Use of Statistical Methods in Demand Planning

In a very volatile industry of high technology it is of utmost importance to accurately forecast customers’ demand. However, statistical forecasting of sales, especially in heavily competitive electronics product business, has always been a challenging task due to very high variation in demand and very short product life cycles of products. The purpose of this thesis is to validate if statistical methods can be applied to forecasting sales of short life cycle electronics products and provide a feasible framework for implementing statistical forecasting in the environment of the case company. Two different approaches have been developed for forecasting on short and medium term and long term horizons. Both models are based on decomposition models, but differ in interpretation of the model residuals. For long term horizons residuals are assumed to represent white noise, whereas for short and medium term forecasting horizon residuals are modeled using statistical forecasting methods. Implementation of both approaches is performed in Matlab. Modeling results have shown that different markets exhibit different demand patterns and therefore different analytical approaches are appropriate for modeling demand in these markets. Moreover, the outcomes of modeling imply that statistical forecasting can not be handled separately from judgmental forecasting, but should be perceived only as a basis for judgmental forecasting activities. Based on modeling results recommendations for further deployment of statistical methods in sales forecasting of the case company are developed.