Forecasting I

FORECASTING SALES

One of the more important things to get right in Capsim is sales forecasting. It can be..., no it IS tough! Forecasting is based on assumptions, and sometimes your assumptions on what your competitors are going to do can be flat out wrong.

The cartoon is not all that far from the truth, is it? To get a good forecast, you should do a demand analysis for each round. First, look at the Conditions Report (download it from your Capsim reports page) and you will see industry demand in section 2.

In round 0, your company is set up to meet the current demand and some growth. Low End and Traditional sensors sell more than High End, Performance and Size.

The Market Segment Report in the Capstone Courier shows total sales within the industry, and tells you the growth rate of each segment.

The beginning growth rates are (normally):

•  Traditional 9.2%
•  Low End 11.7%
•  High End 16.2%
•  Performance 19.8%
•  Size 18.3%

Keep in mind, on rare occasions, the growth rates might change during the game. ALWAYS double check those rates every round! It's not common, but not impossible.

Now you can calculate the demand out for the entire game (assuming the growth rates do not change) and get an idea of how much production capacity you might need, or sell off depending on your strategy.

Here is a screen shot of a segment demand spreadsheet that has all the rounds calculated for a 6 team game over 8 rounds, with no changes in the growth rates. Yours should be very close to this.

The growth rate cells are a constant used to calculate the cells to the right. For example, the Traditional Growth Rate cell contains the number 1.092, which was converted to a decimal. It simply means 100% of last year's demand + 9.2% growth.

DEMAND IS CONSTANT FROM MONTH TO MONTH WITHIN EACH ROUND 

1. WORST/BEST CASE FORECASTING TECHNIQUE

Of the 3 forecasting methods I have tried in Capsim, I think the best (and easiest) is the Worst/Best Case method. Let me explain...

In the student guide, worst case assumes that you will not capture any increase in sales in the form of segment growth. It assumes you will sell the same number of units as last year. That's VERY conservative, so I recommend you add the industry growth rate into your worst case projection. Use last year's sales multiplied by the segment growth rates to get your worst case numbers. They will be entered in the marketing decision page.

My best case might be that you will sell 90 days of inventory above the worst case estimate. To calculate it, take your worst case number and multiply by 1.25. The .25 means 1/4 year, or 90 days additional inventory. If you want to get aggressive and use 120 days, then that's 1/3 of the year, or 0.33, so multiply your worst by 1.33 to get your best. You can adjust this number to fit your tolerance. Anything less than 30 days (1.084) excess is not realistic for a BEST case (all else being equal).

Here is a screen shot of a game I am currently playing, showing the results of Andrews sales in round 2. Not bad.

So I will put these numbers into a spreadsheet that calculates growth rates to get my worst and best case sales figures for round 3. For the best case cell formula, I used Worst Case number x 1.25 MINUS unit inventory. Subtracting existing inventory is important so that you don't overproduce.

Sector	Product	Sold	Inventory	Growth Rate	Worst Case	Best Case
Traditional	Able	1262	29	9.2%	1378	1694
Low	Acre	2356	21	11.7%	2632	3269
High	Adam	845	3	16.2%	982	1224
Performance	Aft	627	70	19.8%	751	869
Size	Agape	395	12	18.3%	467	572

Enter the worst case numbers into your marketing decisions forecast.

The proformas use the marketing figures to calculate your income statement.

IMPORTANT - THE BENCHMARK "PREDICTION" NUMBERS ARE NOT A GOOD SALES FORECASTING TOOL!!!

Next, enter the best case numbers into your production schedule.
Here's mine:

Oops! I failed to have enough capacity in my factory for 2 of my products. I didn't adjust my capacity accordingly and may lose some sales. The good news is that both production numbers are above my worst case forecast, so all is not lost. Remember to buy capacity in the round BEFORE you need it.

One thing to note, "production after adjustment" accounts for 4 constraints:

• Capacity - This is where I screwed up in the example above.
• HR Complement - You need adequate workforce to produce.
• Accounts Payable Lag - If your AP lag is too long, vendors won't deliver materials you need.
• Time in the Market - Capacity is measured for a full year. Let's say you invent a new product that comes out of R&D on the 1st of September. Your production facility can't produce all your yearly capacity in 4 months. You will only get 25% of your capacity produced if you run a single shift.

If you really want to get down to exact numbers available to sell, adjust your production up to get the results you want in the "production after adjustment" cell, and don't forget to add back your inventory to see exactly how many products you will have.

Please continue on to Forecasting II, where I offer more sales forecasting tips

 

Please visit again, as we are constantly updating. I will offer more tips on how to help you win this thing!
Feel free to ask questions in the comments section or send email. Further on, I'll give:

• More forecasting techniques
• Ideal R&D
• Marketing, pricing and budgeting tips
• Help on maximizing production efficiency while minimizing costs
• TQM
• HR
• The all important Finance decisions
• And more!

Check the FILE VAULT for downloadable forecasting spreadsheet models, decision guides, and much more.