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2. Forecasting

The document discusses Operations Management and Total Quality Management, focusing on demand management and forecasting systems. It outlines the processes, techniques, and benefits of forecasting, including both qualitative and quantitative methods. Additionally, it emphasizes the importance of accuracy in forecasting and various measures to assess forecast performance.

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tanedojude599
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4 views

2. Forecasting

The document discusses Operations Management and Total Quality Management, focusing on demand management and forecasting systems. It outlines the processes, techniques, and benefits of forecasting, including both qualitative and quantitative methods. Additionally, it emphasizes the importance of accuracy in forecasting and various measures to assess forecast performance.

Uploaded by

tanedojude599
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Operations Management and

Total Quality Management

Forecasting
Learning Objectives
At the end of the chapter, the student is expected to:
1. Define and explain the demand management and forecasting system
2. Differentiate forecasting approaches and techniques
3. Perform and apply steps of forecasting system
4. Solve and compute forecast demand using qualitative and quantitative techniques
Prepare forecast demand for operations decisions making purposes
What is Demand Management?
 Demand Management is gauging the demand for a
product or service in the future and planning the
manufacturing so there wouldn’t be supply and
demand gaps.
Demand Management Process
 Demand management is the supply chain
management process that balances the customers'
requirements with the capabilities of the supply chain
demand management techniques
 The three, master production scheduling (MPS)
environments of :
 make-to-stock (MTS)
 assemble-to-order (ATO)
 make-to-order (MTO)
components of Demand Management
 Forecasting
 Supply Planning
 Demand Analysis
 Sales and Operations Planning
What is Forecasting?
 Forecasting is the process of making predictions of
the future based on past and present data and most
commonly by analysis of trends
 Forecasting is the process of estimating the relevant
events of future, based on the analysis of their past
and present behavior
two sets of factors assessing forecast
 External forces (outside)
 Internal forces
Approaches to Forecasting
 Top-down Approach
 Bottom-up Approach
Benefits of Forecasting
 Future-oriented
 Identification of Critical Areas
 Reduces Risk
 Coordination
 Effective Management
 Development of Executives
Measures to Increase the
effectiveness of Forecasting
 Forecasting methods should be simple
 Compare forecasts with the situation of “no change”
 Long range forecasts should not depend upon a single
forecasting method
 Forecasts should not be made for very long periods
 Managerial skill should be improved to make reliable
forecasts for planning decisions
 Forecasts should be based on facts and figures and not
personal biases of the forecaster
Process of Forecasting
 Determine the objective for which forecast is
required
 Select the appropriate forecast method
 Compare the actual results
 Review and revise the forecasts
Steps in Forecasting
 Developing the basis
 Estimation of Future Operations
 Regulation of Forecasts
 Review of Forecasting Process
Techniques in Forecasting
 Quantitative Forecasting (Objective)
 Qualitative Forecasting (Subjective)
Methods in Qualitative Forecasting
 Executive Committee Consensus
 Panel Approach
 Delphi Method
 Scenario Planning
 Sales Force Composite
 Customer Surveys
Techniques in Forecasting
 Quantitative Forecasting (Objective)
 Qualitative Forecasting (Subjective)
Methods in Quantitative Forecasting
 Time Series Analysis
 Forecasting Unassigned Variation
 Moving-Average Forecasting
 Exponentially smoothed forecasting
 Causal Models
 Other Forecasting Methods
 Straight Line Method
 Simple Linear Regression
Forecast Accuracy
 Forecast bias – persistent tendency for forecast to be greater
or less than the actual values of a time series.
 Forecast error – difference between the actual value and the
value that was predicted for a given period.

 Bias
 Mean Absolute Deviation (MAD)
 Mean Absolute Percentage Error (MAPE)
 Mean Squared Error
Time Series Analysis
Simple time series
plot a variable over
time then, by
removing underlying
variations with
assignable causes, use
extrapolation
techniques to predict
future behavior
Moving Average
The moving-average
approach to forecasting
takes the previous n
periods’ actual demand
figures, calculates the
average demand over
the n periods, and uses
this average as a
forecast for the next
period’s demand
Exponential Smoothing
The exponential-
smoothing approach
forecasts demand in
the next period by
taking into account the
actual demand in the
current period and the
forecast which was
previously made for
the current period
Causal Models
Causal models often
employ complex
techniques to
understand the strength
of relationships
between the network of
variables and the
impact they have on
each other
Straight Line Method

The straight-line method is one of the simplest


and easy-to-follow forecasting methods. A
financial analyst uses historical figures and trends
to predict future revenue growth.
Linear Regression
Regression analysis is a widely used tool for
analyzing the relationship between variables for
prediction purposes
Linear Regression
Forecast Error
Forecast bias – persistent tendency for forecast to be
greater or less than the actual values of a time series.
Forecast error – difference between the actual value and the
value that was predicted for a given period.
Bias
Indicates on an average basis, whether the forecast is too high
(negative bias indicates over forecast) or too low (positive bias
indicates under forecast). The Running Sum of Forecast Errors
(RSFE) provides a measure of forecast bias
Mean Absolute Deviation
indicates on an average basis, how many units the
forecast is off from the actual data
Mean Absolute Percentage Error
indicates on an average basis, how many percent the
forecast is off from the actual data
Mean Square Error
a forecast error measure that penalizes large errors
proportionately more than small errors

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