Failed Forecast Demand

Adrian Kingsley-Hughes, ZD Net writer, reports manufacturer issues in the computer industry. He explains that chip inventories have risen by 47% of total revenue in the second quarter since 2011 for semiconductor manufacturers. The massive inventory is a result of the high forecasting demand for new computer related products, yet customers did not shop as expected. The increase in technology sales was only .7% around the holiday season, marking it as the second worst performance in the last six years. While the semiconductor industry forecasts increased demand for 2013, manufacturers may have to decrease their inventory orders if consumers fail to increase purchases.

This article is consistent with the managing inventories and forecasting demand class readings. Forecasts are crucial, anticipate changes in future usages and are based on historical order rates. Manufacturers can use the historical data means as estimates of the next period's demand. As demand changes, the data must be analyzed for trends and the process requires day to day planning and control of inventory. Hughes' article does not specify which demand  forecasting method used, but semiconductor manufacturers obviously relied on a forecasting analysis to determine how much inventory to supply. The manufacturers based their assumptions on historical trends and the expected demand for new computer related products. Unfortunately, the demand was not fulfilled and the suppliers have wasteful amounts of inventory on hand.

Using trend analysis and day to day planning and control, demand forecasting helps suppliers adjust inventory appropriately. So, why did semiconductor manufacturers fail in predicting consumer demand for computer related products? How accurate is demand forecasting that relies on historical data to produce trends in economic recessions?

Source: "Chip inventory at semiconductor suppliers hits 'alarmingly high levels"  by Adrian Kingsley-Hughes. Jan. 2013 < http://www.zdnet.com/chip-inventory-at-semiconductor-suppliers-hits-alarmingly-high-levels-says-analyst-7000010421/>.