Chapter 3: Demand Forecasting

Question 1

Q: Why is demand forecasting important?

Answer 1

A: It is critical for business decisions like inventory, staffing, and production.

Question 2

Q: What is the goal of demand forecasting?

Answer 2

A: To generate forecasts that are, on average, accurate with low error.

Question 3

Q: What are short-term forecasts used for?

Answer 3

A: Scheduling and operational planning.

Question 4

Q: What are medium-term forecasts used for?

Answer 4

A: Tactical planning, such as budget management.

Question 5

Q: What are long-term forecasts used for?

Answer 5

A: Strategic planning for new products or market expansions.

Question 6

Q: Are forecasts usually perfect?

Answer 6

A: No, forecasts come with a margin of error.

Question 7

Q: Are forecasts more accurate for groups or individuals?

Answer 7

A: More accurate for groups than for individual items.

Question 8

Q: How does the time horizon affect forecast accuracy?

Answer 8

A: The shorter the time frame, the more accurate the forecast.

Question 9

Q: What are judgmental forecasting methods?

Answer 9

A: Methods based on human intuition and experience, like executive opinions and sales force estimates.

Question 10

Q: What are quantitative forecasting methods?

Answer 10

A: Methods that use mathematical models, such as time series and associative models.

Question 11

Q: What is the first step in the forecasting process?

Answer 11

A: Determine the purpose of the forecast.

Question 12

Q: What is the second step in the forecasting process?

Answer 12

A: Establish a forecasting horizon (short, medium, or long-term).

Question 13

Q: What is the third step in the forecasting process?

Answer 13

A: Gather and analyze historical data.

Question 14

Q: What is the fourth step in the forecasting process?

Answer 14

A: Select a forecasting model based on accuracy, cost, etc.

Question 15

Q: What is the fifth step in the forecasting process?

Answer 15

A: Generate the forecast.

Question 16

Q: What is the final step in the forecasting process?

Answer 16

A: Monitor the forecast’s accuracy and adjust if needed.

Question 17

Q: What is a level pattern in time series models?

Answer 17

A: Data fluctuates around a constant mean.

Question 18

Q: What does a trend in a time series model indicate?

Answer 18

A: An increasing or decreasing pattern over time.

Question 19

Q: What is seasonality in time series models?

Answer 19

A: Regular patterns tied to time, like higher sales during holidays.

Question 20

Q: What are cycles in time series models?

Answer 20

A: Long-term variations often tied to economic factors.

Question 21

Q: What is a moving average?

Answer 21

A: A forecasting method that uses recent data points to predict future values.

Question 22

Q: What is a weighted moving average?

Answer 22

A: A forecasting method that assigns different weights to past periods.

Question 23

Q: What is exponential smoothing?

Answer 23

A: A forecasting technique that places more weight on recent data to predict future values.

Question 24

Q: What does Mean Absolute Deviation (MAD) measure?

Answer 24

A: It measures average error in absolute terms.

Question 25

Q: What does Mean Squared Error (MSE) emphasize?

Answer 25

A: Larger deviations by squaring the errors.

Question 26

Q: What does Mean Absolute Percent Error (MAPE) measure?

Answer 26

A: Error as a percentage of actual values.

Question 27

Q: What does positive bias in a forecast indicate?

Answer 27

A: Frequent underestimation.

Question 28

Q: What does negative bias in a forecast indicate?

Answer 28

A: Frequent overestimation.

Question 29

Q: What do associative models use to estimate a target variable?

Answer 29

A: Predictor variables, like economic indicators.

Question 30

Q: What is linear regression in forecasting?

Answer 30

A: A technique to model the relationship between variables.

Question 31

Q: What is executive opinion in judgmental models?

Answer 31

A: Relying on the knowledge of experienced executives for forecasting.

Question 32

Q: What is the Delphi Method in judgmental forecasting?

Answer 32

A: A structured forecasting method using expert consensus through iterative questionnaires.

Question 33

Q: What factors should be considered when choosing a forecasting technique?

Answer 33

A:
1. Cost and accuracy
2. Availability of historical data
3. Time horizon and data patterns

Question 34

Q: What is a tracking signal used for?

Answer 34

A: To monitor forecast accuracy over time and detect bias.

Question 35

Q: What are control charts used for in forecasting?

Answer 35

A: Visual tools that help identify when forecasts go out of control limits.