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Operation AS2

Quantitative forecasting techniques use statistical analysis of historical data to predict future events, while qualitative techniques rely on expert judgment. Quantitative methods provide more objective forecasts but require sufficient historical data. Poor forecasts can lead to excess inventory if too optimistic or lost sales if too pessimistic. When developing forecasts, consumer surveys may not accurately represent all consumers, salesforce composites can be influenced by recent experiences, and committee forecasts risk one view dominating. Forecasts are rarely perfectly accurate due to variability in demand over time. Control limits for forecast errors help determine whether errors represent normal variability or require investigation as a special cause. Wider limits provide more flexibility but risk overlooking issues, while narrower limits improve monitoring but could falsely flag normal variation.

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307 views2 pages

Operation AS2

Quantitative forecasting techniques use statistical analysis of historical data to predict future events, while qualitative techniques rely on expert judgment. Quantitative methods provide more objective forecasts but require sufficient historical data. Poor forecasts can lead to excess inventory if too optimistic or lost sales if too pessimistic. When developing forecasts, consumer surveys may not accurately represent all consumers, salesforce composites can be influenced by recent experiences, and committee forecasts risk one view dominating. Forecasts are rarely perfectly accurate due to variability in demand over time. Control limits for forecast errors help determine whether errors represent normal variability or require investigation as a special cause. Wider limits provide more flexibility but risk overlooking issues, while narrower limits improve monitoring but could falsely flag normal variation.

Uploaded by

Kpop Lovers
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.

What are the main advantages that quantitative techniques for forecasting have over qualitative
techniques? What limitations do quantitative techniques have?

- Quantitative forecasting method, It is a statistical technique to make predictions about the future
which uses numerical measures and prior effects to predict future events. While qualitative is to
make forecasts, qualitative forecasts rely purely on judgement and opinion. So when using
quantitative techniques, organization use historical data or the development of associative
models that attempt to utilize casual variable. Quantitative methodologies have limitations in
that there is not always enough time to obtain the data needed for a quantitative forecast, and
you must rely on the managers' expertise and intuition.

2. What are some of the consequences of poor forecasts? Explain.

- Poor forecasting leads business decisions and can sometimes lead to catastrophic results.
Optimistic estimates frequently imply that the company expects demand to be much higher than
it actually is, resulting in excess inventory and retailers needing to discount products to clear the
shelves.

3. List the specific weaknesses of each of these approaches to developing a forecast:

a) Consumer surveys: - Normally in most surveys, the total number of consumers is very large and it is
not feasible to contact each and every consumer or potential consumer. Therefore, some type of
sampling is done and the survey results are based on this smaller sample size. While this sort of
survey could gain access to information that would not be otherwise accessible, there is also a danger
that lurks are hidden in this information. This danger is that unless the survey is designed by an
expert in the field the questions may not reveal the correct information. In fact, there is a great fear
that wrong information may get validated just because it is the result of a consumer survey. Secondly,
the sample has to be correctly chosen to ensure that the entire population of consumers, present and
potential, is correctly represented. Otherwise again there is a fear of a false positive result. Also these
surveys can be expensive and time consuming. Moreover, the surveying personnel cannot eliminate
any irrationality that may creep into the answers due to certain prevalent external factors at the time
of the survey. Any market rumors, whether positive or negative, regarding the firm’s products or
services, can affect the rationality of the response.

b) Salesforce composite - Staff members may be unable to distinguish between what a customer would
like to do and what they actually will do. They are also are sometimes overly influenced by recent
experiences like products with low sales or high sales for a long period of time.
c) Committee of Managers or Executives - The risk that the view of one person will prevail, and the
possibility that diffusing responsibility for the forecast over the entire group may result in less
pressure to produce a good forecast.

4. Forecasts are generally wrong:


a) Why are forecasts generally wrong?
- forecasts for groups of items tend to be more accurate than forecast for individual items
because forecasting errors among items going to group usually have a canceling effect
- forecast accuracy decreases as the time period covered by the forecast increases
b) Explain the term “wrong” as it pertains to a good forecast.
- Forecast accuracy is an expression of how well one can predict the actual demand,
regardless of its volatility. So, when others say “the forecast is always wrong”, what they
really mean is that demand variability is perfectly normal.

5. What is the purpose of establishing control limits for forecast errors?

- Control limits are used to mark the point beyond which a sample value is considered a
special cause of variation. They are also used to define the upper and lower limit of the
common cause variation. The forecast is not always accurate; it consists of randomness
and other components due to which deviation from actual demand occurs. Forecasts are
often judged adequately when the forecast errors only exhibit random variations. A tool
for detecting non-randomness is a control chart. The upper and lower control limits on
the control chart are useful in that they represent the upper and lower limits of the
range of acceptable variation

6. What factors would you consider when designing whether to use wide or narrow control limits for
forecasts?

- Control limits are the boundaries defined in a control chart within which all the random
errors that occur in the forecasting should fall. If a forecast is in control, it means all the
data points of the forecast are within the boundaries of the control limits. Forecasting
assists management in making sound judgments. This enables right management
decision regarding material, staff, sales, as well as other necessities by giving a rational
framework for planning as well as establish to control the limits upon the process is in
control or out of control.

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