CHAPTER ONE

INTRODUCTION

vii

1.1         BACKGROUND OF THE STUDY

Rising level of competition, growing pressure from stakeholders, environmental complexities and increasing

customers’ enlightenment, among others have reawakened the profit maximization goal of business firms. This is

understandable because both the survival and growth of any business lies on the level of profit the firm is able to make out of

its operations. The role of marketing in this regard has become far more desirable than it used to be some few years ago.

Specifically, the entire marketing management roles are today built around how to increase sales revenue. At the corporate

level, sales forecasting has become a very important aspect of the marketing management function targeted at increasing

sales.

Though as at the late sixties organizations had started applying the principles of forecasting in facilitating and

managing their sales levels, the scope of forecasting has kept increasing. According to Bovee and Thill (1992:91),

forecasting has become one of the most challenging, intriguing, and frustrating aspects of marketing, especially given that,

mistakes in either over- or under- forecasting can be very costly to organizations. Consequently, based on this recognition,

efforts to be very careful in the methods or approaches adopted have given more dimensions to forecasting the anticipated

volume of sales upon which production can be based.

In the same vein, the definitional concept of forecasting has kept changing to suit the growing organizational

dynamics. Whereas the initial definitions took the concept to mean an assessment of the future, and the preparation of a

statement concerning uncertain events (Firth, 1972; and Sullivan and Claycombe, 1977), its later definitions consensually

see it as an information management process targeted at a minimal error prediction. From these changing dimensions, it is

easy to depict the fact that the scope of forecasting in organizations has been broadened beyond what it used to be some few

years ago.

Research efforts have also been directed towards diluting the alleged claim that forecasting is the same with

strategic planning, since both are usually targeted at predicting the future and taking decisions based on the outcome of such

viii

prediction. According to Wotruba and Simpson (1992:151), for instance, sales forecasting is rather an integral part of

planning, and can be viewed as what is going to happen to the company. They also argue further that forecasting serves a

vital role in planning when management uses it as a simulational strategy in planning.

Forecasting and planning go so much hand in hand that many people confuse the two. Vogt (1977:27) made an

earlier distinction between the terms forecasting and planning. According to him, “forecasting is predicting, projecting and

estimating some future event, matters mostly outside of management control. Planning on the other hand, is said to be

concerned with setting objectives and goals and developing alternative courses of action to reach them, matters generally

within management control”. Thus, while forecasting is not planning, forecasting is an indispensable, and even an automatic

part of planning; a vital planning input, a management tool for deciding now what a business must do to realize in the future

its profits and other goals (Vogt, 1977: 27).

Irrespective of how complex the art of forecasting has become in manufacturing organizations, its importance has

made it an unavoidable exercise. Moon and Mentzer (1998: 44) contend that good sales forecasts are important in providing

good customer service. “When demand can be predicted accurately, it can be met in a timely manner, keeping both channel

partners and final customers satisfied. Accurate forecasts help a company avoid lost sales or stock-out situations, and prevent

customers from going to competitors”. Accurate forecasts can also improve a company’s profits by enabling the firm to more

accurately plan its purchases. Transportation costs may be reduced if a firm can more precisely predict what products need to

be shipped and when they need to be shipped (Moon & Mentzer, 1998). Firth (1972:1) contended that the importance of the

strategy of sales forecasting extends across both developing and developed countries. According to him, even in developed

countries, the importance of forecasting has become more widely acknowledged in the recent past due to substantial changes

in the economic environment.

This growing importance of sales forecasting has been traced to the early 1970s. According to Sullivan and

Claycombe (1977), the shortages and the increased inflation of the early 1970s, followed by a major recession, led to firms

ix

to focus renewed attention on forecasting and the benefits it can provide. In an unstable economic environment like Nigeria,

forecasting can therefore be a desirable and complex approach. Desirable in the sense that organizations need to know the

likely outcome of their market participation in order to plan effectively; and complex because the predictability of the