COMMERCE 2OC3 Chapter Notes - Chapter 4: Proj Construction, Job Scheduler, Delphi Method
27 Apr 2018
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Operations Textbook
Chapter 4
Forecasting
- Forecasting: The art and science of predicting future events
- Forecasting Time Horizons
o Forecast usually classified by future time horizon, which falls in 3 categories
▪ Short-range forecast: has a span of 1 yr. by less than 3 mth.
• Used for planning, purchasing, job scheduling, workforce lvl., job
assgmt.
• Tend to be more accurate than longer-range forecast
• Employs diff. methodologies than longer-term forecasting
• Moving avg. are common to Short-run projection
▪ Med.-range forecast: spans from 3 mth. To 3 yr.
• Useful to sales planning, prod. Planning and budgeting, cash
budgeting
▪ Long-Range forecast: 3 yrs. Or more in time span
• Useful in planning for new products, cap. Exp., facility location or
expansion, R&D
• Deal with more comprehensive issues supporting mgmt.. decision
regarding planning and products, etc.
- Types of Forecast
o Econ. Forecasts: Planning indicators that are valuable in helping orgs. Prepare
med.-to- long –range forecasts
▪ Predict inflation rt., money supplies
o Tech. Forecasts: LT forecasts concerned w/ the rates of technological progress
▪ New products, new plants/ eqmt.
o Demand Forecasts: Proj. of a company’s sales for each time pd. In the planning
horizon; proj. of demand for a company’s products/ services
▪ Drive decisions, reqd. accurate info; req. demand-driven forecasts
• DD forecasts drive company’s prod., capacity, scheduling system,
marketing, personnel planning
- The Strategic Impt. Of Forecasting
o Forecast is the only est. of demand until actual demand becomes known
o Supply-Chain Mgmt.
▪ Gd. Supplier relations and the ensuing adv. In product inn., cost, and
speed to mrkt., depend on acc. Forecasts
o HR
▪ Hiring, training and lay-offs all depend on anticipated demand
o Capacity
▪ When cap. Is inadequate, the resulting shortages can lead to loss of cust.
And market share
7 Steps in the Forecasting System
- 1. Determine the use of the forecast
- 2. Select the items to be forecasted
- 3. Determine the time horizon of the forecast
- 4. Select the forecasting model(s)
- 5. Gather the data needed to make the forecast
- 6. Make the forecast
- 7. Validate and implement the results
Forecasting Approaches
- Two approaches to forecasting
o Quantitative F: Forecasts that employ mathematical modeling to forecast
demand
o Qualitative F: Forecasts that incorporate such factors as the decision maker’s
intuition, emotions, personal exp., and value system
▪ Four types of Qual. Methods
• Jury of executive opinion: A forecasting technique that uses the
opinion of a small grp. Of high-lvl. Managers to form a grp. Est. of
demand
• Delphi Method: A forecasting technique using a grp. Process that
allows experts to make forecasts
o Consist of decision maker, respondent and staff personnel
• Sales Force composite: A forecasting technique based on
salespersons’ est. of exp. Sales
• Market survey: A forecasting method that solicits input from cust.
Or potential cust. Regarding future purchasing plans
- Time- Series Forecasting
o Time-Series F: A forecasting technique that uses a series of past data pts. To
make a forecast
o Decomp. Of a TS
▪ Trend: gradual up/downward mvmt. Of data over time
▪ Seasonality: Data pattern that repeat itself after a pd. Of days, etc.
▪ Cycles: patterns in data that occur every several yrs. ; ties in to business
cycle
▪ Random variations: “blips” in the data caused by chance or unusual
situation
o Naïve App.
▪ A forecasting technique that assumes that demand in the next pd. Is
equal ti demand in the most recent pd.
▪ Assumption that the demand in the next pd. Will equal to the recent
demand
▪ Most cost-effective obj. forecasting model
o Moving Avg.
▪ A forecasting method that uses an avg. of the n most recent pds. Of data
Document Summary
Forecasting: the art and science of predicting future events. To 3 yr: useful to sales planning, prod. Planning and budgeting, cash budgeting: long-range forecast: 3 yrs. Or more in time span: useful in planning for new products, cap. Exp. , facility location or expansion, r&d: deal with more comprehensive issues supporting mgmt decision. Types of forecast regarding planning and products, etc: econ. Forecasts: planning indicators that are valuable in helping orgs. Prepare med. -to- long range forecasts: predict inflation rt. , money supplies, tech. Forecasts: lt forecasts concerned w/ the rates of technological progress: new products, new plants/ eqmt, demand forecasts: proj. of a company"s sales for each time pd. In the planning horizon; proj. of demand for a company"s products/ services: drive decisions, reqd. accurate info; req. demand-driven forecasts, dd forecasts drive company"s prod. , capacity, scheduling system, Of forecasting marketing, personnel planning: forecast is the only est. of demand until actual demand becomes known, supply-chain mgmt, gd.
