THE IMPACT OF INSTITUTIONAL FACTORS ON FORECAST ACCURACY - MANUFACTURING EXECUTIVES PERSPECTIVE

Forecast accuracy is a major challenge for manufacturing organizations . Forecast error can be a direct cause of stockouts, inventory growth and/or costly changes in the mast schedule. Despite the considerable t ime and effort expended on forecasting, forecasts are still very inacc urate. In summation, forecast inaccuracy is expensive and the confusio n and frustration resulting from it is extensive. This confusion has l ed some advisers to recommend the elimination of forecasting altogethe r (Goddard 1989). Others, however, emphasize the need for forecast acc uracy in order to permit an appropriate and effective response by the manufacturing organization. The importance of a relatively accurate fo recast to manufacturing performance calls for understanding of the fac tors which affect forecast accuracy. Many researchers have analysed ho w the use of various techniques affects forecast accuracy. These studi es focus on understanding of the technical accuracy of various methods : they do not suggest how manufacturers might work to improve forecast accuracy. Most of this research as focused on the forecast developers rather than the users of the forecasts. This study examines the effec ts of institutional factors on forecast accuracy from the perspective of the manufacturing executive. This study investigates the effects of institutional factors on forecast error. The questions it addressed i nclude: Who should be involved in forecast preparation? How important is forecast error measurement for future accuracy? What should the pri mary purpose of the forecast be? The data was obtained from a sample o f manufacturing professionals in the UK, reporting information about p ractice within their manufacturing organizations. Statistical results from this study suggest that firms with a culture supportive of new te chnology have lower forecast errors. Multiple functional involvement i n forecast development does not improve forecast accuracy. Top managem ent (president/managing director) involvement in forecast development reduces forecast accuracy. Forecasts are best developed for sales plan ning and then distributed to other functions for their use. The statis tical results suggest quantitative techniques have no effect on foreca st accuracy. Single values of the forecast and forecast error measurem ents lead to improved forecasts. And finally, organizations respond to forecast inaccuracy by frequent modification.