European Journal of Scientific Research - EuroJournals

Forecasting as a Strategic Decision-Making Tool: A Review and Discussion with
Emphasis on Marketing Management 430
particularly in product launch to a market. In such times forecasting has an ability to become a very
major part of the decision-making process, in estimating different requirements, effects, conditions
expected, and making assumptions.
Companies may have different manufacturing strategies based on market conditions. Many
strategic marketing decisions are mostly closely related and tied to production strategies in companies.
In other words, what kind of marketing strategy (e.g. market leadership) a company should follow is, at
large, based on its production strategies. Although ‘cost leadership’ is one of the highly desired
production strategies in most companies, other sort of strategies such as ‘quality leadership’ can also be
followed as the main strategy. For instance, the decisions regarding shifting from the cost leadership to
quality leadership is considered to be a main strategic decision and should have a strong forecasting
background.
In theory, the purpose of a company’s manufacturing strategy should be to produce costcompetitive
products that are sufficiently high in quality. The experience curve, the product-process
life cycle, and the flexible manufacturing technologies are the three factors that require specific
attention in creating cost competitive manufacturing. Companies may utilise a manufacturing system
from among several including flexible and mass manufacturing systems with respect to their
operational area, production schedule, etc. Regardless of the manufacturing system in use, cost
minimisation 6 is the basic purpose probably for all companies. The contribution of forecasting comes
into use, for instance, in increasing the utilisation of individual machines through better scheduling.
The forecasts of the material requirements of each of the machines, operating times, and labour
requirements needed to complete specific manufacturing processes in each step of manufacturing may
be needed for maximising the (automatic) distribution of materials and labour times among machines.
By doing so, it can significantly improve the efficiency of manufacturing processes and reduce the
costs.
Being different from the mass production schedule, the flexible manufacturing technologies
allow companies to be highly responsive to unique customer demands and, at the same time, to
compete on the basis of cost [Hill & Jones, 1992: 116]. Forecasting has lots to do especially in such
circumstances like it can produce the estimates of the time and amount of specific customer demand so
that it does not interrupt the usual manufacturing schedules due to the information about the patterns of
unique customer demand. Therefore, one of the basic contributions of forecasting to manufacturing
process is to support the production schemes by producing and collecting data and/or information.
Forecasting function, in this sense, plays an intermediary role between the production department,
management department, and the market (customers). It provides the flow of data continuously and
closes the time gap between the production time and the time of sale.
Capacity Planning and Scheduling: Capacity planning generally refers to a long-term decisionmaking.
Almost all businesses need to make long-term forecasts for planning new (plant) investments
and equipment expenditures. Long-term forecasts may sometimes extend to a period of 5, 10, or 20
years, depending on the life cycle of the equipments under consideration for installation. Capacity
planning policies for growth firms 7 and mature firms are expected to be significantly different,
depending on the forecasts of the sales and market potential (see McLaughlin, 1974: 4-60). In such
cases where significant financial investments are considered, forecasting has a significant role in
analysing various outcomes and evaluating whether or not to go for a significant amount of investment
for capacity planning purposes. Such decisions are ‘strategic’ in this sense. For instance, while an
investment decision to increase capacity based on the forecasts of market potential for product ‘A’ may
provide good opportunities and competitive distinctions (e.g. a higher market share and cost
6 The contribution of forecasting to lowering the costs can be in several ways including, but not limited to (1) saving from
the storage costs related to products and raw material; (2) saving from the financial costs related to financial resources
tied up to the raw material; (3) saving from labour costs due to the availability in planning labour force in advance.
7 Businesses that are still in the rising phases of the S curve, not yet having reached saturation, are called ‘growth’ firms
and those that are at the upper ends of the S curve are called ‘mature’ business.