Forecasts vs. rumors

Corporations like Apple, Samsung and Motorola; we hear rumors about them all the time. Like Apple with the iPhone 5, and Samsung with the new S3 and Motorola with the new Atrix 3.

I still can’t forget when everyone I know didn’t buy their iPhone 4 waiting for iPhone 5 and they were disappointed with the iPhone 4s. And now, the same thing is happening, people who are about to upgrade their phones and didn’t buy the S2 saying they’ll wait for the new Galaxy S3 and or iPhone 5.

Since I am obsessed with technology, and I keep up to date by buying the latest gadgets in the market. And while doing this course, during class when we were talking about product cycles and inventory management, I began wondering. At that very moment, I remember when I was thinking in my own world, when my teacher asked me a question that I didn’t pay attention to, and I had to ask her to repeat the question again. It was about the product life cycle and how short it is with technology.

Then during class, we started looking at the forecasting time horizon, during this part of the discussion; I was wondering what is their forecast period? Short?

We move on to the forecast methods, and during that very specific part I was trying to see which method they could possibly use? I know as the Professor said, forecasts are seldom perfect. However, they need some kind of forecast to keep the inventory right.

Immediately two blog posts of my colleagues came to my mind. First, Car dealerships with zero cars to sell. Corporations like Apple and Samsung do not want to be like those dealerships.

Second, Why Guess When You Can Forecast?

I quote from my colleague post:

“The mistake our team made was to purchase the product inventory from manufacturing companies without accurately forecasting the demand for those products.

The result? We ended up with far more inventory than we could sell. Food products are perishable; their expiration deadlines are much shorter than for other consumer goods. As those expiry dates approached, a considerable percentage of the inventory we had bought was wasted in our own warehouse. Needless to say, the company suffered some heavy losses.”

I think those corporations deal with this situation very frequently, in fact, the news of the S3 affected the iPhone 4s sales in some regions specifically in Bahrain. I do not have data to back my theory but I have seen this happening.

I wonder how does corporations like Apple deal with those rumors? How can they forecast the demand on the existing products when there is a rumor about a new product? I believe those corporations are living on the edge with their products and forecasts. They probably calculate the risk and add it to the product price to cover the forecast loses? I don’t know. But I can tell you this, it must be really hard.

3 thoughts on “Forecasts vs. rumors

  1. I certainly agree that electronics have a short product life cycle. I do agree with you regarding the forecasting that electronic companies have to deal with. Forecasting is not always clear to them, especially in regards to their competition. There is always a risk when they come out with new products, in comparison to similar items which their competitors also produce. It must definitely be a tough industry to be in, especially if they want to be at the top of their game.

  2. I feel that it is important when planning inventory that you should count more on past performance of similar products than speculating of what you feel the market is going to be like. Yes electronics life cycles are very short and people are always looking for the new technology that will allow them easier and faster access to their personal resources. Speculation is a dangerous way of performing business. Recently with the Facebook IPO, speculation and hysteria surrounded the stock before its sale. Upon opening in the market it the technical investors knew the IPO was over priced and the stock has been in the red since then.

  3. The point you made about the shortness of technology life cycles making forecasting incredibly difficult is true, but it reminded me of a very recent situation in which a product life cycle was virtually brought back from the dead, and how difficult that would have been to predict as well. After U.S. Republican presidential nominee Mitt Romney’s aide uttered the now infamous remark about politician’s primary campaigns being like an Etch-a-Sketch, sales of the old children’s toy boosted over 1,500%! Any company would do anything to achieve a number like that, but the makers of Etch-a-Sketch didn’t have to do anything at all – a slip of the tongue did it for them. How fortunate they were to be able to adapt so quickly to the temporary and dramatic increase in demand.

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