Agriculture Reference
In-Depth Information
Sales forecasting
Although agribusiness markets are well known for their volatility, agribusiness managers
cannot escape the responsibility of forecasting sales. Nearly every management decision
includes a critical assumption about the level and timing of sales volume. All production
schedules are built around projected demand. Raw-material purchases are based on expected
sales. The personnel function of hiring and fi ring is greatly infl uenced by anticipated sales.
Cash needs are based on sales forecasts. Capital investments in new facilities are heavily
infl uenced by sales projections. The allocation of resources to research and development is
based heavily on the expected sales of the resulting products. The fact is that a great majority
of management decisions and much of the entire planning process rests squarely on
forecasted sales.
Sales forecasting
involves predicting sales in dollars and physical units as accurately
as possible for a specifi c period of time. Many times this means forecasting sales for the
total market, and then determining what share of the market can be captured with a specifi c
product or service (
Figure 8.3)
.
Both short-term and long-term sales forecasts are useful for agribusiness. Short-term
forecasts, usually one season or shorter for agribusiness fi rms, are useful in formulating
current operating plans. In food fi rms, such forecasts may be weekly or daily. In a food
service fi rm, forecasts may be hourly as the fi rm works to schedule food preparation to
accommodate daily patterns. Longer-range sales forecasts are important for capacity and
research and development decisions. In general, the longer the time period forecasted, the
less accurate the forecast is likely to be. However, forecasting short-term volatility can be a
major challenge as well.
Diffi culty and complexity notwithstanding, agribusiness managers need relatively accu-
rate sales forecasts. Such forecasts may be prepared in a formal manner using thorough
economic and marketing analysis, or they may be more informal and based on assumptions
from a variety of practical perspectives. Here, three types of
forecasts
will be considered—
general economic forecasts, market forecasts, and sales forecasts.
General economic forecasts
General economic forecasts
consider broad factors that affect the total economy. Government
farm programs, infl ation, the money supply, international policy and trade agreements,
exchange rates, interest rates, population demographics, and a host of other factors are
included in such forecasts. A great many government and private economists spend much
time tracking economic trends and making such projections. Agribusiness managers watch
these opinions carefully as they formulate market plans. Forecasts of such general economic
indicators have a fundamental role in an assessment of the market environment as part of the
SWOT analysis and in the marketing audit.
Typically, these types of forecasts are generated by sophisticated econometric models of
the domestic and world economies. Using such models, forecasts for a variety of indicators
General economic forecast
Total market forecast
Specific product forecast
Figure 8.3
Sales forecasting model
