Demand forecast block
Let’s look at block of demand forecast (highlighted in red). This block is used to estimate the change in demand between past and current period. Total value of change in demand is calculated in the “Total demand” table for each market and product, for example +10%.
To calculate sales of products in current period, model adds forecast of changes in demand in current period to the actual number of orders in past period from the management report (Product data -> Orders from), for example: 200 + 10% = 220. The result of calculation is displayed in the table “Orders next quarter “.
Forecast value in the “Total demand” table consists of forecast of changes in demand for each of the factors:
- Agents and distributors - recruit
- Agents and distributors - support
- Agents and distributors - commission
- Backlog of orders
- Assembly time
- Premium materials
- Research and development
- Corporate advertising
- Direct advertising
- Management budget
- Number of Ports
- Web-site development
Each of the demand factors, in turn, uses to calculate its individual distribution function of sales, depending on value of the factor, configured for a specific scenario. Model settings for a specific scenario are on the “Config” sheet.
In addition to the model demand forecast, you can specify a manual adjustment in the “Manual correction” table. This value will be added to the value in the “Total demand” table. Manual adjustment is used to take into account individual characteristics of the opponents in the group, your own strategy and personal preferences, which are not taken into account in the calculation model. According to the statistics collected by us, actual sales of products can vary by up to 20% when using exactly the same decision in different groups. So, normal deviation of the demand forecast from the actual value of sales is in the corridor +/- 10%, because the model is configured according to the average value, but it can reach up to +/- 20% when using extreme decisions.
Deviation of the demand forecast from actual sales can be seen in the “Deviation” table after inserting management report for current period into the model. The “Deviation” table has a switch in cell “T46” with a value of 0 and 1:
- 0 - demand is calculated based on the model’s own forecast for the current decision and previous management reports. Used when preparing a decision.
- 1 - demand calculation is equal to the actual sales from the management report in the current period, the model’s own forecasting is disabled. It is applied at plan-fact analysis of the decision.
The most effective way to use manual corrections of demand forecast “Manual correction” will be a game based on ready management reports, or in 2 attempts (games):
- In 1 game, you develop your own strategy and do not use manual demand adjustments at all. The “Manual correction” table is 0. At the end of the game, you get deviation value of the model's forecast from actual sales in your particular case. If you have ready management reports, then skip this step.
- In 2 game, when preparing a decision, you substitute previously calculated demand deviation from 1 game into the “Manual correction” table and then follow previously chosen strategy.
- With adjustments, demand forecast will be much more accurate and will increase your chances of success. Step 1 and 2 should be repeated each time you play the already known scenario, since the process of improving your own strategy should never stop.