The Difference

It is important to know the difference between forecasting software and forecasting systems. Forecasting software is a stand-alone package that generates forecasts either via a model selected by the forecaster or through one chosen by the software . In the latter instance, an automatic feature (often called the "expert system") tests a number of forecasting models with historical data, and then uses the best one to prepare forecasts for the next period. The best model is the one that yields the lowest forecast error.

A forecasting system, on the other hand, has more scope in that it mechanizes the entire forecasting process. First, it follows set procedures for acquiring data/information from various sources. After data are acquired, it cleanses them. If needed, it the data (breaking up monthly data into weekly or daily buckets) or aggregates them (grouping SKU data into categories and category data into overall totals). It also looks for problems in the data, such as outliers (unusual values) and structural change (a permanent change in the data pattern as a result of, for example, a merger & acquisition or strike). Once problems have been identified, the system treats them in a specified manner, prepares forecasts either via the forecaster's model or using the automatic feature, and prints out a forecast report in a format delineated by the forecaster.

Report Generation

Reports may be generated in many formats. The forecasts, for example, may be expressed in units and dollars; by SKUs, product families, categories, and aggregate (company as a whole); and by regions, distribution centers, channels, and customers. Furthermore, forecasts may be produced by quarter, month, week, day, or even by the hour. The system also allows the overriding of forecasts by designated individuals.

Once forecasts are finalized, the system transmits them to the end-users. Next, the process of monitoring, updating, and revising begins. This process uses criteria specified in the system, and is performed automatically and routinely. Finally, the forecasting system connects the final forecasts to various modules (e.g., the production module for preparing production plans, the procurement module for making plans for purchasing raw materials, and the logistic module for making plans for transportation). Depending on the system, there may also be links to the financial module , the sales module , and the marketing module for the generation of their respective plans. Thus, it is clear that forecasting systems are far broader and inclusive in their reach than a software package alone.

© Copyright 2005 by Institute of Business Forecasting. All rights reserved. This material may not be duplicated for any profit-driven enterprise.

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