FORECASTING Flashcards
FOR A QUIZ
A statement about the future value of a variable of interest such as demand.
Forecast
is the art and science of predicting what will happen in the future.
Forecasting
While it can be up to one year, this forecast is usually used for three months or less. It is used for planning purchases, hiring, job assignments, production
levels, and the like.
Short range
forecast
This is generally three months to three years. used for sales and production planning, budgeting, and analysis of different
operating plans.
Medium range forecast
Generally three years or more in time span, it is used for new products, capital expenditures, facility expansion, relocation, and research and
development.
Long range
forecast
are more comprehensive in nature. They support and guide management decisions in planning products, processes, and plants. A new plant can take seven or eight years from the time it is thought of, until it is ready to move
into and become functional.
Medium and long
range forecasts
use different methodologies than the others. quantitative in nature and use existing data in mathematical formulas to
anticipate immediate future needs and impacts.
Short term
forecasts
are more accurate than medium or long range forecasts. A lot can change in three months, a year, three years, and longer. Factors that could influence those forecasts change every day. need to be updated
regularly to maintain their effectiveness.
Short term
forecasts
- address the business
cycle. - They predict housing
starts, inflation rates,
money supplies, and
other indicators.
- Economic
forecasts
- monitor rates of technological
progress. - This keeps organizations abreast
of trends and can result in
exciting new products. - New products may require new
facilities and equipment, which
must be planned for in the
appropriate time frame.
- Technological
forecasts
- deal with the company’ s products and estimate consumer demand.
- These are also referred to as sales forecasts, which have multiple purposes.
- In addition to driving scheduling, production, and capacity, they are also
inputs to financial, personnel, and marketing future plans.
- Demand forecasts
These seven steps can
generate forecasts.
- Determine what the forecast is for.
- Select the items for the forecast.
- Select the time horizon.
- Select the forecast model type.
- Gather data to be input into the
model. - Make the forecast.
- Verify and implement the results.
This is based on the inputs and decisions of high-level
experts or management.
Qualitative methods include:
1. Jury of executive opinion.
Decision makers, staff, and respondents all meet to
develop the forecast. Every shareholder in the process
provides input.
Qualitative methods include:
2. Delphi method.
Each sales person provides an individual estimate
which is reviewed for realism by management, and
then combined for a big picture view.
Qualitative methods include:
3. Sales force composite.
This is surveying the prospective customer base to
determine demand for existing products and can also
be used for new products.
Qualitative methods include:
4. Consumer market survey.
predict by assuming the future is a function of the past.
Quantitative methods include:
1.Time-series models
uses similar historical data inputs and then includes other external variables
such as advertising budget, housing, competitor’s prices and more.
Quantitative methods include:
2. Associative models
is one in which the forecast for a
given period is simply equal
to the value observed in the
previous period.
Time Series Models:
1.Naïve method
Moving averages are usually calculated to identify the direction of a trend. This can be done in a variety of ways, with the most common being simple and weighted moving averages.
Time Series Models:
2. Moving averages
(Simple Moving Average)
Weighted moving average is the same as the simple moving average with the addition of a
weight for each one of the last “n” periods. In practice, these weights need to be determined in a way to produce the most
Time Series Models:
2. Moving averages
(Weighted Moving Average)
This method uses a combination of the last
actual demand and the last forecast to produce the forecast for the next period. The purpose is to provide a smoothed representation of the underlying trend, seasonality, and random components in a time series.
Time Series Models:
3. Exponential smoothing
It involves identifying and extrapolating patterns or trends from past observations to
make informed predictions about future values. It works on the assumption that the behavior pattern of factors that are behind past trends will be the same in the future as well.
Time Series Models:
4. Trend projection
The simplest and most widely used form of regression involves a linear relationship
between two variables. The goal is to find a linear equation that best fits the data and can
be used to predict the value of the dependent variable based on the value of the independent variable.
Associative Model:
1. Simple linear regression
It provides a sense of
how much, on average,
the predictions deviate
from the actual outcomes.
Mean Absolute Deviation
It provides a measure
of how spread out the errors are and how much, on average, the predictions deviate from the actual outcomes.
Mean Squared Error
Tools for forecasting in this regard include point of sale tracking that computes sales by
the quarter hour to establish a pattern for scheduling of personnel for peak times and
deliveries or other activities during slower periods.
Service Sector
It provides a percentage-
based measure of how accurate your predictions are in relation
to the actual outcomes.
Mean Absolute Percentage Error
Local events can increase the need for hotel stays, food, gas, and more. Holidays will have
an impact. It can be narrowed to hours in the day around popular meal times.
Service Sector
focuses on jobs. Jobs are assigned to individuals for a period of time, or jobs are assigned to workstations for completion. A job is the objective being produced, either a good or a service. Scheduling to meet demand is a critical aspect of the operations manager’s function in the organization.
Operations Scheduling
is the process of organizing, choosing, and timing resource usage to carry out all the
activities necessary to produce the desired outputs at the desired times, while satisfying a large number of time and relationship constraints
among the activities and the resources.”
Scheduling
is a performance measure
that tracks the time a job is in the system.
Flow time
is a measure of by how much time a job missed its due date.
Past due
is the total when one adds the scheduled receipts for items, plus the on- hand inventories for those items, and reduces inventory holding costs.
Performance Measures
- Total inventory
Formula:
(Scheduled Receipts + On-hand Inventory) - Inventory Holding Costs
Total Inventory = (200 units + 100 units) - $200
= 300 units - $200
= 100 units
is the total amount of time required to complete a group of
jobs. It is calculated by subtracting the starting time of a job from the time of completion from the last job. This technique results in lower inventory and increased delivery speed.
Performance Measures
- Makespan
Makespan = 2 weeks + 3weeks + 2 weeks + 4 weeks
= 11 weeks
is measured as a ratio of average output rate to maximum capacity. Maximizing utilization creates slack capacity.
Performance Measures
- Utilization
Average Output Rate/Maximum Capacity x 100
