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TABLE OF CONTENTS
Introduction ..................................................................................................................................................... 2
Sale Forecasting Techniques ..................................................................................................................... 3
What Is Sale Forecasting? ...................................................................................................................... 3
Quantitative Methods .............................................................................................................................. 4
Nave Model ............................................................................................................................................ 4
Moving Averages................................................................................................................................... 6
Time Horizon .............................................................................................................................................. 7
Qualitative Methods ................................................................................................................................. 8
Executive
Opinion ............................................................................................................................ 8
INTRODUCTION
Regarding to experts points of view, sales can be considered as a lifeblood of
business. The sales revenue helps the entrepreneurs to have cash as well as maintains a
healthy financial status in order to resolve and pay the expenses, inventory planning,
marketing, advertising and so on.
Usually, business owners or executives will forecast the sales on the basis of past
and current statistic data so as to budget the necessary values for upcoming periods.
However, with a startup firm like Startup Coffee Vietnam in which the historical data
was not as much as expected, the sales forecast would be based totally on different
available techniques including of qualitative methods such as the opinion or strategy
from executive level.
This report will focus on the importance of different sales forecast techniques as
well as suggesting appropriate method for startup business. The methods would be
divided into two sub categories: quantitative and qualitative.
expenses (Hoshmand, 2010). The shareholders, therefore, would be much happier and
invest more money. For instance, Startup Coffee Vietnam always gives out optimistic
values of sale forecast for shareholders. However, the actual result only takes a half of
budgeted number. The shareholders, as a result, will consider Startup Coffee Vietnam is
a poor performing business and the business owner does not have appropriate
evidences or knowledge to judge and predict the market.
QUANTITATIVE METHODS
The quantitative forecasting methods are used to predict future data concerning
to the past information (Hoshmand, 2010). The quantitative methods have the trend to
be more statistical in planning or projecting the business future. Quantitative methods
include two models: time-series models and associative models (Gupta & Kumar, 2013).
While the time-series models look at the past trends of data and try to produce the
future forecast on the basis of those trends, the associative models or correlation
models take into account of correlated variables that related to the forecasted value
(Bygrave & Zacharakis, 2011). In those models, there are various types of quantitative
methods being available for business owners to choose include of moving averages,
exponential smoothing, or nave model.
Nave Model
Hoshmand (2010) stated that the Nave model assumes that the recent past is
the best indicator for the future trend or value. The model is formulated by the formula:
Below is the practical application of Nave Model within the business operation
of Startup Coffee Vietnam.
Month
Forecast value
Error
53,000.00
56,000.00
53,000.00
3,000.00
48,000.00
56,000.00
-8,000.00
51,000.00
48,000.00
3,000.00
53,000.00
51,000.00
2,000.00
55,500.00
53,000.00
2,500.00
52,700.00
55,500.00
-2,800.00
49,900.00
52,700.00
-2,800.00
53,900.00
49,900.00
4,000.00
10
59,800.00
53,900.00
5,900.00
11
57,250.00
59,800.00
-2,550.00
12
52,500.00
57,250.00
-4,750.00
The business owner got the actual operating sale revenue from January to June.
As the chart shows, the fluctuation among first months of operation is not significant.
Therefore, it would be much easier for business owner to continue conducting this
method. The advantage of Nave Model is that it is really simple and only needs few
steps to count. It is suitable for small startup with not much fluctuation during business
operation and it is easy to be understood among staffs. Therefore, it can be easily
applied among them to gain necessary revenue as per forecast. However, once Startup
Coffee Vietnam grows up into a new level of business, it would require a technique that
is more accurate and takes into account of various variables concerning to the growth
strategy of the company.
Moving Averages
The Moving Averages calculates the mean of recent variable including with older
data points (Hoshmand, 2010). For illustration, the Moving Averages formulation would
be as below:
Using again the above example of Startup Coffee Vietnam for the both Nave
Model and Moving Averages Method, the table would be:
Month
Actual sale
revenue
1
2
3
4
5
6
7
8
9
10
11
12
53,000.00
56,000.00
48,000.00
51,000.00
53,000.00
55,500.00
52,700.00
49,900.00
53,900.00
59,800.00
57,250.00
52,500.00
Nave Model
Forecast
value
53,000.00
56,000.00
48,000.00
51,000.00
53,000.00
55,500.00
52,700.00
49,900.00
53,900.00
59,800.00
57,250.00
Average
Moving Average
Forecast value
52,750.00
52,742.86
52,387.50
52,555.56
53,280.00
53,640.91
Error for
Moving
Averages
-50.00
-2,842.86
1,512.50
7,244.44
3,970.00
-1,140.91
1,448.86
Error for
Nave Model
3,000.00
-8,000.00
3,000.00
2,000.00
2,500.00
-2,800.00
-2,800.00
4,000.00
5,900.00
-2,550.00
-4,750.00
-500.00
The Moving Average forecast value has the average error which is significantly
different from the Nave Model. This may be originated from the fact that Moving
Average has the pitfall of strong fluctuation when applying into the short timeframe
such as month since it would cause higher volatility (Gupta & Kumar, 2013).
TIME HORIZON
The time horizon refers to the length of time into the future for which the
forecast is desired (Hoshmand, 2010). The business owners have different business
terms including of immediate term (< 1 month), short-term (1 6 months),
intermediate term (6 months 2 years) and long term ( > 2 years). The usage of the
forecasting methods would vary depending on the business owners strategic planning.
For example, with a small startup business such as Startup Coffee Vietnam, with
short-term profit orientation aiming to stabilize the business in every operation term,
using the Moving Average method or Nave Model in order to make prediction
regarding to the sales revenue would be appropriate. Those are simple models and can
be easily carried out by the business owner who may not have high-level academic
business knowledge.
In another hand, the case of Starbuck when penetrating into Vietnam market is a
total different story (Bloomberg, 2013). A big franchised coffee chain store cannot think
about getting profit in such short-term of 1 6 months; the management level must look
further toward 1 or 2 years in order to help shaping Vietnamese coffee market.
Therefore, sales forecasting technique would be also totally different. The executives
have to think about what would happen with Vietnamese GDP per capita in the next 2 or
3 years? What is the potential policy for developing and exporting coffee bean in
Vietnam? Those are macroeconomic issues and needed a group of professional agencies
or government commercial services in order to acknowledge the potential factors that
can have tremendous effect toward the business.
QUALITATIVE METHODS
The qualitative methods do not require much on statistical data but rely much
more on the opinion, experiences and market knowledge of people who are involved in
doing sales forecasting.
Executive Opinion
The executive opinion may be the most popular method in company when Board
of Director with the assistant of revenue management department would process the
strategic plan or implementation concerning to sales forecasting (Daft, 2010). The
executive opinion would be based on the annual report or weekly revenue meeting in
order to catch up with current situation of business operation. For example, in the case
of Startup Coffee Vietnam, the department directors can sit together in order to identify
the product life cycle of food and beverage items. Through the analysis together with
the sale generating values, the directors can plan for promotional or discount program
to boost the sale and sale forecast.
Market Research
The market research method is totally suitable for a new startup business can
catch up with the customers orientation as well as behaviour. Moreover, the market
research through various methods such as questionnaire, group focus, or survey can
give business owner a general idea of what customers want and how other variables
such as demographic information, age, sex can affect toward their behaviour. The
market research forms then can be collected and analysed with statistical program such
as Excel or SPSS in order to have formal analytical data for further discussion.
Delphi Method
Delphi Method is a systematic and interactive forecasting technique which is
derived and relied totally on a panel of experts (Hoshmand, 2010). Those experts will
keep anonymously and will not be identified until the final report completed. This helps
to ensure the participants will be completely ruled out of personal bias or stereotyping
toward a typical issue.
The biggest problem of qualitative methods is that despite there are different
approaches, those methods still have big chance to be engaged with issues of personal
bias, stereotyping, prejudice and lead to myopic research process. For example, with the
executive opinion, the solutions would be very narrow if the management board is a
homogenous team (Marques, 2008) which cannot diversify the issues in many aspects.
However, in another hand, the qualitative methods can be very useful if the forecasters
or conductors are very experienced concerning to the sales forecasting.
CONCLUSION
There are various techniques in sales forecasting which can be very useful for
business owners to apply within the business operation. Maintaining an accurate sales
forecasting is very important to any business since the forecasting helps business owner
in planning appropriate strategy, budgeting properly the revenue and expenses as well
as other business targets. The quantitative methods would be very useful when
providing various tools for both long-term and short-term business while qualitative
methods can be a big success for business if the involved people are experienced and
excellent in business administration and forecasting.
REFERENCES
1. Bloomberg, 2013. Starbucks Vietnam Debut Challenged by Light Coffee Image.
[Online]
Available
at:
http://www.bloomberg.com/news/2013-01-
13/starbucks-vietnam-debut-challenged-by-light-coffee-image.html
[Accessed
18 October 2014].
2. Bygrave, W.D. & Zacharakis, A., 2011. Entrepreneurship 2nd Edition. New Jersey:
John Wiley & Sons, Inc.
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Means, What It Brings. Performance Improvement, Oct. pp.5-7.
8. Marques, J.F., 2008. Workplace diversity: developing a win-win strategy.
Development and Learnings in Organizations, pp.5-8.
BIBLIOGRAPHY
1. Bloomberg, 2013. Starbucks Vietnam Debut Challenged by Light Coffee Image.
[Online]
Available
at:
http://www.bloomberg.com/news/2013-01-
13/starbucks-vietnam-debut-challenged-by-light-coffee-image.html
[Accessed
18 October 2014].
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John Wiley & Sons, Inc.
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