The economic conditions facing our businesses have changed substantially over the past 12 months. Forecasting and planning during changing economic times is a dynamic process, not a static one. We have come to rely upon the historical patterns of customer demand and shipments that prevailed and served us well in a stable and growing economy.
The time series methods of which we are all so fond are dependent upon this stability in purchase behavior and underpinning conditions. And of course, our operational plans and inventory (and service) management practices are also dependent upon the reliability of these forecasts. Plans are only as good as the forecasts and assumptions upon which they are based. And the basis of these is certainly in flux in the current business environment of recession, financial crisis, and uncertain business conditions.
Rising unemployment, economic globalization, falling real incomes, tight lending conditions, negative “wealth effects”, volatile financial and commodity markets, and looming bankruptcies for consumers and businesses are all playing into the mix. Forecasting and planning in today’s environment requires much more than pattern based forecasting. It requires a deep understanding of the factors affecting demand for the company’s products or services as well as direct interaction with the customers and consumers who are using the products and services of the company.
Time series methods and related data analysis are fine for understanding where the company has operated in the past. But these cannot necessarily be relied upon for forecasting in the environment of recession, financial crisis, and global market structure that characterizes today’s business environment.