Forecasting Sales Forecast for Riordan Manufacturing

Riordan Manufacturing is pursuing a growth strategy, with a stated target of increasing sales by $50 million by the end of 2007. According to the annual invoices issued for 2005, the firm already has annual sales of $50.8 million; this is a target to effectively double the demand over a period of two years. The sales will be achieved through increasing sales to existing customers, which is expected to account for 60% of the increase, as well as attracting new customers. To put the plan into action it is necessary not only to develop underlying strategies to promote growth such as the increased incentives for the sales force, it is also essential to develop a sales forecasting plan.

When forecasting sales there are different methods which may be utilized, some are more scientific than others. One approach may be to make educated guesses, looking at past performance as assessing the influences and sales which are likely to occur. This is an ad hoc approach, and is usually seen as likely to be inaccurate, even when based on experience and knowledge (Armstrong, 1985). Forecasting sales from existing trends and patterns...

Several approaches may be utilized; assessment of the demand to be created through the changes may be used with a bottom up approach (Koehler et al., 2003). The use of computer models and simulation may also be beneficial, allowing for different factors which may influence the demand (Koehler et al., 2003). The use of modeling may also be used to assess the way to meet specific targets. As there is already a target to be met by the end of 2007, the forecasting will take a top down approach, with the assessment of sales which are needed, and any subsequent modeling may be used to assess the different factors ad how they may be managed to achieve the goals.
The most appropriate approach will be the use of the existing data and increase sales to meet the targets. As the increase is expected to take place over two years, and the plan includes gaining new customers, it is likely that increase in the second years will be greater than the first year as the strategy gains momentum and new customers are gained. The forecast is a simple quantitative approach;…