Reflect What We Teach : Practice What We Preach

Often small business owners/managers feel they have inadequate time for formal forecasting and/or that they lack the expertise to do so. Since forecasting is an important decision-aiding tool, managers in small retail establishments can benefit by implementing a simple forecasting process. Doing so will enable them to better anticipate the firms future level of sales and lead to more successful operations. We suggest the use of relatively simple quantitative methods that have proven to work well in a wide variety of situations. Exponential smoothing, basic regression methods, and time series decomposition can be employed with relative ease in the context of a small retail business. Inexpensive computers and forecasting software make it possible for small retailers to utilize these forecasting methods in a cost effective and timely fashion. Introduction Many small retail business owners and/or managers become involved in the forecasting process directly and yet many have little background related to forecasting. There are people who believe that small businesses do not need a formal forecasting process. However, because of the unstable environment faced by many small retailers, accurate forecasting may be especially critical for their success (Peterson 1996). This article provides a basis upon which a small retailer can develop a forecasting process and select appropriate forecast methods. A forecast is an attempt to predict future events based in part on past experience, typically taking into consideration factors that are both internal and external to the retail firm. Some of the internal factors affecting future sales include additions and deletions of merchandise lines, changes in promotion and credit policies, changes in operating hours, the opening of new facilities and the enlargement or reduction of existing facilities. External factors affecting the sales forecast include the following changes: the size of the target market population, disposable income, the age distribution of the population, the Forecasting for the Small Retail Business: Operational Recommendations J. Holton Wilson, Central Michigan University Robert H. Miller, Central Michigan University Forecasting is especially important to a small retailer because the forecast impacts on financial and personnel planning. mobility of customers, the number and size of competitors, the overall health of the economy, and the life-styles of consumers, among others. Forecasting is especially important to a small retailer because the forecast impacts financial and personnel planning, both of which are important considerations for business success. Effective forecasting can be helpful in setting sales objectives, planning inventory, setting prices, establishing financial needs, anticipating personnel requirements, and determining an advertising budget. Most importantly, good forecasts help reduce uncertainty. A Forecasting Process for a Small Retail Business Any forecast process begins with a need to make decisions that depend on the future level of business activity, such as sales. While small retailers often make forecasts based on intuition, a formal process and the use of some relatively simple data analysis can improve forecast accuracy (Wilson and Allison-Koerber 1992). Many alternative ways of organizing a forecast process could be presented ( Lawless 1997). One approach is described below. Step 1: Specify Objectives The objectives for a forecast should be stated clearly. One should be specific about why the forecast is needed and the purpose for which the forecast will be used. For example, if decisions will be the same regardless of the forecast, then any effort devoted to preparing the forecast is wasted. Once overall objectives are clear, one must decide exactly what to forecast. For example, it is not sufficient to