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Sunday, February 22, 2009

The Challenge In Forecasting - Looking at the Right Data

Open Forum Blog

The Challenge When It Comes To Forecasting

...[In] the process of writing the article I had a “eureka moment” after I had watched a video (”A Matter of Choice“) and read an article (”The Power of Cause and Effect” PDF) by Dr. Eliyahu M. Goldratt

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According to Eliyahu Goldratt, it is time to really understand the law of cause and effect, and then use common sense on how to conduct your business. His point is that all too easily, people jump to conclusions and it becomes a self-fulfilling prediction on whether the economy is going to “hell” and the world is going “under” in the near future. ...

The example in the article describes a large Japanese electronic subsystems manufacturer which had a reduction of incoming orders by 50% in December 2008. The company’s management arrived quickly at certain conclusions ..., but they didn’t reflect further if the loss could be attributed to any other reasons.

As a result, they were looking at dismissing a lot of people. They extrapolated from these data from other industries and reached certain conclusions. ... They then got data from the Nikkei index (similar to Dow Jones index in America) and there they saw that one of the major retailers of electronic goods had increased its sales in December over 100% compared to last year!

The “problem” is that other parties of the supply chain are also following the same news media reports of dire warnings, and it became a snowball effect due the situation. The various parties involved in the chain cut back on their stock because others are doing it too, due to the fact that severe economic hardships were predicted. ... You could see examples of the panic syndrome in today’s auto industry in Sweden. ...

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About the Author: Martin Lindeskog is a “trader in matter & spirit” and a small business entrepreneur in Gothenburg, Sweden. He is a board member of the Swedish National Association of Purchasing and Logistics (Silf, Western Region). Martin also writes a long-standing blog called Ego and will soon start a new series of interviews for his podcasting show on the Solid Vox network.