Question 5.3, page 84 in book. Some companies such as Heinz can reliably forecas

Question

Question 5.3, page 84 in book. Some companies such as Heinz can reliably forecast revenues using pure time series analysis (that is by extrapolation of prior data, accounting for seasonal effects). Other companies such as FedEx (which makes money on shipping packages) or Sony (which sells consumer electronics) find that they cannot rely on pure time series analysis for reliable forecasting. They are strongly affected by recessions and need to use theory based methods, including such explanatory variables as income in their forecasting models. Why are they different from Heinz? Please prepare an in-depth response on why Heinz's approach to forecasting differs from that of FedEx or Sony.

Explanation / Answer

Answer:

FedEx or Sony are different from Heinz in their forecasting model because these companies are different from each other in their business as Heinz is a food processing company while FedEx makes money on shipping packages or Sony sells consumer electronics. The demand for food items does not change much as per the changes in economic conditions (recession or inflation) while demand for other things changes while the demand for food items changes according to time and preferences that’s why Heinz uses time series analysis for forecasting

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