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DEMAND FORECASTINGTHE BASIC FORECASTING PROCESS

THE DECEMBER CUSTOMER SURVEY FOR EACH PRODUCT (SEE SEGMENT ANALYSIS) CAN BE USED TO APPROXIMATE MARKET SHARE IN THE FOLLOWING PERIOD:

POTENTIAL UNIT DEMAND (SURVEY SCORE/SUM OF ALL SCORES IN FINE CUT)(TOTAL UNIT DEMAND)TOTAL UNIT DEMAND IS FOR NEXT ROUND

AUGMENT FORECASTS IN SEGMENTS THAT HAVE NUMEROUS YES INDICATORS IN THE STOCK OUT COLUMN (SEGMENT ANALYSIS)

CONSIDER YOUR UPCOMING R&D WHICH MIGHT NOT BE REFLECTED IN SURVEY SCORE

THE DIFFERENCE BETWEEN DEMAND (MARKETING) AND PRODUCTION IS INVENTORY ON HAND

Your forecast can be applied in two areas:

MARKETING // Drives the pro-forma financial statements that will help you make decisions / i.e. how many units youll sell

PRODUCTION // Determines the number of units you will have available for purchase during the next round of the simulation / i.e. How many units youll makeDEMAND FORECASTINGSCENARIOMARKETINGPRODUCTIONYOUR FORECAST IS TOO AGGRESSIVEYOUR PROFORMAS WILL CREATE TOO ROSY OF A SCENARIO PERHAPS LEADING TO AN EMERGENCY LOANYOU WILL HAVE UNSOLD INVENTORY AND HIGH CARRYING COSTSYOUR FORECAST IS TOO CONSERVATIVEYOU WILL END UP WITH TOO MUCH WORKING CAPITAL YOU WILL STOCK OUT AND LOSE PROFITS AND CASH FLOWSUGGESTIONTAKE CONSERVATIVE POSTIONTAKE AGGRESSIVE POSITIONWHATS THE WORST THAT COULD HAPPEN? carrying costs & shortage costs // RISK vs. RETURNEXCESS INVENTORY12% Carrying CostSTOCK OUTProduct Contribution MarginCASH HOARDThe Cost of EquityEMERGENCY LOANCurrent Debt + 7.5% FeeEASY CREDIT(The Cost of Equity)(VC%) NO CREDITSURVEY SCORE PENALTYHIGH LIQUIDITY // HIGHEST SALES VOLUMELOW LIQUIDITY// HIGHEST ASSET TURNOVER