In last month's column, we introduced the concept of forecasting and showed its importance to production and inventory control. We forecast because of capacity lag, since it takes longer for us to add capacity than it does for customers to change their minds and buying habits. We need a foundation on which to base our decisions about capacity—when to add it, how much to add, and of what type. We also introduced the three laws of forecasting: One, forecasts are wrong; two, forecasts change; and three, you are held accountable for their accuracy. In this column, we continue our examination of forecasting by looking at exactly what we are forecasting and the difference between prediction and explanation.
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