Priori forecasting, Corporate Finance

Assignment Help:

Chang and Fyffe (1971) assume that a ?rm has a ''long-run sales history of individual seasonal-style-goods SKUs or groups of such SKUs''. They propose to estimate demand by using regression on those historic sales, also based on the ''outcome of some observable variable''. However, they do not explain in detail how that can be done nor do they test the method using real data. It seems dif?cult to apply this method in the apparel industry, as long-run sales histories of very similar products are rare.

Chambers and Eglese (1988) discuss the use of preview demand data that are gathered by sending out a preview catalogue (whichdoes not necessarily include a full product range) to a sample comprised of several thousand regular customers and offering themthe opportunity to order products at a discount before the season starts. They assume that an aggregate forecast for the full product range is given, and propose to forecast the demand for a product line by multiplying the aggregate forecast with the fraction of total preview demand for products in that product line. They further propose a second, slightly more sophisticated forecasting method,which takes into account that the ratio of total demand to preview demand ('the scaling factor') may not be the same for all  product lines. These methods are very suitable and, indeed, have been developed for an apparel mail order company.

Thomassey and Happiette (2007) propose a decision-support system based on neural networks, which automatically performs item sales forecasting. The system is designed to deal with many characteristics of the apparel market: large number of items, short lifetimes, substitution of most items with each new collection, long lead times, and in?uence of many external factors like the weather,promotions, fashion, and the economic environment. The proposed system is composed of three steps: obtain prototypes of demand behavior using a clustering procedure on historical demand data, (2) link these prototypes to descriptive criteria (e.g. price, lifespan or materials) using a probabilistic neural network, and (3) assign each new item to a prototype based on the item's descriptive criteria. Forecasts generated by the proposed model on a set of 285 new items from a French apparel distributor have a MAPE of 147%. So, accuracy is low despite the complexity of the method. For this reason, we decided not to include this method in our comparative study. The results in Section 5 will show that the simpler methods that we do consider are all more accurate (for our data set).


Related Discussions:- Priori forecasting

Weighted Average Cost os Capital, Motown Manufacturers are involved in the ...

Motown Manufacturers are involved in the manufacturing of zips, buttons and sewing needles. they need to automate their plant (at a cost of R1 100 000) as a result of a sharp incre

WACC, What is American Financial Group WACC

What is American Financial Group WACC?

Analytical derivation of the capital asset pricing model, Question: a) ...

Question: a) Provide an analytical derivation of the Capital Asset Pricing Model (CAPM) and supplement your analysis with diagrammatic illustrations where appropriate. b) T

What is the basic goal of a business?, What is the basic goal of a business...

What is the basic goal of a business? The main financial goal of the business firm is to make the most of the wealth of the firm's owners.  Wealth, in turn refers to value good

Find the total value - debt and assets ratio, Kodak Corporation has debt/as...

Kodak Corporation has debt/assets ratio of .3, its cost of debt is 9% and that of equity 13%. The tax rate of Kodak is 30%. The company is not growing, has a dividend payout ratio

Why the discount rate equals opportunity cost of capital, Question: (a)...

Question: (a) Describe why the discount rate equals opportunity cost of capital? (b) "Nominal rate less inflation rate is equal to real rate of return" - Is it true? Why or

WACC, The cost of capital for a firm can differ from the cost of capital fo...

The cost of capital for a firm can differ from the cost of capital for each of its businesses. When a firm has multiple businesses, it is important to use the cost of capital appro

Defining phoenix activity, A key challenge for any analysis or discussion o...

A key challenge for any analysis or discussion of phoenix activity is how to define the problem. There is currently no definition in Australian legislation. The approach in Austral

Financial reporting and analysis, I need immediate assistance with a financ...

I need immediate assistance with a finance project. Could you help?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd