I'm Bob Artner from TechRepublic and our topic today is demandforecasting, and by demand forecasting we mean the ability in the near term toforecast demand on your cost, on your sales, on staffing any of the things youneed to do to run your organization. And the point I want to make is, it's veryimportant to choose the right statistics and the right time period when you'regetting your bases for your forecast, otherwise your numbers will be wrong andyour forecast will be worthless.
Here's what I mean. My first job in management was workingin restaurants over 20 years ago, and one of the most tedious jobs restaurantmanagers had to do was forecast sales. We would look at the last four weeks ofsales activity, so this would be this year's sales, and say, "Okay, whatis this downward trend here, so if I'm forecasting what the next four weeks aregoing to be, I would say, okay, that looks like the tread line, looks like it'snegative, so I must get a forecast more or the same." Just kind ofextrapolate that tread line forward. You know what? It often was wrong and I'd,you know, we'd end up ordering too little food, or too much food, or too muchstaff, or not enough staff because the recent past was not a good indicator ofwhat the immediate future was going to be. And here's why: The restaurantbusiness is cyclical.
What you need to do is look at the last four weeks from thatsame period because what if you're seeing a different trend altogether. If youlook at last year's numbers, and this year's numbers, and you look at thedifference, that gives you the opportunity to do a better forecast here. Let'ssay that even though this is declining we're still averaging 9% more this yearover last, what's called "year over year." Then if we want toforecast this future thing here we would say, okay what did we do these samefour weeks last year. Well, you know, maybe schools out, maybe there'svacations going on or whatever, but you know last year these four weeks wereactually pretty good. Instead of trending a decline if we're 9% over, and we'retrying to look at what the future is going to be, it's more than likely thatthe trend for the near-term is going to be in a completely the oppositedirection than the trend from the recent four weeks, and if we get that rightthen you'd be able to have enough staff on hand, you'll be able to control yourcosts by having enough food on hand, and not have to go out and order more, orturn away sales because you don't have the food to support it. That's what Imean by saying it's important to get the right time period and the rightmetrics.
Now one caveat to this real quick: What if I work in abusiness that's not cyclical? What if I work in a, let's say, a Web site andI'm forecasting traffic, and I've only been around for 18 months and my trafficpattern looks like this, over the 18 month period. Well, it's not going to bevery useful for me to say, okay, here's the four weeks from last year you cansee that in a period of rapid growth or relatively new product innovation, youmight have to go back and look at the recent past as a better indicator.
So, the key takeaway here, know the kind of business you'rein, you know what the significant metrics are and use that when you're doingdemand forecasting.
