Directorate of distance education

Demand Uncertainty
For most industries, it is very difficult to accurately forecast the 
demand for new products. In an emerging industry, manufacturers 
devote substantial efforts to studying the applications and benefits of 
new technologies. However, when a technology is new, firms have little 
information on the commercial uptake of new products and, therefore, 
have poor forecasts of the product demand.
For example, GlobalStar, one of the key players in the emerging 
mobile satellite services industry during the 1990s, expected between 
500,000 and 1,000,000 users in 1999, the first year of its operation; these 
numbers were confirmed by many other independent analysts. However, 
the actual number of users was only 100,000, which is significantly lower 
than the expectation.
Demand forecasts for new products can also be inaccurate in 
existing industries. Customers’ tastes and preferences are hard to predict 

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and will change over time. Therefore, the historical demand patterns 
for an existing product might not always be a good reference for the 
next generation of products. For example, when Mercedes-Benz first 
introduced its M-class cars in 1997, it forecasted its annual demand to 
be about 65,000 vehicles. This forecast was, in fact, too low and the firm 
expanded its capacity to 80,000 vehicles during 1998-1999, which was also 
insufficient to meet demand.
Cost of Mis-Planning
The cost of mis-planning capacity can be very high for 
manufacturers. In the case of GlobalStar, because the demand forecast was 
overly optimistic, the company filed for bankruptcy protection with a debt 
of 3.34 billion dollars in 2002 after three years of operations. Therefore, 
it is important for the manufacturers to take demand uncertainties into 
consideration when they are planning their capacity.