move materials to a warehouse from the
plant, and if the warehouse sells 110 per week, then the average inventory is 110
units * 3 weeks’ time = 330. In fact, when a finished stock is manufactured and
ready for sale, it must remain idle for three weeks for movement to the warehouse.
Therefore, the plant stock on an average must be equal to three week’s sale in
movement.
3|Page
Purpose of inventory
1. To maintain independence of operations. A supply of materials at a work center
allows that center flexibility in operation. For example, because there are costs for making
each new production setup, this inventory allows management to reduce the number of
setups.
Independence of workstations is desirable on assembly lines as well. The time that it takes
to do identical operations will naturally vary from one unit to the next? Therefore, it is
desirable to have a cushion of several parts within the workstation so that shorter
performance times can compensate for longer performance times. This way the average
output can be fairly stable.
2. To meet variation in product demand. If the demand for the product is known
precisely, it may be possible to produce the product to exactly meet the demand. Usually,
however, demand is not completely known, and a safety or buffer stock must be
maintained to absorb variation.
3. To allow flexibility in production scheduling. A stock of inventory relieves the

pressure on the production system to get the goods out. This causes longer lead times,
which permit production planning for smoother flow and lower cost operation through
4|Page
larger lot size production. High setup costs, for example, favor producing a larger number
of units once the setup has been made.
4. To provide a safeguard for variation in raw material delivery time. When material
in ordered from a vendor, delays can occur for a variety of reasons: a normal variation in
shipping time, a shortage of material at the vendor’s plant causing backlogs, an
unexpected strike at the vendor’s plant or at one of the shipping companies, a lost order,
or a shipment of incorrect or defective material.
5. To take advantage of economic purchase order size. There are costs to place an
order: labor, phone calls, typing, postage, and so on. Therefore, the larger each order is,
the fewer the orders that need be written. Also, shipping costs favor larger orders - the
larger the shipment, lower the per unit cost.
For each of the preceding reasons (especially for items 3, 4, and 5), be aware that
inventory is costly and large amounts are generally undesirable. Long cycle times are
caused by large amounts of inventory and are undesirable as well.
Inventory costs
Inventory costs are important for three major reasons. First, inventory costs
represent a significant component of total logistics costs in many companies. Second, the
inventory levels that a firm maintains at points in its logistics system will affect the level
of service the firm can provide to its customers. Third, cost tradeoff decisions in logistics
frequently depend upon and ultimately affect inventory carrying costs.
Inventory carrying cost
Four major components of inventory carrying cost: capital cost, storage space cost,
inventory service cost, and inventory risk cost
1. Capital Cost. Sometimes called the interest or opportunity cost, this cost type focuses
upon what having capital tied up in inventory. The capital cost is frequently the largest
component of inventory carrying cost. A company usually expresses it as a percentage of
5|Page
the value of the inventory the company holds. Virtually all companies seek to reduce
inventory because management recognizes that holding excessive inventory provides no
value added to the firm. The company must consider what rate of return it is sacrificing
on the cash invested in inventory.
2. Storage Space Cost. This category includes handling costs associated with moving
products into and out of inventory, and storage costs such as rent, heating, and lighting.
Such costs may vary considerably from one circumstance to the next. For example, firms
can often unload raw materials directly from railcars and store them outside, whereas
finished goods typically require safer handling and more sophisticated storage facilities.
3. Inventory Service Cost. Another component of inventory carrying cost includes

insurance and taxes. Depending upon the product value and type, the risk of loss or
damage may require high insurance premiums. In most cases, there will be few, if any;
significant changes from year to year in the tax and insurance components of the
inventory carrying cost.
4. Inventory Risk Cost. This final major component of inventory carrying cost reflects
the very real possibility that inventory value may decline for reasons largely beyond
corporate control. Any calculation of inventory risk costs should include the costs
associated with obsolescence, pilferage, damage, theft, and other risks to inventoried
product.
Order/Setup Cost
A second cost affecting total inventory cost is ordering cost or setup cost.
Ordering cost refers to the expense of placing an order for additional inventory, and does
not include the cost or expense of the product itself. Setup cost refers more specifically to
the expense of changing or modifying a production or assembly process to facilitate
product line changeovers, for example.
Order cost. The costs associated with ordering or acquiring inventory have both fixed
and variable components. The fixed element may refer to the cost of the information
6|Page
system, facilities, and technology available to facilitate order placement activities. This
fixed remains constant in relation to the number of orders placed.
There are also a number of costs that vary in relation to the number of orders that are
placed for more inventories. Some of the types of activities that may be responsible for
these costs include (1) Reviewing inventory stock levels;
(2) Preparing and processing order requisitions or purchase orders;
(3) Preparing and processing receiving reports;
(4) Checking and inspecting stock prior to placement in inventory;
(5) Preparing and processing payment.
Setup Cost. Production setup costs may be more obvious than ordering or acquisition
costs. Setup costs are expenses incurred each time a firm modifies a production line to
produce a different item for inventory. The fixed portion of setup cost might include use
of the capital equipment needed to change over production facilities, while the variable
expense might include the personnel costs incurred in the process of modifying or
changing the production line.
Fixed order quantity approach
Inventory models for calculating optimal order quantities and reorder points have been in
existence long before the arrival of the computer.
While EOQ may not apply to every inventory situation, most organizations will find it
beneficial in at least some aspect of their operation. Anytime you have repetitive
purchasing or planning of an item, EOQ should be considered. Obvious applications for
EOQ are purchase-to-stock distributors and maketostock manufacturers, however, make-
toorder manufacturers should also consider EOQ when they have multiple orders or
release dates for the same items and when planning components and subassemblies.
7|Page
Repetitive buy maintenance, repair, and operating (MRO) inventory is also a good
application for EOQ.
Though EOQ is generally recommended in operations where demand is relatively steady,

items with demand variability such as seasonality can still use the model by going to
shorter time periods for the EOQ calculation. Just make sure your usage and carrying
costs are based on the same time period.
As its name implies, the fixed order quantity model involves ordering a fixed amount of
product each time reordering takes place. The exact amount of product to be ordered
depends upon the product’s cost and demand characteristics and upon relevant inventory
carrying and reordering costs.
Firms using this approach generally need to develop a minimum stock level to determine
when to reorder the fixed quantity. This is usually called the reorder point. When the
number of items in inventory reaches the predetermined level, the fixed order quantity
(also called the economic order quantity or EOQ) is automatically ordered. In a sense, the
predetermined ordering level triggers the next order.
Under condition of certainty
The following are the principal assumptions of the simple EOQ model:
 A continuous, constant, and known demand rate and lead time
 The satisfaction of all demand
 No inventory in transit and one item of inventory
 No limit on capital availability and infinite planning horizon
 Price and cost are independent of order quantity or time
The EOQ in units can be calculated using the following formula:
8|Page
EOQ = √ 2AC/DV
Where
A= Ordering cost per order
D= Annual demand or usage of product (number of units)
C= Annual inventory carrying cost (as a percentage of product cost)
V= Average cost of one unit of inventory
Figure 31. Cost required determining the Most Economical

Order Quantity
Safety stock and reorder point
The previous model assumed that demand was constant and known. In the majority of
cases, though, demand is not constant but varies from day to day. Safety stock must
9|Page
therefore be maintained to provide some level of protection against stock outs. Safety stock
can be defined as the amount of inventory carried in addition to the expected demand. In a
normal distribution, this would be the mean. For example, if our average monthly demand
is 100 units and we expect next month to be the same, if we carry 120 units, then we have
20 units of safety stock.
Knowing when to order was as necessary as knowing how much to order. The when,
generally called a reorder point, depends on inventory level - that is, some number of units.
Under the assumptions of certainty, a firm needs only enough inventories to last during the
replenishment time or lead time. Therefore, given a known lead time, multiplying lead time
length by daily demand determines the reorder point.
FORECASTING
Forecasting is the process of estimation in unknown situations. Prediction is a
similar, but more general term. Both can refer to estimation of time series, cross-sectional
or longitudinal data. Usage can differ between areas of application: for example in
hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of
values at certain specific future times, while the term "prediction" is used for more
general estimates, such as the number of times floods will occur over a long period. Risk
and uncertainty are central to forecasting and prediction. Forecasting is used in the
practice of Customer Demand Planning in everyday business forecasting for
manufacturing companies. The discipline of demand planning, also sometimes referred to
as supply chain forecasting, embraces both statistical forecasting and a consensus process.
Forecasting is a part of human conduct. Whatever an individual does at present is

in the expectation of that certain events will take place in future. This expectation is
generally based on the past experience. Forecast made in this fashion may or may not be
true always. In a world, where the future is not taken (known) with certainty, virtually
every business and economic decision rests upon a forecast of future condition.
10 | P a g e
Thus, planning which is the backbone of any business activity requires the
forecasting of future events, whereas forecasting helps in viewing those events in their
proper perspective .Objectivity is the corner stone of forecasting. It thus helps in reducing
risks associated with uncertain future events. Thus forecasting reduces the areas of
uncertainty that surround management decision- making with respect to costs, profits,
sales, production pricing capital investment and so forth. In Statistics, “the term
(forecasting) refers to extending or projecting time-series into the future based on the past
behavior of the quantitative data”. In Other words “business forecasting refers to the
statistical analysis of the past and current movements in a given time series, so as to
obtain clues about the future pattern of movement.”
Business forecasting involves a wide range of tools, including simple electronic

spreadsheets; enterprise resource planning (ERP) and electronic data interchange (EDI)
networks, advanced supply chain management systems, and other Web-enabled
technologies. The practice attempts to pinpoint key factors in business production and
extrapolate from given data sets to produce accurate projections for future costs, revenues,
and opportunities. This normally is done with an eye toward adjusting current and near-
future business practices to take maximum advantage of expectations. Business
forecasting systems often work hand-in-hand with supply chain management systems. In
such systems, all partners in the supply chain can electronically oversee all movement of
components within that supply chain and gear the chain toward maximum efficiency.
11 | P a g e
Need for Forecasting
Business Forecasting is an estimate or prediction of future developments in
business such as sales, expenditures, and profits. Given the wide swings in economic
activity and the drastic effects these fluctuations can have on profit margins, it is not
surprising that business forecasting has emerged as one of the most important aspects of
corporate planning. Forecasting has become an invaluable tool for businesspeople to
anticipate economic trends and prepare themselves either to benefit from or to counteract
them. If, for instance, businesspeople envision an economic downturn, they can cut back
on their inventories, production quotas, and hiring’s. If, on the contrary, an economic
boom seems probable, those same businesspeople can take necessary measures to attain
the maximum benefit from it. Good business forecasts can help business owners and
managers adapt to a changing economy.
Some of the important needs of forecasting are listed below:
(i) Helps in Production Planning:
The rate of producing the products must be matched with the demand which may
be fluctuating over the time period in the future. Since its time consuming to change the
rate of output of the production processes, so production manager needs medium range
demand forecasts to enable them to arrange for the production capacities to meet the
monthly demands which are varying.
12 | P a g e
(ii) Helps in Financial Planning:
Sales forecasts are driving force in budgeting. Sales forecasts provide the timing
of cash inflows and also provide a basis for budging the requirements of cash outflows for
purchasing materials, payments to employees and to meet other expenses of power and
utilize etc. Hence forecasting helps finance manager to prepare budgets taking into
consideration the cash inflow and cash out flows.
(iii) Helps in Economic Planning:
Forecasting helps in the study of macroeconomic variables like population, total

income, employment, savings, investment, general price-level, public revenue, public
expenditure, balance of trade, balance of payments and a host of other macro aspects at
national or regional levels. The forecasts of these variables are generally for a long period
of time ranging between one year to ten or twenty years ahead. Much would depend on
the perspective of planning, longer the perspective longer would be period of forecasting.
Such forecasts are often called as projections. These are helpful not only for planning and
public policy making, they also include likely economic environment and aid formulation
of business policies as well.
(iv)Helps in Workforce Scheduling:
The forecast of monthly demand may further be broken down to weekly demands
and the workforce may have to be adjusted to meet these weekly demands. Hence,
forecasts are needed to enable managers to get tuned with the workforce changes to meet
the weekly production demands.
(v) Helps in Decisions Making:
The goal of the forecaster is to provide information for decision making. The
purpose is to reduce the range of uncertainty about the future. Businessmen make
forecasts for the purpose of making profits. In business forecast has to be done at every
stage. A business man may dislike statistics or statistical theories of forecasting, but he
13 | P a g e
cannot do without making forecasts. Business plans of production, sales and investment
requires predictions regarding demand for the product, price at which the product can be
sold and the availability of inputs. The forecast about demand is the most crucial.
Operating budgets of various departments of a company have to be based upon the
expected sales. Efficient production schedules, minimization of operating cost and
investment in fixed assets is when accurate forecasts recording sales and availability of
inputs are available.
(vi)Helps in Controlling Business Cycles:
It is commonly believed that business cycles are always very harmful in their
effects. Abrupt rise and fall in the price level injurious not only to businessmen, but to all
types of persons, industries, trade, agriculture. All suffer from the painful effects of
depression. Trade cycle increase the risk f business; create unemployment; induce
speculation and discourage capital formation. Their effects are not confined to one
country only. Business forecasting reduces the risk associated with business cycles. Prior
knowledge of a phase of a trade cycle with its intensity and expected period of happening
may help businessmen, industrialist, and economists to plan accordingly to reduce the
harmful effects of trade cycle’s .statistics is thus needed for the purpose of controlling the
business-cycles.
Many experts agree that precise business forecasting is as much an art as a

science. Because business cycles are not repetitious, a good forecast results as much from
experience, sound instincts, and good judgment as from an established formula. Business
forecasters can be, and have often been, completely off the mark in their predictions. If
nothing else, business forecasts can be used as blueprint to better understand the nature
and causes of economic fluctuations.
14 | P a g e
REQUIREMENTS OF A GOOD FORECAST
A good forecast should satisfy the following criteria:
1. Time frame
2. Pattern of the data
3. Cost of forecasting/ Economy
4. Accuracy
5. Availability of data
6. Durability
7. Plausibility/Ease of operation and understanding
8. Flexibility
1. Time frame:
The first factor that can influence the choice of forecasting is the time frame of the
forecasting situation. Forecasts are generally for points in time that may be a number of
days, weeks, months, quarters, or years in the future. This length of time is called the time
frame or time horizon. The length of the time frame is usually categorized as follows:
 Immediate: less than one month
15 | P a g e
 Short term: one to three months
 Medium: more than three months to less than two years.
 Long term: two years or more
In general, the length of the time frame will influence the choice of the forecasting
technique. Typically a longer time frame makes accurate forecasting more difficult with
qualitative forecasting techniques becoming more useful as the time frame lengthens.
2. Pattern of the data:
The pattern of the data must also be considered when choosing a forecasting
model. The components present i.e.’ trend, cycle, seasonal or some combination of these
will help determine the model that will be used. Thus it is extremely important to identify
the existing data pattern.
3. Cost of forecasting/ Economy:
Though the firm is interested in accurate forecasts, the benefits of accurate results
must be weighed against the cost of the method. While choosing a forecasting technique,
several costs are relevant. First, the cost of developing the model must be considered.
Second the cost of storing the necessary data must be considered. Some forecasting
methods require the storage of a relatively small amount of data, while other methods
require the storage of large amounts of data. Last, the cost of the actual operation of the
forecasting technique is obviously very important. Some forecasting methods are
operationally simple, while others are very complex. The degree of complexity can have a
definite influence on the total cost of forecasting.
4. Accuracy desired:
Accuracy in forecasting is very important. The previous method must be checked

for want of accuracy by observing that the predictions made in the past are accurate or
16 | P a g e
not. The accuracy of past forecasting can be checked against present performance and of
present forecasts against future performance. In some situations a forecast that is in error
by as much as 20% may be acceptable. In other situations a forecast that is in error by 1%
might be disastrous. The accuracy that can be obtained using any particular forecasting
method is always an important consideration.
5. Availability of data:
Immediate availability of data is an important requirement and the method

employed should be able to produce good results quickly. The technique which takes
much time to produce useful information is of no use. Historical data on the variable of
interest are used when quantitative forecasting methods are employed. The availability of
this information is a factor that may determine the forecasting method to be used. Since
various forecasting methods require different amounts of historical data, the quantity of
data available is important. Beyond this, the accuracy and the timeliness of the data that
are available must be examined, since the use of inaccurate or outdated historical data will
obviously yield inaccurate predictions. If the needed historical data are not available,
special data-collection procedures may be necessary.
6. Plausibility/Ease of operation and understanding:
The ease with the forecasting method is operated and understood is important.
Management must be able to understand and have confidence in the technique used. It has
to understand clearly how the estimate was made. Mathematical and statistical techniques
should be avoided if the management cannot understand what the forecaster does.
Managers are held responsible for the decisions they make and if they are to be
expected to base their decisions on predictions, they must be able to understand the
techniques used to obtain these predictions. A manager simply will not have confidence in
the predictions obtained from a forecasting technique he or she does not understand, and
if the manager does not have confidence in these predictions, they will not be used in the
17 | P a g e
decision-making process. Thus, the managers understanding of the forecasting system is
of crucial importance.
7. Durability:
The forecast should be durable and should not be changed frequently. The
durability of the forecasts depends on the simplicity and ease of comprehension as well as
on continuous link between the past and the present and between present and the future.
8. Flexibility:
The technique used in forecasting must be able to accommodate and absorb

frequent changes occurring in the economy.
18 | P a g e
TYPES OF FORECAST
A forecast is a prediction or an estimation of a future situation .The objectives of
an organization are facilitated by a number of different types of forecast. These may be
related to cash flows, operating budgets, personnel requirement, inventory levels, and so
on. However a broad classification of the types of forecasts is as follows.
1. Demand forecasts
2. Environmental forecasts
3. Technological forecasts
Demand forecasts:
Demand forecasting means an estimation of the level of demand that might be

realized in future under given circumstances. These are concerned with the predictions of
demand for products or services to minimize the uncertainties of the unknown future.
These forecasts facilitate in formulating material and capacity plans and serves as inputs
to financial, marketing and personnel planning. The forecast itself may be generated in a
number of ways, many of which depend heavily upon sales and marketing information.
Objectives of demand forecasting:
The objectives of forecasting are different in case of short run and long run forecasts.
 Short run forecasting:
Short run forecasting is usually a period not exceeding one year. The following are the
objectives of short run demand forecasting:
1. To evolve a suitable production policy:
Short term forecasts help the firm to plan the production so as to avoid the problems of
over production and short supply.
19 | P a g e
2. To plan the purchase of raw materials:
The firms can plan the purchase of raw materials at appropriate time to reduce the cost
and control inventories.
3. To arrange for short term financial requirements:
The firms require not only short term funds for purchase of raw materials and payment of
wages, but also medium term funds for replacement and renewal to maintain productive
efficiency.
4. To determine appropriate price policy:
Short run forecasting helps the firm to evolve a suitable price policy depending upon the
expected market conditions to maintain consistent sales.
5. To fix sales targets:
Realistic sales targets can be fixed for the salesmen on the basis of short term demand
forecasting. If the targets are too high the salesmen may fail to achieve them and they will
get discouraged. If the targets are too low the salesmen will achieve the targets so easily
that the incentives will prove meaningless.
 Long run forecasting:
Long run forecasting is generally for a period exceeding 3 years. The following are the
objectives of long run demand forecasting.
1. To plan the establishment of a new unit or expansion of an existing unit:
Planning of a new unit or expansion of an existing unit requires an analysis of the long
term demand potential of the products. The competitive strength of the firm will be
greater if it has better knowledge than the rivals of the growth trends in the economy.
20 | P a g e
2. To plan long term financial requirements:
Long run forecasts are essential to assess long term financial requirements. When the
funds required for expansion, modernization and diversification are large, it takes time to
make necessary arrangements for raising sufficient resources through long term loans and
the issue of shares and debentures.
3. To plan manpower requirements:
Long term demand forecasting is useful for manpower planning. Training and personnel
development can be started well in advance on the basis of estimates of manpower
requirements assessed according to long term demand forecasts.
Environmental forecasts:
Environmental forecasting is attempting to predict the nature and intensity of the

micro environmental and macro environmental forces that are likely to affect a firm's
decision making and have an impact upon its performance in a given period.
Environmental concerns such as pollution control, are much better managed from an
anticipatory rather than an after the fact standpoint. Environmental forecasts are
concerned with the social, political and economic environment of the state or the country.
Social Forecast:
It provides a better understanding of the forces shaping the environment. It should

provide confidence to manager that his decisions reflect assessment of these issues. The
use of social forecasting stems from recognition that social pressures are becoming an
increasing determinant for the success of any organization. The various indicators
indicate that the society will be experiencing a total change in next few years. Some of
these changes have to be anticipated and must be incorporated in any long-range plans of
an organization.
21 | P a g e
The purpose of social forecasting is to provide an analytical framework for
helping the corporate decision-maker to make his own judgment based on analysis.
The social forecasting may not guarantee that correct decisions will be taken. Nor
will it ensure that forecasts will be obtained from the emerging trends. It provides a better
understanding of the forces shaping the environment. In social forecasting we include all
those environmental factors that are not currently embraced by economic or technological
forecasting. Primarily it involves individual as customer, supplier, manager or employee.
It concerns people in-groups both inside as well as outside organizations. It further
unfolds to government, society in general and to transnational organizations.
Economic forecast:
Economic forecasting is essentially concerned with modeling how people behave

using financial criteria as a means for maximizing welfare. It is dependent on certain
assumption of people behavior. If the behavior changes the forecast is likely to change.
Economic forecasts are valuable because they help in predicting inflation rates, money
supplies, operating budget and so on.
The Techniques Available for Environmental Forecasting:
a. Brainstorming
b. Delphi
c. Checklists
d. Forecasting of issues in isolation
e. Simple extrapolation
f. Fitting curves of a known characteristic
g. Analogies
22 | P a g e
h. Substitution curves
i. Monitoring
j. Value profiles
k. Cross relationships between factors
l. Trend impact analysis
m. Cross impact analysis
n. Scenarios
Technological forecasts:
It is forecasting the future characteristics of useful technological machines,

procedures or techniques. These are concerned with new developments in existing
technologies as well as the development of new technologies. They have become
increasingly important to major firms in the computer, aerospace, nuclear and many other
technologically advanced industries.
SEVEN KEYS TO BETTER FORECASTING
23 | P a g e
Sales forecasting is a management function that companies often fail to recognize
as a key contributor to corporate success. From a top-line perspective, accurate sales
forecasts allow a company to provide high levels of customer service. When demand can
be predicted accurately, it can be met in a timely and efficient manner, keeping both
channel partners and final customers satisfied. Accurate forecasts help a company avoid
lost sales or stock-out situations, and prevent customers from going to competitors. At the
bottom line, the effect of accurate forecasts can be profound. Raw materials and
component parts can be purchased much more cost-effectively when minute, spot market
purchases last can be avoided. Such expenses can be eliminated by accurately forecasting
production needs. Similarly, logistical services can be obtained at a much lower cost
through long-term contracts rather than through spot market arrangements. However,
these contracts can only work when demand can be predicted accurately. Perhaps most
important, accurate forecasting can have a profound impact on a company's inventory
levels. In a sense, inventory exists to provide a buffer for inaccurate forecasts. Thus, the
more accurate the forecasts, the less inventory that needs to be carried, with all the well-
understood cost savings that brings. The ultimate effects of sales forecasting excellence
can be dramatic. Our objective here is to take what we've learned about sales forecasting
of company, and summarize that learning into seven key focus points that will help any
company improve its forecasting performance. Although no management function can be
reduced to seven keys, or 7 keys for that matter, our hope is that the ideas presented here
will inspire senior management to look closely at their own sales forecasting practices and
recognize opportunities for improvement.
Key 1:- Understand What Forecasting Is, and What It Is Not
The first and perhaps most important key to better forecasting is a complete
understanding of what it actually is and-of equal importance- what it is not. Sales
forecasting is a management process, not a computer program. This distinction is
important because it affects so many areas across an organization. Regardless of whether
a company sells goods or services, it must have a clear picture of how many of those
goods or services it can sell, in both the short and long terms. That way, it can plan to
24 | P a g e
have an adequate supply to meet customer demand. Forecasting is critical to a company's
production or operations department. Adequate materials must be obtained at the lowest
possible price; adequate production facilities must be provided at the lowest possible cost;
adequate labor must be hired and trained at the lowest possible cost; and adequate
logistics services must be used to avoid bottlenecks in moving products from producers to
consumers. None of these fundamental business functions can be performed effectively
without accurate sales forecasts. Many companies consider the most important decisions
about forecasting to revolve around the selection or development of computer software
(for preparing the forecasts. They have adopted the overly simplistic belief that "If we've
got good software, we'll have good forecasting." I have observed numerous instances of
sophisticated computer systems put into place, costing enormous amounts of time and
money that have failed to deliver accurate forecasts. This is because system
implementation has not been accompanied by effective management to monitor and
control the forecasting process. Some have organized independent groups or departments
that are responsible for the entire forecasting process, both short- and long-term. Another
way in which companies confuse what forecasts are and what they are not is by failing to
understand the relationship between forecasting, planning, and goal setting. A sales
forecast should be viewed as an estimate of what future sales might be, given certain
environmental conditions. A sales plan should be seen as a management decision or
commitment to what the company will do during the planning period. A sales goal should
be a target that everyone in the organization strives to attain and exceed. Each of these
numbers serves a different purpose. The primary purpose of the sales forecast is to help
management formulate its sales plan and other related business plans -its commitment to
future activity. The sales plan's purpose is to drive numerous tactical and strategic
management decisions (raw material purchases, human resource planning, logistics
planning, and so on), realistically factoring in the constraints of the firm's resources,
procedures, and systems. The sales goal is primarily designed to provide motivation for
people throughout the organization in meeting and exceeding corporate targets.
Key 2: Forecast Demand, Plan Supply
25 | P a g e
One mistake many companies make is forecasting their ability to supply goods or
services rather than actual customer demand. At the beginning of the forecast cycle, it is
important to create predictions that are not constrained by the firm's capacity to produce.
Consider the forecaster for a certain product who questions the company's sales force and
learns they could sell 1,500 units per month. At the same time, current manufacturing
capacity for that product is 1,000 units per month. If the forecaster takes that production
capacity into account when creating initial forecasts, and predicts 1,000 units, there is no
record of the unmet demand of 500 units per month, and the information on where to
expand manufacturing capacity is lost. This problem often occurs when historical
shipments are used as the basis for generating forecasts. Forecasting shipments will only
predict a company's previous ability to meet demand. Suppose demand for a particular
product in the past had been 10,000 units per month, but the supplier could only ship
7,500. Corporate history would show shipments at 7,500 units per month, (thus causing
this amount to be projected and produced again the following month. The result is
twofold: the impression of an accurate forecasting system, but an actually recurring
unfulfilled monthly demand of 2,500 units. Forecasting based on shipping history only
leads a company to repeat its former mistakes of not satisfying customer demand.
Predicting actual demand allows measurement of the disparity between demand and
supply so it can be reduced in future periods through plans for capacity expansion. Often
the symptom of this key is the attitude, “We do a great job of forecasting. We are very
accurate, always selling close to what we forecast." Notice in the previous example that
the forecast accuracy would appear very good because both the forecast and the actual
sales were 7,500 units each month. The key, however, is the failure to realize the 2,500
units in sales lost each month because of an inability to meet demand. In fact, the "true"
demand forecasting accuracy was not 100 percent, but only 75 percent. Forecasting by
shipments and obtaining accurate results are often symptomatic of chronic under
forecasting of demand. Unfortunately, determining actual customer demand is more
difficult than predicting a company's ability to supply. Systems and processes are needed
to capture this elusive demand that was not fulfilled. Mechanisms are needed to allow
salespeople to provide valuable information about customers who would order more if
26 | P a g e
they could. In addition, records of orders accepted but not filled in the period demanded
adds to the demand versus supply level of information.
Key 3: Communicate; Cooperate, Collaborate
Companies that forecast most effectively consider it critical to obtain input from
people in different functional areas, each of whom contributes relevant information and
insights that can improve overall accuracy. But employees are often unable or unwilling
to work across functions to achieve high levels of forecasting performance. To do so
require a great deal of communication across department boundaries, and not all
communicating is equal; some companies are simply better at it than others. When it
comes to cross-functional forecasting, we distinguish among three levels: communication,
cooperation, and collaboration. Companies at lower levels of sophistication merely
communicate. This can take the form of one-way reports, in which one department
responsible for forecasting informs other functional areas of the results of its efforts. With
coordination, representatives from different functional groups meet to discuss the
forecast. Often, however, one area-usually the one that "owns" the forecast-will dominate
the discussions and work to persuade the other functions to accept the forecast it has
created. Coordination is superior to one-way communication, because at least there is
opportunity for some dialogue. But it does not promote as effective a forecasting process
as when different constituencies in a company collaborate. Here, the views of each
functional area receive equal consideration, and no one department dominates. Such
collaboration is most likely to occur when management of the forecasting process resides
in an independent department instead of being part of marketing, finance, logistics, or
production. Each area, with its unique biases and agendas, can contribute equally to a true
consensus forecast. In several companies we have worked with, the functional area
responsible for generating forecasts-usually marketing-makes little effort to obtain input
from other affected areas, such as production planning, operations, or logistics. A number
of negative consequences result. First, critical information about production lead times or
capacity constraints are not taken into account when the forecast is finalized. Because this
information is missing, forecast users have little trust in projections they did not help
27 | P a g e
develop. This lack of trust leads to duplicated forecasting efforts. In one company, the
production scheduling department was so distrustful of the forecasts developed by
marketing that it completely ignored them and created a whole "black market" forecasting
system. Had a consensus-based approach been used, such nonproductive duplication of
efforts could have been avoided. A further consequence of not working cross functionally
is a lack of understanding of the assumptions that go into forecasts, which leads to further
distrust. In another company, a production scheduler would adjust the forecasts to take
into account the seasonality she believed was present in the marketplace. However, she
was not aware that the marketing department had already accounted for that seasonality in
the information they gave her. Had production planning been involved in a consensus-
based forecasting process, the scheduler's adjustments-which skewed the forecasts, would
not have been made?
It is most important in effective forecasting to establish a mechanism that brings

people from multiple organizational areas together in a spirit of collaboration. Such a
mechanism, often organized by an independent forecasting group, ensures that all relevant
information is considered before forecasts are created. One such mechanism is in place at
a national consumer products firm, in which the forecasting group organizes and holds
regularly scheduled, half-day meetings that bring together representatives from National
Accounts (sales), product management (marketing), production planning, logistics, and
finance. Each participant comes to the meeting prepared to demand over the forecast
period. Formal minutes are kept to document the reasons for making adjustments. The
end product is a consensus forecast, with numbers that its users have helped develop.
Duplicate forecasting efforts are eliminated and all the parties can trust the final result: a
more accurate and relevant forecast.
Key 4: Eliminate Islands of Analysis
Islands of analysis are distinct areas within a firm that perform similar functions.
Each area maintains a separate process, thereby performing redundant tasks and often
having the same responsibilities. Because islands of analysis are often supported by
28 | P a g e
independent computer systems (which often are not electronically linked to other systems
within the firm), information contained within the different islands is not shared between
them. In research, I have identified forecasting islands in logistics, production planning,
finance, and marketing. They have usually emerged because of a lack of inter functional
collaboration between units, which leads to a lack of credibility associated with the
forecast. Because the "official" forecast generated in a particular department may not be
credible to forecast users, the latter often take steps to implement processes and systems
to create their own forecast. Islands of analysis are detrimental to corporate performance.
Forecasts developed in this manner are often inaccurate and inconsistent. Because each
area maintains its own forecasting process and often its own computer system, data-if
shared at all-are shared only through manual transfers, which are prone to human errors.
When completely separate systems are used, the assumptions that underlie the forecasts,
such as pricing levels and marketing programs, tend to differ from one system to the next.
Moreover, each area forecasts with a unique bias, making separate predictions
inconsistent and unusable by other areas. Redundancies generated by separate systems
cost the firm both money and valuable personnel time and energy. Employee frustration
builds up, along with an overall lack of confidence in the forecasting process. To solve
this problem, management must devote attention to eliminating the factors that encourage
the development of islands of analysis.
Key 5: Use Tools Wisely
Many companies tend to rely solely on qualitative tools-the opinions of

experienced managers and/or salespeople-to derive forecasts, ignoring such quantitative
tools as regression and time- series analysis. Alternatively, many companies expect the
application of quantitative tools, or the computer packages that make use of them, to
"solve the forecasting problem." The key is that both quantitative and qualitative tools are
integral to effective sales forecasting. To be effective, however, they must be understood
and used wisely within the context of the firm's unique business environment. Without
understanding where qualitative techniques, time series and regression do and do not
work effectively, it is impossible to analyze the costs and achieve the benefits of
29 | P a g e
implementing new forecasting tools. One common symptom of a failure to realize this
key is the existence of detailed sales forecasting processes that, when examined, reveal
the subjective judgments of managers or salespeople as the only input used in the
forecast. In other words, the company has a quantitative sales forecasting process that
supports only qualitative forecasts. It relies too much on the ability of experienced
personnel to translate what they know into a forecast number, without taking into account
the myriad of quantitative techniques and their ability to analyze patterns in the history of
demand. The opposite symptom is a sales forecasting process that performs intensive
numerical analysis of demand history and the factors that relate statistically to changes in
demand, but with no qualitative information on the nature of the market and what causes
demand to change. The company depends too much on the ability of these techniques to
determine estimates of future demand without taking experience into account. A variation
on these symptoms is relying on a “black box" forecasting system. This occurs when a
company has a sales forecasting computer package, or "box," into which historical sales
data are fed and the forecasts come out, but no one seems to know how it comes up with
them, or even what techniques it uses. The company abrogates its responsibility by
turning the important job of sales forecasting over to a computer package that nobody
understands. Using forecasting tools wisely requires knowing where each type of tool
works well and where it does not, then putting together a process that uses the advantages
of each in the unique context of the firm. Salespeople who do a poor job of turning their
experience into an initial forecast may be good at taking an initial quantitative forecast
and qualitatively adjusting it to improve overall accuracy. Time series models work well
in companies that experience changing trends and seasonal patterns, but they are of no
use in determining the 'relationship between demand and such external factors as price
changes, economic activity, or marketing efforts by the company and its competitors. On
the other hand, regression analysis is quite effective at assessing these relationships, but
not very useful in forecasting changes in trend and seasonality. To apply this key, a
process should be implemented that uses time series to forecast trend and seasonality,
regression analysis to forecast demand relationships with external factors, and qualitative
input from salespeople, marketing, and general management to adjust these initial
quantitative forecasts. This general recommendation must be refined for each individual
30 | P a g e
company by finding the specific techniques that provide the most improved accuracy.
Finally, key personnel involved in either the quantitative or the qualitative aspects of the
forecasting process need training in using the techniques, determining where they work
and do not work, and incorporating qualitative adjustments in the overall forecasting
process.
Key 6: Make it important
What gets measured gets rewarded, and what gets rewarded gets done; say
Mentzer and Bien- stock (1998). This management truism is the driver behind our final
two keys. Sales forecasting is often described by senior management as an important
function. But although this assessment may be shared by individuals throughout the firm,
few organizations institute policies and practices reinforcing the notion that forecasting is
important for business success. There is often a gap between management's words and
their actions. Companies frequently tell those who develop forecasts that "forecasting is
important," but then fail to reward them for doing the job well or punish them for doing it
poorly. Forecast users become frustrated by a perceived lack of interest and accountability
for accuracy among forecasters. Such frustration often leads them to manipulate existing
forecasts or, in the extreme case, develop islands of analysis that duplicate forecasting
efforts and ignore valuable ideas. One way to gauge how important forecasting is to a
firm is to determine how familiar users and developers are with the entire process.
Without such familiarity, individuals involved in forecasting throughout the firm have
little appreciation of the impact of their inaccuracies and are therefore unlikely to spend
the time and attention needed to do the job well. As a result, users perceive that
forecasters are not taking the task seriously and thus discount the value of what they
produce. A number of actions can be taken to address this gap in forecasting importance.
One way is to give all individuals involved adequate training. Forecast creators and users
must know where and how forecasts are used throughout the firm. When forecasters
become aware of all the down- stream ramifications of sloppy work, the task takes on
more relevance to them. Marketing and salespeople who typically are concerned about
forecasting only at the product or product line level should understand that this does not
31 | P a g e
provide the necessary detail for operations to plan stock-keeping unit (SKU) production
or for logistics to make SKUL (by location) shipment plans. Similarly, forecast users
should be more aware of the needs and capabilities of forecast developers. Another action
management can take is to incorporate forecasting performance measures into job
performance evaluation criteria clearly. Salespeople, product managers, and other fore-
casters will see the importance of the task if salient rewards follow as a result of
forecasting excellence. Even senior managers become interested when the metrics of
accuracy are worked into their personal performance evaluations and bonus plans. But
focusing on senior management is not enough. One company includes forecast accuracy
as a meaningful part of the performance plans of its senior executives, but not of those on
the “front line" who work with forecasts on a daily basis. The job has not been made to
seem important to those who do it, with the effect that it is still not done very well. This is
particularly true of the people who are typically responsible for initial forecast input-the
sales force. At nearly all the benchmark and audit companies, salespeople are critically
important pieces of the forecasting puzzle. Yet in almost all cases, the ones who develop
forecasts receive neither feedback on how well they forecast nor any type of reward for
doing it well. Many agree with a salesman for a high-tech manufacturer, who said, "My
job is to sell, not forecast." Similarly, product managers, who also provide critical input to
the forecasting process at many companies, often consider forecasting an extra burden
that takes them away from their "real jobs."
Key 7: Measure, Measure, Measure
Obviously, before forecasters can be rewarded for excellence, a company must

first develop systems for measuring performance, tools for providing feedback, and
standards and targets for what constitutes forecasting excellence. Without the ability to
effectively measure and track performance, there is little opportunity to identify whether
changes in the development and application of forecasts are contributing to, or hindering,
business success. This key may be intuitive for most business managers, yet our research
has identified surprisingly few companies that systematically measure forecasting
management performance. In cases where measures have been implemented, they are
32 | P a g e
infrequently used for performance assessment or to identify opportunities for
improvement. A primary symptom indicating a lack of performance measurement can be
gleaned from conversations with individuals involved in the forecasting process. Simply
asking for a measure of forecasting accuracy typically elicits a response of 'pretty good,"
"lousy," or other general descriptors. In some cases, the answer may include a number
considered to be a measure of accuracy, such as "75 percent," or error, such as "25
percent." Further inquiry may indicate that the source of the measure is based on a general
"feeling," estimate, or a second- or third-hand source of information, and the respondent
is unsure of how such measures were calculated or what level of aggregation was used.
In cases where measures are collected and documented, there may still be insufficient
detail or little realization as to how they can help identify opportunities for forecasting
improvement. Generally we have found that even when accuracy has been measured over
time, few individuals who contribute to forecast development review the history and can
determine whether their performance has improved, remained constant, or deteriorated.
This reflects a complacency toward performance measures when such measures are not
used to evaluate a person's job performance, or do not provide support for identifying
sources of forecasting error. Effective measures evaluate accuracy at different levels of
aggregation. Logistics operations are interested in forecast performance at the SKUL
level; sales managers may be more interested in a forecast stated in dollars and at the
territory or product line level of aggregation. Performance metrics should support these
various units of measure as well as the aggregation of demand at different levels. It is also
important to track accuracy at each point at which forecasts may be adjusted. As an
illustration, the forecasting task of the sales force of one company is to examine
"machine-generated" forecasts for their customers and make adjustments. Those
adjustments are then measured against actual sales to determine whether the salesperson's
adjustment improved the forecast or not. Similarly, the product manager's job is to take
the machine-generated forecast, which has been adjusted by the sales force, and make
further adjustments based on knowledge of market conditions or upcoming promotional
events. Once again, these adjustments are measured against actual sales to determine
whether they improved the forecast. In both cases, the salespeople and the product
manager gain feedback that helps them improve their efforts. Finally, companies should
33 | P a g e
assess forecasting accuracy in terms of its impact on business performance. Accurate
forecasts should not be an end in themselves, but rather a means to achieving the end,
which is business success. Improvements in accuracy require expenditures of resources,
both human and financial, and should be approached in a return-on-investment
framework. For example, in a distribution environment, maintaining or improving
customer service may be a worthy corporate objective. Investment in more accurate
forecasts may be one way to achieve that objective. However, if the investment required
improving accuracy significantly is very high, then alternative approaches to improving
customer service, such as carrying higher inventory levels, should be considered. The
resulting strategy for improving customer service will then be based on sound business
analysis. Measuring and tracking accuracy will ultimately help build confidence in the
forecasting process. As the users realize mechanisms are in place to identify and eliminate
sources of error, they will probably use the primary forecast developed to support all
operations in the company. Islands of analysis will begin to disappear. And the
organization will be able to assess the financial return from forecasting management
improvements.
INTRODUCTION ABOUT COMPANY
34 | P a g e
Amara Raja Batteries is an India-based automotive and industrial battery
manufacturing company established in 1985. The parent company of Amara Raja
Batteries employs around 3000 personnel. Its clients include major automobile
manufacturers like Daimler Chrysler, Ford, and General Motors.
The manufacturing and R&D facilities of Amara Raja Batteries are ISO:9001,
QS:9000, and TS 16949 certified. Amara Raja Batteries is one of the leading global
manufacturers of advanced lead acid batteries for industrial and automotive uses. Amara
Raja Batteries Ltd. is a joint venture between the Amara Raja Group and Johnson
Controls Inc., US. Amara Raja Batteries is the largest producer of standby batteries for
railways, telecommunication, and power generating stations in India. Further, its modern
manufacturing site is well-equipped to produce 4.5 million batteries annually. Amara Raja
Batteries posted net sales of Rs. 40,83,573 million for the financial year ended 2008-
2009. Amara Raja Batteries registered a net profit Rs. 470.43 million for the financial
year ended 2008-2009. Amara Raja Batteries Ltd. is headed by Mr. Ramachandra N
Galla, Chairman and Mr. Jayadev Galla, Managing Director.
Amara Raja Batteries product line includes -
Industrial products
 Power Stack
 Quanta
Automotive products
 Amaron Hi-life
 Hi – Way
 Harvest
 PRO
 GO
 Fresh
 Optima
35 | P a g e
 Shield
Amara Raja Batteries Ltd. (ARBL) Facts & Figure
 ARBL is a flagship company of 3000 crores Amara Raja Group
 ARBL is a joint venture between Amara Raja Group and Johnson Control Inc.
USA. As of now 26% equity is with JCI and Amara Raja Group each and the rest
46% is with the public.
 ARBL Manufacture’s a range of highly versatile products that have found

extensive use in diverse critical Back Up application.
 Amara Raja has the unique distinction of being the pioneer and the largest
manufacture of Maintenance Free (VRLA) batteries in the Indian Ocean Rim.
Amara Raja is the manufacturer of highest range of SMF-VRLA Batteries (26Ah
to 6000Ah)
 ARBL has one of the biggest plant in India (Area of 200 Acres), most advanced
Microprocessor controlled and fully integrated state of art manufacturing facility
located at Tirupati, Andhra Pradesh with Capital outlay of Rs.150 crores. Amara
Raja is the 10th Largest MF-VRLA battery manufacturer in the world.
 Amara Raja has been awarded the ISO 9001, QS 9000, ISO 14001 and ISO/TS
16949 Certification by RWTUV, Germany for its strict implementation of Quality
and Environmental Pollution Control
 Amara Raja has one of the most advance and well equipped batteries testing
facility.
 Amara Raja is the most preferred supplier of Automobile Batteries for Auto major
likes Ford India, General Motors, TATA Motors, Mahindra & Mahindra,
Hindustan Motors etc.
36 | P a g e
Amara Raja’s Amaron Quanta SMF Batteries is used in almost all the sectors.
Top 5 Customers in each sector
BANKS
 SBI
 BANK OF MAHARASHTRA
 IDBI
 CANARA
 CORPORATION BANK
IT COMPANIES
 TCS
 L & T INFOTECH
 INFOSYS
 IBM
 PATNI COMPUTERS
INSURANCE
 BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD.
 BAJAJ ALLIANZ LIFE INSURANCE CO. LTD.
 LIC
 KOTAK LIFE INSURANCE
37 | P a g e
 BIRLA SUN LIFE INSURANCE
FINANCIAL SERVICES
 BAJAJ AUTO FINANCE LTD
 GE MONEY FINANCE LTD
 LIC HOUSING FINANCE LTD
 CITI CORP FINANCE LTD
 STANDARD CHARTERED FINANCE LTD
BPO
 WIPRO
 INFOSYS
 CONVERGYS INDIA SERVICES
 IBM
 ZENSAR TECHNOLOGIES
HOSPITALS
 JEHANGIR HOSPITAL
 K E M HOSPITAL
 SANCHETI HOSPITAL
 SINHDAD HOSPITAL
 NAIK HOSPITAL
38 | P a g e
HOTELS
 SUN N SAND
 LE MERIDIEN
 TAJ BLUE DIAMOND
 LEMON TREE HOTEL
 HOTEL AURORA TOWERS
COLLEGES
 PUMBA
 SYMBIOSIS
 BHARTI VIDYAPEETH
 ITI COLLEGE
 GOVT. COLLEGE OF ENGG
Why prefer SMF Battery than Lead Acid Battery?
Are you still using a lead acid battery for your Inverter? Do you know that these
batteries give out lead fumes that pollute the surrounding air to a great extent? Now when
you breathe this air I hope you understand how much of damage you are causing to your
health. It’s not only you who suffer but your whole family.
These lead acid batteries emit harmful fumes when they are charged. The lead
plates in the battery react with acid and water in the process of storing electricity. These
heats up the battery, thus the lead fumes are emitted into the atmosphere.
39 | P a g e
Now if the battery is located in an air-conditioned space it could be even more
dangerous as there is no fresh air to dilute the lead fumes which will continue being
generated and re-circulated.
But you need not worry any more: Amara Raja has come up with a new range of
batteries. Sealed Maintenance Free Batteries, more commonly known as SMF. These
batteries are fully sealed. SMF Batteries are highly recommended for Inverters. They are
safe and maintenance free. These fully sealed batteries emit no fumes. They do not need
any water topping as compared to a lead acid battery thus eliminates any sort of
maintenance. The charging time of these SMF Batteries are much less compared to an
ordinary battery.
SMF Batteries is the last word in reliability, manufactured in a strict quality-

control environment and are surely going to outperform your expectations.
Amaron’s Quanta SMF Batteries are now available at an all-time low price- Hats
off to the large manufacturing plants and high levels of Research and Development that
has led to minimize the manufacturing costs. Now, one can easily afford them. By now I
hope you get to know the real picture. If still now you are using a lead acid battery you
are not only causing damages to your health but also polluting the surrounding
atmosphere. So please opt for a SMF Battery and lead a healthy and safe life.
DATA ANAYLSIS
Q1. Which company SMF Battery do you have?
40 | P a g e
Comment – From the above data it is very well cleared that all the battery dealers keep
almost all Company Batteries. Most shop has Amaron Quanta, Exide and Rocket Battery
at their shop.
Q2. Which Company is most preferred by the customer?
Comment – 18 out of 50 told that customer prefer Quanta SMF Batteries as compared to
other. From this research it is clear that Market Share of Quanta SMF Batteries is around
36%
Q3. Why did customer prefer this brand over other brand?
41 | P a g e
Comment – From this data I said that customer preference is mainly depend upon Life of
the Battery, and then it come Warranty and Cost.
Q4. How much is your average monthly Sale? (In Number of Units)
Comment – Average Monthly Sale of most of the shopkeeper is between 100 to 150 units
per month. Only 5 respondents told that their average monthly sale is more than 250 units
per month.
Q5. How much is your average monthly Inventory? (In Number of Units)
42 | P a g e
Comment – After data interpretation it is clear that almost 80% shopkeeper’s monthly
average Inventory depend upon monthly average Sale. Around 32% respondents have 30
to 40 units per month
Q6. How much Inventory Cost is important for you?
Comment – 38 out of 50 respondents told that Inventory Cost is very Important for them,
where as 12 out of 50 respondents told that Inventory Cost is Important.
Q7. Your Inventory of Batteries is depending on?
43 | P a g e
Comment – 68% of the respondents said that their inventory is depending upon Higher
Demand of Batteries in Market, whereas for 18% it is depending upon Company Sales
Target. And other keep more Inventory because they take benefit of Company Scheme
and Discount.
Q8. Do you have any Sale Forecasting Software?
Comment - 10% of the respondents said they have Sale Forecasting Software as
compared to
90% of the respondents who don’t have software.
Q9. Are you maintaining the Sale Record for Future Forecast?
44 | P a g e
Comment – 32 out of 50 respondents always maintain the Sale Record for Future
Forecast whereas 15 respondents very often maintain the Sale Record.
Q10. Does your Inventory decision depend upon the past Sales Record?
Comment - 86% of the respondents says that their Inventory decision depend upon the
past Sales Record as compared to 14 % of the respondents who says that their Inventory
decision does not depend upon the past Sales Record.
Q11. Forecasting plays an important role in proper Inventory Management?
45 | P a g e
Comment – 78% shopkeeper belief that Forecasting plays an important role in proper
Inventory Management
Conclusion
46 | P a g e
After deeply studying the various parameters of Inventory, forecasting and its
importance I come to conclusion that, Forecasting plays a very important role in proper
Inventory Management. Inventory management is a very simple concept - don't have too
much stock and don't have too little. Since there can be substantial costs involved in
straying above and below the optimal range, careful inventory management can make a
huge difference in the profitability of a business.
Forecasting plays a very important role in the proper Inventory Management.

Accurate forecasting is required to maintain exact inventory which helps in proper Capital
Management. Without a solid idea of what your future sales are going to be, you can’t
manage your inventory or your cash flow or plan for growth. The purpose of sales
forecasting is to provide information that you can use to make intelligent business
decisions.
Findings:
 Market Share of Amara Raja Amaron Quanta Batteries is 36%
 78% shopkeeper belief that Forecasting plays an important role in proper

Inventory Management
 80% shopkeeper’s monthly average Inventory depend upon monthly average Sale
 38 out of 50 respondents told that Inventory Cost is very Important for them,
whereas 12 out of 50 respondents told that Inventory Cost is Important.
 64% shopkeepers always maintain Sales Record for Future Sales Forecast.
Questionnaire
47 | P a g e
This research is being carried out to find out the Importance of Sale Forecasting on
Inventory Management. Please answer the questions freely. The personal information will
not be disclosed to anybody.
Q1. Which company SMF Battery do you have?
□ Amaron Quanta
□ Exide
□ Rocket
□ Su - Kam
□ Others
Q2. Which Company is most preferred by the customer?
□ Amaron Quanta
□ Exide
□ Rocket
□ Su – Kam
□ Others
Q3. Why did customer prefer this brand over other brand?
□ Warranty
□ Long Life
□ Cost
□ After Sale Service
□ Others (please specify)_____________
48 | P a g e
Q4. How much is your average monthly Sale? (In Number of Units)
□ 50 – 100 units
□ 100 – 150 units
□ 150 – 200 units
□ 200 – 250 units
□ > 250 units
Q5. How much is your average monthly Inventory? (In Number of Units)
□ 10 – 20 units
□ 20 – 30 units
□ 30 – 40 units
□ 40 – 50 units
□ > 50 units
Q6. How much Inventory Cost is important for you?
□ Very Important
□ Important
□ Neutral
□ Less Important
□ Not Important
Q7. Your Inventory of Batteries is depending on?
49 | P a g e
□ High Demand
□ Company Scheme & Discount
□ Company Sales Target
□ Other
Q8. Do you have any Sale Forecasting Software?
□ Yes
□ No
Q9. Are you maintaining the Sale Record for Future Forecast?
□ Always
□ Very often
□ Sometimes
□ Can’t say
□ Never
Q10. Does your Inventory decision depend upon the past Sales Record?
□ Yes
□ No
Q11. Forecasting plays an important role in proper Inventory Management?
□ Strongly agree
□ Agree
□ Neither agree nor disagree
□ Disagree
50 | P a g e
□ Strongly Disagree
Name of Shop: ___________________________________________________________
Dealer / Distributer Name: __________________________________________________
Date:
Thank You!
Annexure B
CODING & dATA
51 | P a g e
1 2 3 4 5 6 7 8 9 10 11
1 a,c,d,e a B d d a a b a a a
2 b,c c B b b a a b a a a
a,b,c,d,
3 e a B c c a a a b a a
4 a,b,e b A c d b c b a a a
5 a,c,d c C d d a a b a b a
6 b,c,d d D b c a c b a a a
7 a,c,e a B b b a a b b a b
8 a,b,e c B c c a a b a a a
9 a,b,c,d b A c d a a b b a a
1
0 c,d,e e B d d b a b b a a
1
1 b,c,e a A b b a b b a a a
1
2 a,b,c,d d A c c a a a a a a
1
3 a,c,d,e e B c c a c b a b a
1
4 a,b,d c C d d b c b a a b
1
5 a,b,c,e c D b c a a b b a c
1
6 a,d,e a b b b a a b b a a
1
7 b,c,d d b c e a b b b a b
1
8 a,b,c,e b c d e b a b a b a
1
9 a,b,e a b b b a a b a a a
2
0 b,c,d,e c a a a b c b a a a
2
1 a,c,e e a d c a a b a a a
2
2 a,b,c,d a a b c b b b a b c
2
3 c,d,e c b c c b b b b a a
2
4 a,b,c,d b b c c a a b b a a
2
5 a,b,d,e a a b b a a b c 52
a | P abg e
2
6 a,c,e b c d d a a b a a a
CODE
Question Scale Coding
Q 1. Which Company SMF Battery do you have? □ Amaron Quanta 1
□ Exide 2
□ Rocket 3
□ Su - Kam 4
□ Others 5
Q 2. Which Company is most preferred by the □ Amaron Quanta 1

Customer? □ Exide 2
□ Rocket 3
□ Su – Kam 4
□ Others 5
Q 3. Why did Customer prefer this brand over □ Warranty 1

Other Brand? □ Long Life 2
□ Cost 3
□ After Sales Service 4
□ Others 5
Q 4. How much is your average monthly Sale? □ 50 – 100 units 1

(In Number of Units) □ 100 – 150 units 2
□ 150 – 200 units 3
□ 200 – 250 units 4
□ > 250 units 5
Q 5. How much is your average monthly □ 50 – 100 units 1

Inventory? (In Number of Units) □ 100 – 150 units 2
□ 150 – 200 units 3
□ 200 – 250 units 4
□ > 250 units 5
Q 6. How much Inventory Cost is important for □ Very Important 1

you? □ Important 2
□ Neutral 3
53 | P a g e
□ Less Important 4
□ Not Important 5
Q 7. Your Inventory of Batteries is depending □ Sale Forecast 1

on? □ Company Scheme & Discount 2
□ Company Sales Target 3
□ Others 4
Q 8. Do you have any Sale Forecasting Software? □ Yes 1

□ No 2
Q 9. Are you maintaining the Sale Record for □ Always 1

Future Forecast? □ Very Often 2
□ Sometimes 3
□ Can’t say 4
□ Never 5
Q 10. Does your Inventory decision depend upon □ Yes 1

the Past Sales Record? □ No 2
Q 11. Forecasting plays an important role □ Strongly Agree 1

in proper Inventory Management? □ Agree 2
□ Neither agree Nor disagree 3
□ Disagree 4
□ Strongly Disagree 5
54 | P a g e

Report Final

Enviado por

Dados do documento

Descrição original:

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Report Final

Enviado por

Direitos autorais:

Formatos disponíveis

THE INTERNATIONAL INSTITUTE OF PLANNING AND

“Role of Forecasting on Inventory Management”

Submitted to: Prof Satyabrata Dutta Gupta

External Guide: Mr. Gaurav Dagwar

Submitted By: Ashish Bhoot

Alumni No.: IIPM/SS/08-10/PUN/MKTG/024

Phone No: - 9822710284

Email ID: - aashish.bhoot@gmail.com

Area of Research: - Pune

Title of Thesis: -“Role of Forecasting on Inventory Management”

Problem Definition and Hypothesis: -

Forecasting can be done by Market Research. Scope of research is to find-

1) To find the market potential of Sealed Maintenance Free (SMF) Battery.

2) To find market share of Amaron Quanta SMF Batteries.

Details of external guide: - Mr. Gaurav Dagwar

Mr. Gaurav Dagwar

Name - Ashish Rameshchandra Bhoot

Phone No. - 09822710284

The Topic of the Study - “Role of Forecasting on Inventory Management”

Date when the Guide was consulted - 01/02/2010

In the first meeting following points were discussed -

The Result of the first meeting -

 Objective Studied & Finalized

Mr. Gaurav Dagwar

Name - Ashish Rameshchandra Bhoot

Phone No. - 09822710284

The Topic of the Study - “Role of Forecasting on Inventory Management”

Date when the Guide was consulted – 30/06/2010

Progress of the Thesis -

 Discussion on prospect and challenges of working on the topic for

 Preparation of the draft Questionnaire for changes to be made and

 Deciding upon methods of data collection and estimation of the time

 Discussion and review on the collected secondary data

Mr. Gaurav Dagwar

Name - Ashish Rameshchandra Bhoot

Phone No. - 09822710284

The Topic of the Study - “Role of Forecasting on Inventory Management”

Date when the Guide was consulted – 05/07/10

 Finalizing the Questionnaire and review of change made

 Sourcing of secondary data from different sources like – Books,

 Segregating and preparing Secondary data relevant to the topic

 Discussion & review on the collected secondary data

Mr. Gaurav Dagwar

Name - Ashish Rameshchandra Bhoot

Phone No. - 09822710284

Date when the Guide was consulted – 10/07/10

Progress of the Thesis -

 Preparation of final Thesis Format

Mr. Gaurav Dagwar

Name - Ashish Rameshchandra Bhoot

Phone No. - 09822710284

The topic of the Study - “Role of Forecasting on Inventory Management”

Date when the Guide was consulted – 17/07/10

Progress of the Thesis -

Mr. Gaurav Dagwar

Name - Ashish Rameshchandra Bhoot

Phone No. - 09822710284

The topic of the Study - “Role of Forecasting on Inventory Management”

Date when the Guide was consulted – 24/07/2010

Progress of the Thesis -

Mr. Gaurav Dagwar

Mr. Gaurav Dagwar

The task of inventory planning can be highly complex in manufacturing