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Forecasting in the Purchasing and Supply Arena
For business purposes, forecasting may be defined as any attempt to predict or estimate some future event or situation. Why do purchasing and supply professionals forecast? Overall, purchasing objectives in forecasting may be grouped into two primary categories:
Qualitative techniques and applications are often referred to as "judgmental techniques" and, since they are based on human judgment, their effectiveness is dependent on the amount of hard data available and the skill of the forecasters. Qualitative techniques include:
Indices are used by purchasers to monitor price changes. They could be used as guides for contract escalation clauses.
Statistics are compiled regularly by the Bureau of Economic Advisors of the U.S. Department of Commerce and other highly trained analysts in various branches of the federal government, including the Labor Department, the Federal Reserve Board, and the Treasury Department. Based on the way the economy behaved in the past, these wide-ranging statistical data are often viewed as indicators of how it will behave in the future. Indicators are formed into composite groups depending on whether they are considered to change direction before, during, or after a turn in the general economy. A purchaser would be interested in leading indicators as predictors of general growth in the economy and, among other examples, the potential for that to translate into higher manufacturing output, greater demand for raw materials, and, consequently, upward pressure on pricing and availability.
Sources of Data for Use in Forecasts
Where can you begin to collect the data you need to forecast effectively? A number of sources can help you gather information for forecasting.
H. Ervin Lewis, C.P.M.
H. Ervin Lewis, C.P.M., is the director of purchasing for Wellman, Inc. and has functional responsibility for purchasing at Wellman sites across the United States. He has 38 years of experience, during which his responsibilities also included industrial engineering and production management.
A graduate of the University of South Carolina with a master's degree in business administration, Mr. Lewis has wide and varied experience as a seminar leader and instructor. He designed and instructed management training programs for Wellman, Inc. and for the Continuing Education curriculum at several South Carolina colleges. Mr. Lewis served in all offices and on the Board of Directors of NAPM—Carolinas/Virginia, Inc., and is a recipient of the Thomas Award, the Carolinas/Virginia association's highest recognition for contribution to the profession. He is a former chairman of the National Association of Purchasing Management Certification Board, and of that association's District 5 Professional Development Committee.
- Callahan Compton, J. and Compton, S.B. Successful Business Forecasting, Liberty Hall Press
- Dobler, D., Lee, Jr., L. and Burt, D. Purchasing and Materials Management, McGraw Hill
- Malabre, Jr., A.L. Understanding The New Economy, Dow Jones - Irwin
FOR FURTHER READING
- Baker, J. "Purchasing Price-Volatile Commodities: Risk Control And Forecasting," NAPM 80th Annual International Purchasing Conference Proceedings, Anaheim, California, May 1995
- Hanke, J.E. and Reitsch, A.G. Business Forecasting, fifth edition. Prentice-Hall, 1995
- Haugen, K. "Using Spreadsheets to Forecast Product Needs," NAPM Insights, November 1994
- Johnston, D. "Painting a Clear Picture," Purchasing Today®, June 1996
- Kauffman, Ph.D., C.P.M., R. and Hoagland, Ph.D., C.P.M., J.H. "Developing Purchasing Strategies With NAPM Business Survey Data: What's Available and How To Use It," NAPM 81st Annual International Conference Proceedings, Chicago, Illinois, April 1996
- Keating, B. and Wilson, J.H. Business Forecasting, second edition, Irwin Professional Publishing, 1994
- Nageotte, M. "Building an Effective Forecast," Purchasing Today®, February 1997
- Scott, S.I. "The Economics of Global Forecasting," Purchasing Today®, June 1996
- Stanley, L. and Wisner, J. "Forecasting Practices In Purchasing," International Journal of Purchasing and Materials Management, Winter 1994
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