Week 3: Forecasting and Strategic Capacity Management
Forecasting and inventory control serve as the foundation for organizational planning in virtually all areas of operations. Accurate forecasts are critical to budgeting and cost control; marketing, sales, and human resources functions rely on accurate forecasts to plan new services or products and to compensate sales associates. Accurate forecasts ensure enough goods are made to meet demand without having inventory concerns due to excess product that cannot be sold. Operations personnel also use forecasts to make decisions around supplier selection, production planning, equipment purchase, facility layout, inventory levels, and capacity planning. Companies may decide to build new manufacturing plants, expand production lines, or alter supplier plans to meet expected goals. A lack of materials from suppliers can cause concerns for meeting obligations. Apple, for example, has multiple suppliers for critical components for their iPhones. An inability of one supplier to meet goals can affect the launch of a new phone, causing lost revenue, customer loss to rivals, and poor media response.
The accuracy of a forecast is reflected in the amount by which actual demand differs from the projected demands. Forecasting is more than guesswork. The forecasting process depends on the application of statistical techniques that are more complex than an organization’s in-house resources can support. Rather than focus on the resolution of forecasting problems using statistical analysis methods such as least squares regression, mean absolute deviation, and exponential smoothing, your approach in this lesson is to emphasize the importance of forecasting as an available tool for operations managers, particularly in Strategic Capacity Management.
Be sure to review this week’s resources carefully. You are expected to apply the information from these resources when you prepare your assignments.
Goodwin, P. (2016). Misbehaving agents. Foresight: The International Journal of Applied Forecasting, (41), 7-9. Retrieved from
Huang, T., & Liu, Q. (2015). Strategic capacity management when customers have boundedly rational expectations. Production & Operations Management, 24(12), 1852-1869. doi:10.1111/poms.12420
Eksoz, C., & Onkal, D. (2018). Bridging the distributor into a collaborative demand-and-supply planning process. Foresight: The International Journal of Applied Forecasting, (49), 39-45. Retrieved from
Week 3 – Assignment: Examine Capacity Management for an Established Company (10 Points)
Your challenge in this assignment is to develop a capacity analysis in which you apply the principles of capacity management and illustrate the impact of forecasting on the implementation of those principles, based on the following scenario:
Your employer has tasked you with researching the company’s capacity management to determine how well they are doing at forecasting growth trends to meet consumer demand. Since your findings will be presented in a practical format to enlighten the thinking of your board of directors, you may forego the formality of a case analysis in favor of a document that provides clear, accurate, and actionable responses to the questions listed below.
In addition to this week’s readings, you may also use popular sources to amplify the points you wish to emphasize in your discussion with your colleagues. If, during your writing, you discover additional areas of importance that are not triggered by these questions, feel free to include them in your paper.
- Identify three business components (within the broad categories of people, process/facility, or technology) that can present problems. Define steps that your startup team might take to avoid problems when your service or product is launched.
- Determine the value of an accurate forecast in terms of its influence on the quality of service delivery and/or potential growth for your company. In what ways would an accurate forecast influence business decisions at your company?
- Examine the demographics of your customers. What target-market demographics will enhance the success of your company?
- How might your company know when to stop growing? How might your company determine a practical limit to economies of scale? What metrics should be monitored to determine if your company is growing or if it has plateaued?
Note: If it is unfeasible to use your current employer for this assignment, you may choose another company.
5-7 pages (excluding the cover sheet, title page, and references) covering each of the topics and explaining how you will accurately forecast to meet capacity needs.
Include a minimum of five scholarly resources within the last 5 years on capacity management, forecasting, and startup planning. The majority should be from peer-reviewed journals.
Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to Northcentral University’s Academic Integrity Policy.