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    Chapter 10 Forecasting Demand

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    Kaye Joy Tendencia
    1. The document discusses forecasting, which involves predicting future events using both quantitative and qualitative methods. It focuses on forecasting demand. 2. Quantitative forecasting uses mathematical models to predict demand, while qualitative forecasting incorporates judgment, experience, and other subjective factors. 3. The document outlines several qualitative forecasting techniques, including jury of executive opinion, Delphi method, sales force composite, and consumer market surveys. 4. It also discusses time-series and associative quantitative forecasting models and decomposing time series data into trend, seasonal, cyclical, and irregular components.

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    Chapter 10 Forecasting Demand

    Uploaded by

    Kaye Joy Tendencia
    249 views6 pages
    1. The document discusses forecasting, which involves predicting future events using both quantitative and qualitative methods. It focuses on forecasting demand. 2. Quantitative forecasting uses mathematical models to predict demand, while qualitative forecasting incorporates judgment, experience, and other subjective factors. 3. The document outlines several qualitative forecasting techniques, including jury of executive opinion, Delphi method, sales force composite, and consumer market surveys. 4. It also discusses time-series and associative quantitative forecasting models and decomposing time series data into trend, seasonal, cyclical, and irregular components.

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    1. The document discusses forecasting, which involves predicting future events using both quantitative and qualitative methods. It focuses on forecasting demand. 2. Quantitative forecasting uses mathematical models to predict demand, while qualitative forecasting incorporates judgment, experience, and other subjective factors. 3. The document outlines several qualitative forecasting techniques, including jury of executive opinion, Delphi method, sales force composite, and consumer market surveys. 4. It also discusses time-series and associative quantitative forecasting models and decomposing time series data into trend, seasonal, cyclical, and irregular components.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    249 views6 pages

    Chapter 10 Forecasting Demand

    Uploaded by

    Kaye Joy Tendencia
    1. The document discusses forecasting, which involves predicting future events using both quantitative and qualitative methods. It focuses on forecasting demand. 2. Quantitative forecasting uses mathematical models to predict demand, while qualitative forecasting incorporates judgment, experience, and other subjective factors. 3. The document outlines several qualitative forecasting techniques, including jury of executive opinion, Delphi method, sales force composite, and consumer market surveys. 4. It also discusses time-series and associative quantitative forecasting models and decomposing time series data into trend, seasonal, cyclical, and irregular components.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    MODULE TQM (Operation Management)

    CHAPTER 10
    FORCASTING DEMAND
    Objectives:

    1. Identify the Forecasting.


    2. Recognize Influence of Product Life Cycle

    WHAT IS FORECASTING?
    Every day, managers like those at Disney make decisions without knowing what will
    happen in the future. They order inventory without knowing what sales will be, purchase
    new equipment despite uncertainly about demand for products, and make investments
    without knowing what profits will be. Managers are always trying to make better estimate
    of what will happen in the future in the face of uncertainty. Making good estimates is the
    main purpose of forecasting.
    Forecasting is the art and science of predicting future events. Forecasting may involve
    taking historical data and projecting them into the future with some sort of mathematical
    model. It may be subjective or intuitive prediction. Or it may involve a combination of these
    that is, a mathematical model adjusted by a manager’s good judgment.

    Forecasting Time Horizons


    A forecast is usually classified by the future time horizon that it covers. Time horizons fall
    into three categories:
    1. Short-range forecast: This forecast has a time span of up to 1 year but is generally
    less than 3 months. It is used for planning purchasing, job scheduling, workforce levels
    , job assignments, and production levels/
    2. Medium-range forecast: A medium-range, or intermediate, forecast generally spam
    from 3months to 3 years. It is useful in sales planning, production planning and
    budgeting, cash budgeting, and analysis of various operating plans.
    MODULE TQM (Operation Management)

    3. Long-range forecast: Generally 3 years or more in time span, long-range forecasts


    are used in planning for new products, capital expenditure, facility locations or
    expansion, and research and development.

    The Influence of Product Life Cycle


    Another factor to consider when developing sales forecasts, especially longer ones, is
    product life cycle. Products, and even services, do not sell at a constant level throughout
    their lives. Most successful product pass through four stages: (1) introduction, (2) growth,
    (3) maturity, and (4) decline.

    Types of Forecasts
    organizations use three majors’ types of forecasts in planning future operations:
    1. Economic forecasts address the business cycle by predicting inflation rates, money
    supplies, housing starts, and other planning indicators. Planning indicators that are
    valuable is helping organization prepare medium to long-range forecasts.
    2. Technological forecast are concerned with rates of technological progress, which
    can result in the birth of exciting new products, requiring new plants and equipment.
    Long-tern forecast concerned with the rates of technological progress.
    3. Demand forecasts are projections of demand for a company’s product or services.
    These forecasts, also called sales forecasts, drive company’s production, capacity,
    and scheduling systems and serve as inputs to financial, marketing, and personnel
    planning. Projections of a company’s sales for each time period in the planning
    horizon.

    THE STRATEGIC IMPORTANCE OF FORECASTING


    Good forecasts are of critical importance in all aspects of business: The forecast is the
    only estimate of demand until actual demand becomes known. Forecasts of demand
    therefore drive decisions in many areas/ let’s look at the impact of product demand
    forecast on three activities: (1) human resources, (2) capacity, and (3) supply-chain
    management.
    Human Resources
    Hiring, training, and laying off workers all depend on anticipated demand. If the human
    resources department must hire additional workers without warning, the amount of
    MODULE TQM (Operation Management)

    training decline and the quality of workforce suffers. A large Louisiana chemical firm
    almost lost its biggest customer when a quick expansion to around-the-clock shifts led to
    a total breakdown in quality control on the second and third shift.
    Capacity
    When capacity is inadequate, the resulting shortages can lead to loss of customers and
    market share, this is exactly what happened to Nabisco when it underestimated the huge
    demand for its new low-fat Snackwell Devil’s Cookies. Even with production line working
    overtime, Nabisco could not keep up with demand, and it lost customers. As the photo on
    the next page shows, Amazon made the same error with its Kindle. On the other hand,
    when excess capacity exists, cost can skyrocket.

    SEVEN STEPS IN THE FORECASTING SYSTEM


    Forecasting follow seven basic step. We use Disney World, the focus of this chapter’s
    Global Company Profile, as an example of each step:
    1. Determine the use of the forecast: Disney uses park attendance forecasts to drive
    decisions about staffing, opening time, ride availability, and food supplies.
    2. Select the item to be forecasted: For Disney World, there are six main parks. A
    forecast of daily attendance at each the main numbers that determines labor,
    maintenance, and scheduling.
    3. Determine the time horizon of the forecast: it is short, medium, or long term? Disney
    develops daily, weekly, monthly, annual, and 5-year forecasts.
    4. Select the forecast model(s): Disney uses a variety of statistical models that we shall
    discuss, including moving averages, econometrics, and regression analysis. It also
    employs judgmental, or nonquatitative, models.
    5. Gather the data needed to make the forecast: Disney’s forecasting team employs 35
    analysts and 70 field personnel to survey 1 million people/businesses every year.
    Disney also uses a firm called Global insight for travel industry forecasts and gathers
    data on exchange rates, arrivals into U.S., airline specials, Wall Street trends, and
    school vacation schedules.
    6. Make the forecast.
    MODULE TQM (Operation Management)

    7. Validate and implement the results: At Disney, forecasts are reviewed daily at the
    highest level to make sure that the model, assumptions, and data are valid. Error
    measures are applied; then the forecast are used to schedule personnel down to15-
    minutes intervals.

    FORECASTING APPROACHES
    There are two general approaches to forecasting, just as there two ways to tackle all
    decision modeling. One is a quantitative analysis; the other is a qualitative approach.
    Quantitative forecast:
    forecasts that employ mathematical modeling to forecast demand.
    Qualitative forecast:
    forecasts that incorporate such factors as the decision maker’s intuition, emotions,
    personal experience, and value system.
    Overview of Qualitative Methods
    In this section, we considered four different qualitative forecasting techniques:
    1. Jury of executive opinion: under this method, the opinions of a group of high-
    level experts or managers, often in combination with statistical models, are pooled
    to arrive at a group estimate of demand. A forecasting technique that uses the
    opinion of a small group of high-level managers to form a group estimate of
    demand.
    2. Delphi method: There are three different types of participants in the Delphi
    method: decision makers, staff personnel, and respondents. Decisions makers
    usually consist of a group of 5 to 10 experts who will be making the actual forecast.
    Staff personnel assist decision makers by preparing, distributing, collecting, and
    summarizing a series of questionnaires and survey results. A forecasting
    technique using a group process that allows experts to make forecast.
    3. Sales force composite: In this approach, each salesperson estimate what sales
    will be in his or her region. These forecasts are then reviewed to ensure that they
    are realistic. Then they are combined at the district and national level to reach an
    overall forecast. A variation of this approach occurs at Lexus, where every quarter
    Lexus dealers have a “make meeting”. At this meeting, they talk about what is
    selling, in what colors, and with what colors, and with what options, so the factory
    knows what to build. A forecasting technique based on salesperson ‘estimates of
    expected sales.
    4. Consumer market survey: This method solicits input from customers or potential
    customers regarding future purchasing plans. A forecasting method that solicits
    input form customers regarding future purchasing plans.
    MODULE TQM (Operation Management)

    Time-Series Models- Time–series models predict on the assumption that the future is
    a function of the past. In other words, they look at what has happened over a period of
    time and use a series of past data to make a forecast. If we are predicting sales lawn
    mowers, we use the past sales for lawn mowers to make forecasts.
    Associative Models- Associative models, such a linear regression, incorporate the
    variables or factors that might influence the quantity being forecast. For example, an
    associative model for lawn mowers sale might use factors such as new housing starts,
    advertising budget, and competitors’ prices.
    Decomposition of a Time Service
    Analyzing time series means breaking down past data into components and then
    projecting them forward. A time series has four components:
    1. Trend is the gradual upward or downward movement of the data over time.
    Changes in income, populations, age distribution, or cultural views may account
    for movement in trend.
    2. Seasonality is a data pattern that repeats itself after a period of days, weeks,
    months, or quarters. There are six common seasonality pattern:

    Period of “Season” Number of “Seasons”


    Pattern Length in Pattern
    Week Day 7
    Month Week 4-41/2
    Month Day 28-31
    Year Quarter 4
    Year Month 12
    Year Week 52

    Restaurants and barber shops, for example, experience weekly seasons, with Saturday
    being the peak of business. See the OM in Action box “Forecasting at Olive Garden and
    Red Lobster.” Beet distributors forecast yearly pattern, with monthly seasons. Three
    “seasons” – May, July, And September –each contain a big beer-drinking holiday.
    3. Cycles are patterns in the data that occur every several years. They are usually
    tied into the business cycle are of major importance in short-term business analysis
    and planning. Predicting business cycles is difficult because they may be affected
    by political event or by international turmoil.
    4. Random variations are “blips” in the data caused by chance unusual situations.
    They follow no discernible, so they cannot predicted.
    MODULE TQM (Operation Management)

    Naïve Approach
    The simplest way to forecast is to assume that demand in the next period will be equal to
    demand in the most recent period. A forecasting technique which assumes that demand
    in the next period is equal to demand in the most recent period.
    Moving Averages
    A moving-average forecast uses a number of historical actual data values to generate a
    forecast.
    Moving averages are useful if we can assume that market demands will stay fairly steady
    over time. A forecasting method that uses an average of the n most recent periods of data
    to forecast the next period.
    Seasonal Variations in Data
    Seasonal variations in data are regular up-and-down movements in a time series that
    relate to recurring event such as weather or holidays. Demand for coal and fuel oil, for
    example peaks during cold winter months.

    For further discussion please refer to the link provided: Forecasting


    https://www.youtube.com/watch?v=rzGN1db8lks
    For further discussion please refer to the link provided FORECASTING APPROACHES
    https://www.youtube.com/watch?v=nnK14UvNVFA

    Reference:
    Total Quality Management (OBE)
    Prof. Angelita Ong Camilar-Serrano,DBA(candidate

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