Chapter 8 Forecasting Flashcards
What is the process of predicting future events
Forecasting
What is the process of selecting actions in anticipation of the forecast ( is made in response to the forecast)
Planning
What 4 departments are impacted by forecasting?
Marketing
Finance
Operations
Sourcing
What department relies on forecasts to develop estimates of demand and future sales?
Marketing
What departments relies on forecasts to assess financial performance and capital investment needs, predict stock prices and investment portfolio returns, and set budgets
Financing
What department relies on forecasts to make purchasing decisions and select suppliers
Sourcing
T/F- Proper planning for the future starts with a forecast
True
What are the 2 impacts of forecasting on supply chain management
1) Independent forecasting by supply chain members result in the bullwhip effect
2) Leads to mismatch b/w supply and demand throughout supply chain
What are the principles of forecasting?
1) Forecasts are rarely perfect
2) Aggregate forecasts are more accurate (forecast will be more accurate if forecasting enrollment for all LOGT classes vs. each individual LOGT course)
3) Forecasts are more accurate in shorter horizons
What are the two types of forecast methods?
1) Qualitative
2) Quantitative
What does qualitative mean?
based off judgement or subjective opinions not facts
What does quantitative mean?
basing decisions off of calculations and data
T/F- Forecasting drives all other business decisions
True
Planning involves what 3 decisions?
1) Scheduling existing resources
2) Determining Future Needs
3) Acquiring new resources
Why do firms confuse forecasting and planning?
Because firms can impact their own demand
( this is referred to as demand management)
How can firms impact their own demand?
By offering incentives, discounts, and promotional ads
The process of influencing demand is known as
Demand Management
What department is responsible for linking the organization to its customers
Marketing
What department organizes the transformation of raw materials into finished products and services
Operations
What is the department responsible for linking the organization to its suppliers
Sourcing
What department am I describing based off their jobs?
- Balancing inventory across the network
- Optimizing transportation
-Customer service metrics
Logistics
What department am I describing based off their jobs?
- Setting budgets
Finance
What department am I describing based off their jobs?
- makes purchasing decisions
- selects suppliers
Sourcing
What department am I describing based off their jobs?
- estimating demand
- future trends
Marketing
What department am I describing based off their jobs?
- capacity planning
- scheduling
-inventory levels
Operations
What kind of methods are useful when identifying customer buying patterns, expectations, and estimating sales of new products?
Qualitative
What are the 3 qualitative forecasting methods?
- Executive Opinion
- Market Research
- Delphi Method
A group decision making process, subject to bias is known as
Executive Opinion
Surveys and interviews used to collect preferences is known as
Market Research
A consensus is developed from anonymously contributed expert information is known as
The Delphi Method
What forecast methods are used for the Quantitative forecasts?
Time Series Model
Casual Models
This model generates the forecast from an analysis of a “time series” of the data
Time Series Model
This model assumes that the variable being forecast is related to other variables in the environment
Casual Models
What are the strengths of the Qualitative forecast?
- Highly responsive to latest changes in environment
-Can compensate for “one-time” or unusual events
-Can include “inside” and “soft” information difficult to quantify - Provide user ownership
What are the weaknesses of the Qualitative forecast?
- Cannot consider many variables
- Influenced by the short term
- Difficulty in understanding relationships
-Biased (optimism, political manipulation, lack of consistency)
What are the strengths of the Quantitative forecast?
- Can consider many variables and complex relationships
- Objective
-Consistent - Can process large amounts of info
What are the weaknesses of the Quantitative forecast?
-Only as good as the data and model
- slow to react to changing environments
- Costly and time consuming to model “soft information”
- Requires technical understanding
A list of data points of the variable being forecast over time is known as
A Time Series
What are 6 Time Series models called?
- Naive
-Simple Mean
-Simple Moving Average - Weighted Moving Average
- Exponential Smoothing
- Seasonal Index
Which time series model uses last period’s actual demand value as a forecast for the next period?
It is also easy to use, only good if data change little from period to period, and may be used if there is very limited historical data available
Naive Method
Which time series model uses an average of past data as a forecast? It is also good for level pattern, requires carrying a lot of data, and makes forecasts become more stable over time as the number of data points increase
Simple Mean Method
Which time series model has all data weighted equally and has the forecast made by averaging a specified number, n, of the most recent data
It is also appropriate for level data pattern and forecast becomes more responsive as n decreases
Simple Moving Average
Which time series models computation is the same as a simple moving average except that managers have the option of specifying the weights assigned to data points
Weighted Moving Average
What is the forecast for
May using a three-period
weighted moving average
where weights assigned,
beginning with the most
recent month, at 60%,
30% and 10%?
Jan-38
Feb-27
March-35
April-42
May-
May = (42.6)+(35.3)+(27*.1)= 38.4
May = 38.4
What is the forecast for
May using a three-period
moving average?
Jan-38
Feb-27
March-42
April-42
May-
May=[42+42+27]/3=37
May=37
What time series model is a forecasting model that uses a special weighted average procedure to obtain a forecast. It is also easy to use and understand, and provides good forecasts results
Exponential Smoothing
Café Nervosa forecast a monthly usage of
cream to be 24 gallons in May. The actual
usage in May was 28 gallons. What is the
forecast for June given = 0.3 ?
June= (0.3)(28)+(0.7)(24)= 25.2 gallons
June=25.2 gallons
What time series model computes the percentage amount by which data for each season are above or below the mean
It is also a simple and logical procedure for computing seasonality and it is only useful when seasonality is confirmed to be present in the data
Seasonal Adjustment
What are the two casual models?
Simple Linear Regression
Multiple Regression
A forecasting model that assumes a straight
line relationship between a dependent variable and a single independent variable is known as
Simple Linear Regression
Define the term.
extends linear regression by looking at a relationship between a dependent variable
and multiple independent variables is known as
Multiple Regression
What is the straight line linear equation for the model?
Y= a +bX
Y= dependent
X= independent
a= Y intercept of the straight line
b= slope of the straight line
What is the multiple regression formula?
Y = β_0 + β_1X_1 + β_2X_2 +…+ β_k X_k
What are the three measures to help determine how are forecasts methods are performing?
- Cumulative Forecast Error (CFE)
- Mean Absolute Deviation (MAD)
_ Mean Square Error (MSE)
What is the equation for forecast error?
e=D-F
e=forecast error for period t
D=actual demand for period t
F= forecast for period t
The cumulative sum of each period’s error is
Cumulative Forecast Error = Σe_t
The average of the sum of the absolute errors is
Mean Absolute Deviation
=Σ l Actual - Forecast l
divide by n
The average of the squared errors is
Mean Square Error=
Σ ( Actual - Forecast ) squared divided by n
Reminder
for MAD and MSE measures, select the forecasting method that provides the lowest value
Reminder
For CFE, the ideal value is 0, as this indicates there is no bias in the method selected
What effect refers to the increased volatility in orders as they propagate through the supply chain
Bullwhip Effect
This effect occurs when each individual company in the supply chain forecasts it’s own demand, plans it’s stocking levels, and makes its replenishment decisions independently of other companies in the chain
Bullwhip Effect
A collaborative process of developing joint forecasts and plans with supply chain partners
Collaborative Planning (CPFR)
An organization process intended to match supply and demand through functional collaboration
Sales and Operations Planning (S&OP)
What method is used to forecast sales, market trends, make strategic forecasts, or forecast new products
Executive Opinion
What is the advantage of executive opinion?
includes the latest information
What is the disadvantage of an executive opinion?
it is subject to many human biases
What forecast is based off analysis of patterns in the time series of data?
Time Series Models
What forecast is based on modeling relationships between variables?
Casual Models
Which model looks at data of student enrollment per semester at a university over the past 5 years?
Time Series
Which forecast believes that university enrollment may be related to unemployment rates, recession levels, or salaries?
Casual Models
What advantages come from Collaborative Planning, Forecasting and Replenishment
-By increasing value to customers
-By sharing marketplace risks
-By improving their overall performance
What does CPFR stand for?
Collaborative Planning, and Forecasting Replenishment
What does S&OP stand for
Sales and Operations Planning
What are the 4 categories of the CPFR Model?
Analysis
Strategy and Planning
Demand & Supply Management
Execution
