Forecasting Considerations in Design of Management Information Systems
K y PAUL A. STltASSMANN Segmentation of the Information Process The flow of information in a typical organization with its own raw ma- CLOSE EXAMINATION OF routine terial, production and distribution A business decisions will reveal facilities is characterized today by that many of them involve a forecast excessive segmentation and emphasis of events to come The uncertainty on historical reporting. This is illus- about the outcome of events is, of trated by Exhibit 1.* course, built into our competitive economic system to assure maximum Customer needs are satisfied rapidly flexibility and rapid adjustment to by daily shipments. Information consumer needs. Flexibility, however, about these needs then goes to the costs money. It can be bought with a divisional production planning staff liberal inventory of ample supplies of who impart to it the latest marketing finished, semifinished goods and raw thinking before passing along their materials. Flexibility can be bought reaction to warehouse conditions and also by a combination of policies that recommendations to the plant pro- require excessive plant capacity, duction planning staff in the form of fluctuating employment levels, pur- a production order Upon receipt of chasing less than economic order the order, the plant people consider quantities, use of overtime, heavy ex- local conditions such as plant inven- pense for expediting staffs or em- tories of goods in process, inventories ployment of fast but expensive means of supplies, short-tei m problems in of transportation. labor efficiency, employment stabiliza- tion and production orders from other There is, fortunately, another and sources before placing an order with better way for a business to cope with raw and packaging materials sup- the rapidly changing environment A pliers for delivery in time to make carefully designed information sys- the desired production run and tem will anticipate the consequences of various interactions in its organiza- * This is an idealized chatt, characteristic of re lationships in many consumer goods operations tion and transmit them rapidly to Except as noted, all of the facts mentioned in every participant whose decisions af- this article are quoted for illustrative purposes fect expected overall costs. only and do not represent existing operating statistics of any paiticular organization
PAUL A. STRASSMANN is Director of Systems and Pro- cedures for the National Dairy Products Corporation. He ivas formerly Assistant Controller for Burns and Roe, Ine and Manager of Computer Systems for the General Poods Corporation. Mr. Strassmann is a graduate of Cooper Urnon, New York, N. Yand holds an MS. degree m Industrial Management from Massachusetts Institute of Technology, Cambridge, Massachusetts.
FEBRUARY 1965 27 Information Flow in a Representative Production-Inventory System
EXHIBIT 1 thereby replenish warehouse inven- time-lags between each station and tory. (3) the stability of the pace setting It is this method of passing infor- demand pattern at the customer level, mation that we call seginentation one can determine the degree to Commands about corrective actions which reliance on purely historical needed are passed through a chain of reporting will call for extreme varia- 1 specialists, each adding at his station tions in production rates to the original information certain When an organization examines the additional elements which are neces- total cost of producing and distribut- sary to reflect the marketing, produc- ing its products, it may find that tion and distribution realities of the marketing flexibility, which is be- entire system This is very like an coming a necessity m our increasingly assembly method of production wheie competitive environment, may indeed the entire process must proceed in a be purchased by market-oriented de- strictly pre-determined sequence at a ployment of inventories, faster means carefully pre-engineered speed 1 The woik done by Piofessor J Forrester at The facts received at any of the MIT in the field of Industrial Dynamics provides the framework for conducting such analysis See stations along the line are essentially J W Foi rester "Industrial Dynamics." Harvard records of past events Depending on: Business Review, July-August 1958 for a man- (1) the nature of the decision rules agement introduction and J W Forrester, In- dustrial Dynamics, MIT Technology Press, Lam applied at each station of the infor- bridge, Mass, 1962, for a more technical de mation flow, (2) the magnitude of scription NAA BULLETIN ! 28 «1 ro OOOOOi/ -\\OfNO\OOVOrN fN CM
EXH I BI T 2 FEBRUARY 1965 of transportation or more adaptable a first approximation, that for prod- production methods. It is becoming ucts in mass production, the mini- more apparent that a thorough re- mum inventory requirement to sup- examination of the expenses associ- port such a service will approach the ated with segmented communications manufacturer's maximum system re- and with actions based on historical action time. Hence, all elements which records may uncover significant pay- contribute to the maximum delay off opportunities for many corpora- range and which result from the in- tions concerned with the mounting ternal administrative process should costs of meeting high customer serv- be immediately earmarked for further ice standards. investigation. Accordingly, this would classify delays AT,, AT,, AT3 and AT4 as prime candidates for analysis. The Cost Penalty for Segmentation Secondary suppliers' inventories. The cost penalty for segmentation Here one must learn whether the de- of the information process is best livery lead times (AT7) of the secon- estimated by analyzing the delays in dary suppliers are supported by in- an existing system. Exhibit 2 shows ventory levels or surplus capacity. how such an analysis may be tabu- The secondary suppliers must some- lated for the production-inventory how meet , the uncertainties of the system in Exhibit 1. Possible findings: prime manufacturer's fluctuating pro- Cost of carrying inventory. Since duction levels. As a rule, if there are the requirements of customer service suppliers who devote a large share of for consumer goods are exceedingly their total capacity to a single major high (between 96-99% on-time de- manufacturer, one must carry the livery reliability), it can be stated as analysis of the consequences of in-
Expediting Costs and Supply Systems Policies
OPTIM UM PRODUCriON COSTS - -FACTORY OVERTIME LEAST COST TRANSPORTATION -FLUCTUATING EMPLOYMENT HIGH INVENTORIES • - I ESS THAN ECONOMIC PRODUCTION RUNS -EXPRESS TRUCK DELIVERIES - LOW INVENTORIES I I INVENTORY CARRYING COSTS
EXPEDITING COSTS
EXH I BI T 5
12 NAA BULLETIN formation delays to the secondary the tendency toward Strategy A be- level as well, inasmuch as costly cause expediting penalties are found practices may be prevailing here to in a variety of accounts reflecting satisfy the manufacturer's rapidly operating costs whereas inventory varying need for raw and packaging levels are generally singled out as a materials. special item on financial statements. Expediting costs A clue that these For this reason claims of an inventory may be substantial can be found in reduction are valid only if there is the spread between the minimum and no offsetting increase in operating maximum information delay as tabu- costs lated in Exhibit 2 A large difference between the average reaction delay Uses of Forecasting and the minimum possible delay will invariably result in a shift to expe- Delays in a segmented information diting as a method for maintaining system can be sharply reduced by customer service re-orienting the flow of data. Such A combination of cost expediting an alternative should be considered strategies for obtaining a desired if it offers: 1 The possibility of a reduction in level of customer service is shown average and maximum delay in in Exhibit 3 It seems that introduc- total reaction to customer re- tion of inventory controls reinforces quirements. (Cost savings at-
Identifying Cos! Reductions Possible from Changes in Information Plows
MAJOR COST REDUCTION POTENTIAL
,A" 1A TRANSIT UNION RAIL CAR DELAYS INHERENT TO SYSTEM TIME RULES PL A N N W O
oe Qg Q6 3,
-OPPORTUNITIES FOR REDUCTION-MINOR SCHEDULNG LEAD TIME
I AT' I A T2 I A" INFORMATION LAG REPORTING LAG PROCUREMENT LAG
EXH I BI T 4 FEBRUARY 1965 31 tainable through such a reduc- agement a method that would realize tion can be identified by charts the maximum savings available. listing the varying delays and Attainment of a new optimal de- associated costs. For the system sign will be important because the illustrated in Exhibit 1, we properties of such information sys- would draw a set of curves tems, not unlike the command and shown as Exhibit 4.) control systems that govern the de- 2. An information handling capa- ployment, logistics and ultimate use bility that does not disrupt the of modern weapons, will become an necessary functions of the or- integral part of the overall perform- ganization. 3. An information system which ance characteristics of a manufac- would be substantially less turer's product line. This means that costly than potential savings a manufacturer possessing a well- identified. designed technique for identifying It turns out that introduction of the needs of customers will be able forecasting techniques throughout a to ship, warehouse, market, service, segmented information system makes manufacture and purchase his prod- it possible to substantially reduce ucts at a lesser cost than a competitor maximum information and reporting whose overall strategy provides little lags; simplify organizational and re- room for information handling based porting relationships; and reduce on the best technologies available. overall administrative costs of pro- viding proper information to all de- The Costs of Forecasting cision-makers in the system. Forecasting is expensive. At Gen- As can be seen from Exhibit 4, the eral Foods for example, customers physical time required for production demand about 1000 product items a of the hypothetical consumer item is week at each of approximately 25 relatively small as compared with the warehouse locations. To make a cor- planning lead time. Under these con- rect shipping decision from plants to ditions the ideal system solution is to the warehouses involves a minimum devise the most accurate techniques of 25,000 short-term sales forecasts or practicably attainable to forecast cus- well over one million forecasts a year. tomer sales. Actually, short-term forecasts are not Such forecasts should be translated always adequate; for certain products instantaneously into actionable in- customer demand for several weeks structions to decision points within ahead must be continually re-ap- the supply system to gain the closest praised. Hence the yearly number of possible coordination of all stages in forecasts at General Foods can come the interlinked sequence of events. If to ten million or more. perfect accuracy and instantaneous The question of affordability is ob- communications could be realized, in- viously important. Several mathe- ventories at the raw, semifinished and matical models for demand forecast- finished levels would reach a mini- ing costs are now available. The mum, expediting costs would be minor classical statistical correlation meth- and purchasing agents would not have ods 2 are clearly priced out of further to call on suppliers to inquire about consideration for massive applications delayed deliveries. since unit costs range from $5 to $25 Unfortunately, forecasting and com- per forecast. The power of these munications are subject to very real techniques applies primarily at a high limitations. The designer of future in- s formation systems will have to bal- See "Forecasting by Generalized Regression Methods—Non Linear Estimation," Program M ance many conflicting elements be- 2 A-3, IBM Applications Library, New York, fore he can recommend to his man- N. Y.' NAA BULLETIN ! 32 level of aggregation such as in mak- What latitude is allowed to the pro- ing consumption projections for a duction manager in "second-guessing" broad product line at national or re- the probable outcome of a promo- gional levels, which results in tens or tional campaign, particularly if it hundreds of forecasts per annum. calls for heavy factory overtime and Time series analysis,:i particularly the in the past has resulted in merchan- type used by statisticians and econo- dise returned for re-work to the mists for adjusting historical data plant? Is it mandatory for a plant about employment, industrial activity manager to firm up his production or sales volume, has costs comparable schedule before the purchasing agent to the various correlation methods orders supplies subject to high obsol- and, for this reason, is also not af- escence? fordable. Each question reveals conflicting objectives. Each underscores the fact It is only when we investigate a that the efficient performance of one simple technique such as moving man depends in large part on the ac- averages that costs are sufficiently curacy of the forecast received from lowered to cents per unit so that mass another. forecasting becomes practical. Even here, however, there are limitations,4 The organizational implications of hence, the technique of "exponential such conflicts and dependencies be- smoothing" recently has come to the come even more apparent when we forefront and is in extensive use.5 observe elaborate procedures for Using a large-scale computer, Gen- transmitting forecasts from one level eral Foods now produces in excess of of decision-making to another. Each ten million customer demand fore- party in the information chain must casts per annum at a unit cost of less protect himself with safeguards than one cent per forecast. It is inter- against error. But uncertainty is in- esting to note that both economies of herent in the business environment. scale and a steep learning curve« Under rapidly changing conditions seem to apply, since our unit costs ran even good forecasts become obsolete about per forecast when our cur- while being communicated. rent information system became op- The complexity of the market itself erational on a more limited scale two also tends to promote inaccuracy. A years ago. nationally marketed product line is exposed at several thousand stock points to uncertainties of customer Organization of Forecasting demand and to marketing activity initiated by its own or the competi- Who will do forecasting has always tors' sales forces. To describe the been a major organizational question. status quo of such a product line at Should the production manager any given time requires analysis of schedule output levels to satisfy sales tens of thousands of facts. Usually forecasts made by the sales manager? this analysis is beyond the capability of staff specialists appointed to coordi- 8 See Occasional Paper #57 by Julius Sluskin, nate schedules, particularly if their National Bureau of Economic Research, 195 7. * See Chapter VII in R. 0. Brown's Smoothing, interests are concerned with separate Forecasting and Prediction of Discrete Time elements of the entire process such as Series, Prentice-Hall, Inc., Englewood Clift's, N. J., 1963. production, traffic, distribution and 8 Fpr instance, see IBM's manual on IMPACT, procurement. a standard program for the management of in- ventories in distribution industries. These, then, are the forces which 8 See Winfred B. Hirschmann, "Profit from the underlie the need for reporting seg- Learning Curve," Harvard Business Review, mentation and information transmis- January-February 1964.
FEBRUARY 1965 37 sion delays so costly to an enterprise all forecasts without delay directly to It appears that the most efficient decentralized production points way to organize the forecasting func- In this process, facts from the local tion is to strip it of its narrowly de- warehouses as well as instructions partmental character, so far as this is describing the marketing plans are possible, and to make it an equally within a few hours transformed by a accessible service function The con- computer into production forecasts cept is illustrated m Exhibit 5 which and shipment dispatches In other describes a computer-onented infor- words we have dispensed with de- mation system based on detailed cus- layed communications in two seg- tomer demand forecasts, it services ments (AT,) and substituted for it the needs of the representative pio- rapid information transfer from sev- duction-inventoi y organization de- eial points of origin simultaneously scribed in Exhibit 1 The cor respond- The same process is repeated in ing information delays, listed as Ex- providing production forecasts to hibit 6, show a marked improvement suppliers Rather than waiting for From an organizational standpoint, clearance thiough the plant organi- however, the most interesting change zation (AT4 ), the infoimation system can be observed in the positioning of simultaneously provides the plants' the divisional (or corporate) planning production forecasts in terms of raw group with respect to the information and packaging materials usage to in- flow Instead of passing all data dividual major suppliers after mak- through the centralized group for oc- ing allowances for all goods in transit casional modification as warranted, as well as for all safety stocks re- the information system now passes quired at the user plants.
Information Flow in a Forecasting-Oriented Production-Inventory System
EXH I BI T 5 34 NAA BULLETIN The major advantage of the inte- proved precision with which a well- grated management information sys- designed information system operates. tem over a more conventional method For a consumer-oriented enterprise, of operation is that it permits the in- the maximum reaction time to a vestment of all forecasting know- change in the competitive environ- how at a single location for ready ment will most likely be a significant distribution to everyone. Hence more yardstick for measurement of good money can be spent in perfecting the performance. For this reason the single source of forecasts as contrasted change in this characteristic (as illus- with diluted efforts resulting when trated by a decrease from a maximum two or more organizational units at- delay of 11.9 weeks to 3.7) is particu- tempt to develop partial approaches larly worthy of attention, because the to the problem of anticipating each reflexes of an organization with maxi- other's needs. Consolidated forecast- mum delays close to the average de- ing can also materially aid in elimi- lays can be predicted with greater nating a certain amount of organiza- accuracy. tional friction because it carries It can also be said that a production within itself the guarantee that every- and distribution organization not pos- one will base plans and action on sessing such a high degree of pre- identical assumptions about the fu- dictability invariably invites the cre- ture. ation of expediting staffs. They must When information delays shown in necessarily receive a variety of infor- Exhibit 2 are compared with those in mation and, in turn, forecast how and Exhibit 6, it becomes evident that the when a specially handled item should most significant improvement through be produced and delivered. Hence, information system design based on from the standpoint of overall infor- forecasting can be found less in the mation system design, communication decreased average reaction time (a to and from expediters very rapidly reduction from 5.9 weeks to 2.4 complicates data handling. Such com- weeks) than in the markedly im- plexity may actually aggravate the
Information Delay Analysis (in weeks)
Average Del ay Rang e Ex p l an at i o n du ration sym bol
0 Orders placed for future delivery reflected in system 0 A Ti 0.2 0 - 0.4 Delay of reporting cycle A T2 0.1 0 - 0.1 Reporting lag 0 0 Reporting lag - transmission of data A T} 0.4 0.4 - 0.6 Production scheduling administrative time A T4 0 0 - 0 Order placement with vendor 0.6 0.4 - 0.6 Manpower assignment time - union rules A ï5 0.2 0.2 - 0.6 A T6 Rail-car availability planning 0 0 Supplier delivery lead time A T7 0.1 0 - 0.2 8 Variation in scheduled output A T 0.8 0.5 - 1.2 A T9 Transit time 2.4 1.5 - 3.7
EXH I BI T 4 13 FEBRUARY 1965 condition which it has set out to cure, When adopting this approach, the particularly if it involves the creation information system designer will of coordinating staff groups through have to overcome strong pressures which certain priorities must be from management who may not be cleared. The expediting group may readily convinced of the need for ex- indeed shorten the minimum reaction tensive detail and who may be con- time of a complex production process. cerned about the increased margin of On the other hand, only a thorough forecasting error at the lower levels information system analysis with par- of aggregation. The temptation to ap- ticular emphasis on the effects of such pear a good prophet may influence a an expediting body on overall pre- system designer to take the easy dictability would reveal whether the route and produce longer term, con- expediters themselves do not actually solidated forecasts which are invaria- create the need for additional coordi- bly more accurate because they con- nating personnel. tain a variety of data which has al- When starting work on business ready built in compensating influ- forecasting it is necessary to define ences arising from averaging of basic carefully the desirable level of ag- data. gregation at which the forecasts will have to be made as well as the cost How to Communicate about Forecasts consequences of such forecasts if they prove to be inaccurate: The presentation technique and for- Level of aggregation. It is well mat of forecasting information places appreciable demands on the ingenuity known among commercial fisherman of an information system designer. that if you are after big fish a net The personnel costs associated with with small mesh is burdensome. On the administration of the system will the other hand, herring cannot be bear some relationship to the effec- caught with nets that have tool-large tiveness with which the results ob- openings. Since the role of forecasting tained through the system are com- in management information system municated and displayed. can be likened to fishing in a sea of expected facts, it is important to de- A sales forecast in the hands of a sign the forecasting "net" to fit its production scheduler at a plant is not operational use and to make forecasts by itself particularly meaningful. The at an appropriate level of detail. scheduler addresses himself chiefly to questions that are narrowly focused When designing an integrated in- around the functions of his job: when formation system, all the needs must to produce, and hoio much. To an- be taken into account. The principal swer these questions, the sales fore- advantage of the system lies precisely cast must be adjusted to reflect inven- in its capability to fully and consist- tories, goods in process and goods in ently satisfy all informational needs. transit. Further allowances must be For this reason, subject to limitations made for transit lead time, safety of cost and availability of data, fore- stock levels desired, economic produc- casting should take place at the low- tion quantities, provision for seasonal est possible level of detail within the inventory build-ups and for pending shortest forecasting cycle available marketing promotions. This involves Consolidated (product line, divi- extensive computations to transform sional, corporate, etc.) forecasting a sales forecast into a simple com- should then be built up by synthesis puter output which will allow the of the detailed projections or by syn- scheduler to scan the system's recom- thesis of detail data to serve as input mendations in terms that are mean- into higher level forecasting models. ingful to his frame of reference such 10 NAA BULLETIN ! as the latest allowable calendar dates models are of little interest to the when the production may begin with- user. If the tendency to display out jeopardizing the desired levels of mathematical back-up information is customer service 7 carried to an extreme it will slow Insofar as presentation of computer, down appreciably the acceptance by output is concerned, misdirected em- line personnel of computer-oriented phasis is mainly due to one of the management information systems two typical biases: (1) the account- Ideally, the presentation technique ant's bias and (2) the operations re- built into a management information searcher's bias. system based on computers should The accountant's bias An analyst reflect both the accountant's bias to- with heavy accounting systems back- ward elaborate tabulation of facts and ground invariably designs the report- the operations researcher's concern ing format by resortng to full print- about limitations of mathematical out of all detailed data, in columnar models. An information system should format With all facts thus displayed be capable of generating a large heavy reliance is placed on the user's variety of each type of these reports judgment to arrive at decisions Such but only upon request rather than as reporting may be adequate and pro- a matter of reporting routine vide the basis for making a planning A corollary concept to this striving decision, but as the fiequency of re- for economy in reporting is the idea porting increases and approaches that each organizational level should real-time decision making, the "full have the capability to assess the in- facts tabulation" method becomes too formation system in terms of its par- burdensome and the recipients of ticular functions The relevant time reports reach their human limit for span of decisions and the appropnate absorbing the contents of computer- level of detail answering the question generated reports when and how much are different The operations researcher's bias. when asked by a transportation dis- An information system designer with patcher or by a purchasing agent a mathematician's point of view is in- The practical business world, in clined to produce reports which focus short, calls for a highly diversified on the limitations of the mathematical capability to generate a variety of model used in the various computa- reports about the consequences of tions This approach to the presenta- business forecasts Inasmuch as the tion of results has important uses par- precise organizational relationships ticularly if the scheduling decisions and skill levels of all recipients of are infrequent or if they involve forecasting information cannot be major commitment of resources The pre-planned during system design, "business model" oriented outputs the computer system should be con- have also impoitant uses in analyzing broad policy alternatives in plant structed to allow easy modification scheduling However, the typical pro- of the scope and format of all infor- duction scheduler is task oriented, mation pioduced for management pressed for time. He will gladly dele- uses gate the analysis to staff specialists Forecasting by Opinion In the fast world of everyday deci- sions, the finer points of forecasting Mathematical and statistical fre- casting techniques are of little use 7 For an example of such a calenriai izttl index when dealing with customer demand see the author's article "A Plant Warehouse Sys tern Using Variable Lead Times & Ueoidir patterns that are unique or timed Times." Management Tichnotofjy, August 1962, without relationship to prior histori- published by the Institute of Management Sciences, Pleasantville, N Y cal experience In point is the product
FEBRUARY 1965 37 movement resulting from trade pro- heavily promoted item. We can still motions, customer premium offers, chose to apply forecasting methods concentrated advertising campaigns such as exponential smoothing to the or new product introductions The latter demand pattern, with the conse- demand pattern for such practices is characterized by its deliberate stait- quence that relatively large fore- mg date, pre-planned duration and casting errors will develop. However, overall demand level somehow re- if forecasting errors are expensive, as lated to the intensity or effectiveness they frequently are for reasons dis- of the promotional activity. cussed earlier, the designer of a man- Exhibit 7 illustrates the sales pattern agement information system may for a product possessing certain prob- have no choice but to find a way for abilistic properties that seemingly incorporating the intelligence about lends itself to statistical forecasting the pending promotional activity into techniques and the sales curve for a the overall flow of data
Statistical Sales Pattern
SALES (UNITS)
Sales Pattorn for a Highly Promoted Item
AREA A": SHORT TERM VOLUMN INCREASE ASSIGNABLE TO PROMOTION V
LONG TERM SALES TREND
SALES (UNITS)
H PRQMOTtON"B" M
EXH I BI T 7
38 NAA BULLE7SN The starting date, location, scope, a detailed historical file containing type and duration of a particular pro- the week to week sales rate of all motional activity is usually known prior promotions of a similar type in to the sales force because considera- the same sales district.8 ble planning must precede the suc- A computer program now performs cessful launching of a campaign. a series of computations which make Capturing the information in a defini- an allowance for dissimilar lengths of tive form and at an authoritative promotional campaigns in the past source will be in itself a major ac- and the present, relative intensity in- complishment, even though this data dexes of promotional efforts in the often represents only estimates rather past and the present, etc. The result than facts. For example, the effective is a series of weighted factors repre- duration of a promotion will be only senting a mix of historical facts tem- an expression of opinion by the sales pered by current judgment which force rather than a statistically de- are, in turn, entered into exponential terminable forecast. smoothing mathematical equations The total short-term incremental expressing the long-term sales trend volume increase (see Area A in Ex- for the promoted item. The short- hibit 7) that is assignable to a par- term "promotional" factors, so to ticular type of promotion is much speak, override the long-term pattern harder to forecast. Certain types of and produce detailed weekly ship- activity such as X cents "off-label" ment schedule estimates for the en- sales are reasonably well estimated tire promotional period. by experienced sales executives. The exponential smoothing tech- Other activities, such as the introduc- niques can be further utilized for the tion of new or improved products are improvement of the entire forecasting seldom well estimated even by sea- process after the promotional period soned judgment reinforced by mar- has passed. A series of computer keting research. routines has been provided that ana- When considered as an intra-or- lyze the actual shape of the short- ganizational communications prob- term promotional activity and com- lem, the important factor may not at pare it to the one which was originally all be the degree of accuracy of the forecast. The computer program is incremental volume estimate assigna- equipped with the facility to reflect ble to the marketing promotion but the relative weight of each completed the information handling problems. promotion on all the historical rec- They can contribute even more sig- ords of prior promotional activity. nificantly to the maximum reaction Thus, the latest experience can be delay of an organization than fore- brought to bear its effect on new fore- casting errors. casts under controlled conditions. At General Foods a technique has It is too early to make broad gen- been devised for injecting the sales- eralizations about the relevance of men's estimates of short-term effects judgmental estimates as an important of promotional activities into the input into management information overall flow of data. Several hundred systems. The resistance to using this such judgments are contained within approach stems from well-founded the information system at any time. arguments that a computer system is As input to the system, coded en- only as good as its input. Hence, the tries are received containing perti- nent geographic and production in- » For further detail see the author's paper formation and anticipated changes in "Managerial Problems in Designing and Organiz- ing a Computer System for Inventory Control," the long-term sales trend. The new Proceedings of the Food Industries Symposium, information is then matched against IBM Corporation, Endicott, N. Y., 1963. 39 FEBRUARY 1965 orthodox approach to systems design Conclusion and Summary I calis for meticulous verification of all incoming data that should, so far When designing a management in- I as possible, tie in with records main- formation system, the role of fore- i tained as an integral part of conduct- casting in it must be carefully as- I ing the business: Executive judgment sessed. The ability to forecast short- j is, therefore, excluded from a report- term customer demand and then f ing system. rapidly distribute this information I It cannot be denied that such con- throughout the organization so as to \ servatism is well founded if the sys- obtain an optimal reaction to a j tem design is concerned primarily change in a firm's competitive en- j with the recording of the past or with vironment is seen as one of the pri- I reactions to presently incoming in- mary objectives in the uses of fore- *i formation be it customer orders, casting. To attain such an objective, | shipping advices, airline reservations forecasting must be done at a suffi- | or stock market purchases. If, how- ciently low level of detail and fore- "j ever, the role of management infor- cast results should be communicated mation systems in planning and co- to all personnel in a format oriented ordination of future events is to toward the decisions which must be grow, an executive's judgment some- made. how will have to be tanped and translated into coded form so that full Forecasting of customer demand for i implications of his views will be a product is the principal ^unknown I available for rapid dissemination factor in business planning. There- [ throughout the information system. fore, a concerted effort toward unified It seems that one of the important forecasting should be made. The cost t areas for tempering extrapolated facts effects of forecasts, modified by pass- | with judgment lies precisely in the age through several organizational j field of forecasting where complex levels, can be identified through an [ interactions between a firm and its analysis of the average and maximum environment may be best expressed informational delays traced by the by attaching quantitative value ex- flow of paperwork. pressions to the executive's feeling of It is further suggested that com- optimism or pessimism. plete reliance on a variety of mathe- The alternative to this approach re- matical forecasting techniques will mains in the continued reliance on not adequately meet the needs of communicating the intensity of the business organizations engaged in executive's feelings through a num- vigorous promotional activities. Ex- ber of informational channels and re- ecutive judgment must be a signifi- porting levels. Wherever the relative cant design concept of the informa- efficiency speed and undeniable flexi- tion system. bility of such communications serve Better forecasting within integrated adequately the needs of an organiza- management information systems tion, a more formal approach is not may, in the future, be assigned an im- 'j necessary. However, if the environ- portant cost reduction mission and ment changes rapidly and results in a serve as one means by which inereas- J need for continuous reassessment of ing demands for better service and ! short-term forecasts, which in turn changed products are met. The in- i is attended by costly practices, then creased production and distribution i the incorporation of judgmental fore- costs associated with unpredictable j casts may provide a marked im- customer demand patterns can in j provement in serving the communi- large part be offset by improved j cating needs of the enterprise. handling of information. i 40 i NAA BULLETIN !