What is forecasting?

Forecasting :is a tool used for predicting future demand based on

past demand information.
Forecasting: is the process of making predictions about future
general economic and market conditions as a basis for decision-
making by government and business
Educated Guessing
Underlying basis of all business decisions
Production

Inventory

Personnel

Facilities
example
Predict the next number in the pattern:
a) 3.7, 3.7, 3.7, 3.7, 3.7, ?

b) 2.5, 4.5, 6.5, 8.5, 10.5, ?

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, ?

Answer
Predict the next number in the pattern:

a) 3.7, 3.7, 3.7, 3.7, 3.7, 3.7

b) 2.5, 4.5, 6.5, 8.5, 10.5,12.5

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, 9.0

Why is forecasting important?
Demand for products and services is usually uncertain.

Forecasting can be used for…

• Strategic planning (long range planning)

• Finance and accounting (budgets and cost controls)

• Marketing (future sales, new products)

• In general, forecasts are almost always wrong. So, Production

and operations Throughout the day we forecast very different
things such as weather, traffic, stock market, state of our company
from different perspectives.
Cont…

Practically every business attempt is based on forecasting.

Not all of them are derived from sophisticated methods.

However, “Best" educated guesses about future are more

valuable for purpose of Planning than no forecasts and hence

no planning.
What is forecasting all about?

Demand for Mercedes E Class We try to predict the

future by looking back
at the past

Predicted
demand
looking
Time back six
Jan Feb Mar Apr May Jun Jul Aug months
Actual demand (past sales)
Predicted demand
Some general characteristics of forecasts
Forecasts are not perfect; actual results usually differ from

predicted values;

Forecasts are more accurate for groups or families of items

Forecasts are more accurate for shorter time periods

Every forecast should include an error estimate

Forecasts are no substitute for calculated demand.

 REMEMBER: Forecasting is based on the assumption that the past
predicts the future! When forecasting, think carefully whether or not
the past is strongly related to what you expect to see in the future…

Some Important Questions

1. What is the purpose of the forecast?
2. Which systems will use the forecast?
3. How important is the past in estimating the future?

Answers will help determine time horizons, techniques,

and level of detail for the forecast.
 Forecasting Time Horizons
•Short-range forecast:
Up to 1 year, generally less than 3 months Purchasing, job
scheduling, workforce levels, job assignments, production levels
Medium-range forecast :
3 months to 3 years
Sales and production planning, budgeting
Long-range forecast
3+ years
New product planning, facility location, research and
development
 Types of Forecasts

Economic forecasts:
Address business cycle inflation rate, money supply,
housing starts, etc.
Technological forecasts:
Predict rate of technological progress
Impacts development of new products
Demand forecasts
Predict sales of existing product
STEPS IN THE FORECASTING PROCESS

There are six basic steps in the forecasting process:

1. Determine the purpose of the forecast. How will it be used and

when will it be needed? This step will provide an indication of the level

of detail required in the forecast, the amount of resources

that can be justified, and the level of accuracy necessary.

2. Establish a time horizon. The forecast must indicate a time interval,

keeping in mind that accuracy decreases as the time horizon increases.

 Cont.
3. Obtain, clean, and analyze appropriate data. Obtaining the data
can involve significant effort. Once obtained, the data may need to be
“cleaned” to get rid of outliers and obviously incorrect data before
analysis.
4. Select a forecasting technique.
5. Make the forecast.
6. Monitor the forecast errors. The forecast errors should be
monitored to determine if the forecast is performing in a satisfactory
manner.
Types of forecasting Techniques
Qualitative methods Quantitative methods

Rely on subjective Rely on data and

opinions from one or analytical techniques.

more experts. Time series methods

Judgmental methods Casual methods

Market research
methods
Qualitative forecasting methods
Qualitative forecasting techniques are subjective, based on the opinion
and judgment of consumers and experts;

Grass Roots: deriving future demand by asking the person closest to

the customer.

Market Research: trying to identify customer habits; new product

ideas.

Panel Consensus: deriving future estimations from the synergy of a

panel of experts in the area.

Historical Analogy: identifying another similar market.

Quantitative forecasting methods
Quantitative forecasting models are used to forecast future data as
a function of past data.

Time Series
Series:: A time series is a time-ordered sequence of observations
taken at regular intervals e.g - hourly, daily, weekly, monthly, quarterly,
annually).
The data may be measurements of demand, earnings, profits, shipments,
accidents, output, precipitation, productivity, or the
consumer price index.
Forecasting techniques based on time-series data are made on the
assumption that future values of the series can be estimated from past
values.
Cont.
Analysis of time-series data requires the analyst to identify
the underlying behavior of the series. This can often be
accomplished by merely plotting the data and visually
examining the plot. One or more patterns might appear:
trends, seasonal variations, cycles, or variations a round
an average.
How should we pick our forecasting model?
1. Data availability
2. Time horizon for the forecast
3. Required accuracy
4. Required Resources
 Techniques for Averaging
Historical data typically contain a certain amount of random
variation, or white noise, that tends to obscure systematic
movements in the data.

Averaging techniques smooth fluctuations in a time series because

the individual highs and lows in the data offset each other when
they are combined into an average.

Three techniques for averaging are described in this section:

1. Moving average.

2. Weighted moving average.

3. Exponential smoothing.
Moving average
The moving average model uses the last t periods in order to
predict demand in period t+1.

There can be two types of moving average models: simple

moving average and weighted moving average

The moving average model assumption is that the most

accurate prediction of future demand is a simple (linear)
combination of past demand
Time series: simple moving average
In the simple moving average models the forecast value is

Ft+1 = At + At-1 + … + At-n

t is the current period.

Ft+1 is the forecast for next period
n is the forecasting horizon (how far back we look),
A is the actual sales figure from each period.
Example: forecasting sales at company A
company A sells bottled spring water

Month Bottles
Jan 1,325
Feb 1,353
Mar 1,305
Apr 1,275
May 1,210 What will
the sales be
Jun 1,195
for July?
Jul ?
What if we use a 3-month simple moving average?

AJun + AMay + AApr

FJul = = 1,227
3

What if we use a 5-month simple moving average?

FJul = AJun + AMay + AApr + AMar + AFeb = 1,268

5
 6-month simple moving average…

FJul = AJun + AMay + AApr + AMar + AFeb + AJan = 1,277

6

In other words, because we used equal weights, a slight downward

trend that actually exists is not observe

Weighted Moving Average.
A weighted average is similar to a moving average, except that it
typically assigns more weight to the most recent values in a time series.
For instance, the most recent value might be assigned a weight of .40,
the next most recent value a weight of .30, the next after that a weight of
.20, and the next after that a weight of .10.
Note that the weights must sum to 1.00,
For example: Given the following demand data,
a. Compute a weighted average forecast using a weight of .40 for the
most recent period,
0.30 for the next most recent, 0.20 for the next, and .10 for the next.
b. If the actual demand for period 6 is 39, forecast demand for period 7
using the same weights as in part a.
The weighted average is calculated by multiplying the given
price by its associated weighting and totaling the values. The
formula for the WMA is as follows:
In the example from the table above, the weighted five-day
moving average would be $90.62:
How do we choose weights?
Note that if four weights are used, only the four most recent demands are
used to prepare the forecast.
The advantage of a weighted average over a simple moving average is
that the weighted average is more reflective of the most recent
occurrences.
 Exponential Smoothing (ES)
(ES
Main idea: The prediction of the future depends mostly on the most
recent observation, and on the error for the latest forecast.

Why use exponential smoothing?

1. Uses less storage space for data

2. Extremely accurate
3. Easy to understand
4. Little calculation complexity
5. There are simple accuracy tests
Exponential smoothing: the method
Assume that we are currently in period t. We calculated the
forecast for the last period (Ft-1) and we know the actual demand
last period (At-1) …

Ft = Ft−1 +α( At−1 − Ft−1)

The smoothing constant α expresses how much our forecast will
react to observed differences…

If α is low: there is little reaction to differences.

If α is high: there is a lot of reaction to differences.

For example: suppose the previous forecast was 42 units, actual
demand was 40 units, and
=0.10. The new forecast
would be computed as follows:

Solution
Example: bottled water at Ambo

Month Actual Forecasted

Jan 1,325 1,370 α = 0.2

Feb 1,353 1,361

Mar 1,305 1,359

Apr 1,275 1,349

May 1,210 1,334

Jun ? 1,309
CHAPTER THREE

PLANT LAYOUT
 Objectives of a Good Plant Layout
Reduce /Economic material handling
Effective utilization of available space
Minimize congestion of material, machinery, workers
Worker convenience and job satisfaction/Improved work conditions
Better supervision
Flexibility of plant & workspace design for expansion/to changing production
conditions

Removal of bottlenecks
Quick disposal of work
Minimize accident
Minimization in damage
Effective utilization of men, equipment and space
Increase employee morale
Minimize interference from machines
Reduce hazards affecting employees
3. Plant layout
Plant layout: is a plan for effective utilization of facilities for the
manufacture of products, involving a most efficient and economical
arrangement of :
Machines
Personnel
Operating equipment
Storage space
Materials handling and
All other supporting services along with the design of the best
structure to contain these facilities
Problems of layout develop when needed

To start a new product

To change the product design,

To reduce the cost

When the market demand changes

The plant, the product, the building become obsolete,

Accidents occur frequently

The working environment is poor.

The resulting problems involve
Planning a completely new plant,
Re-arranging a presently installed layout,
Making adjustments to existing layout
The objectives of a good study of plant layout are:

Ensure effective space utilization,

Minimize the cost of material handling (internal transports), foresee
future developments of the plant according to a rational master plan,
Improve workers convenience as well as safety and create job
satisfaction, and
Avoid unnecessary capital investment.
Types of plant Layout
The three basic types of layout are:

1.Product oriented layout

2.Process oriented or functional layout

3. Static layout/ Fixed position/Project

 1. Product oriented Layout
In this type of layout, only one product or one type of product is
produced in a given area.
The product must be standardized and manufactured in large
quantities in order to justify the product layout economically save .

Machines, equipments and auxiliary services are located according

to the processing sequence of the product (cars, motor cycles assembly)
Suitable for continuous type of production
Can employ one of the basic Horizontal flow lines.
Is selected when the volume of production of a product is high
Product Layout for Wine Manufacturer
Some of the Advantages of Product Layout are:

Lower total material handling cost

Lower total production time
Less work in process
Greater incentive for groups of workers to raise level of
performance
Less floor area required per unit of production
Effective quality control
Easy to schedule
 Product Line Layout

Disadvantages

Change in work nature needs change in layout

Machine utilization may not be optimum

Machine breakdown delays work

Work area expansion/machine addition not possible

 2.Process plant Layout (Nonrepetitive Processing)
Process oriented Layout: Similar equipment and similar operations are
grouped together in the process or functional layout. It is particularly
useful where low volume is required.
Same type of operation facilities are grouped together such as
lathes will be placed at one place, all the drill machines are at
another place and so on. See Fig
 Process Layout is Used when

Many types or styles of products are on special order

Relatively low volume of production on individual items is
needed
Many inspections are required during a sequence of operations,
High proportion of very heavy equipment or equipment
requiring special treatment exist,
Materials or products become too large or too heavy to permit
bulk or continuous flow and
One machine is used for different operations.
 Cont.
Similar equipment & tasks grouped
Useful for low volume, high variety jobs
•Advantages:
Low capital investment
Fewer machine
Flexibility in equipment allocation
Workers gain expertise / skill
Problems localized
Disadvantages of process oriented layout :

Needs more space

No mechanization

High work in process

Work scheduling problems

High set-up & inspection costs

3.Fixed-Position Layout:
In this type of layout, the material or major component
remains in a fixed location, and tools, machinery, men as
well as other pieces of material are brought to this location.
Typical examples are ship building, construction
industries, aircraft building.
This type of layout is not frequently used in industrial
enterprises. For this reason we are not going to look into its
advantage and disadvantages
This type of layout is preferred where the size of the job is bulky
and heavy. Example of such type of layout is locomotives, ships,
boilers, generators, wagon building, aircraft manufacturing, etc.
Advantages:
Reduces movement of machine & equipment
Minimizes damage/cost of movement
Capital investment is minimized.
Layout capital investment is lower.

Disadvantages:
Skilled & versatile workers needed due to multiple operations
skill combination may be difficult to obtain higher pay
Movement of people/material may be expensive
equipment utilization low as they are left at location for
subsequent usage instead of being moved as & where needed
Factors influencing Plant Layout
1) Management policy

2) Manufacturing process

3) Nature of product

4) Volume of production

5) Type of equipment

6) Type of building

7) Availability of total floor area

8) Arrangement of Material Handling Eq.

9) Service facilities

10) Possibility of future expansion

Factors to be Considered in Planning Layout

Factory layout planning is very important to save costs, saving time in

movement, reducing accidents, and the like.

hazard : moving parts, projecting machine elements, suspended

weights, air pollution, physical & chemical risks, safety of personnel &
plant.
Type of Production : Job, batch or continuous or combinations

Type of Operation : Wet or dry, Light or heavy machines etc.

.
Sequence of Operations
Integration of production : Single/Multi flow
Type of Products : Weight, Volume, Physical state
Type of Inspection : Centralised/Decentralised
Management policy: Plans for future expansion, changes in
product design & variety
 Ergonomics and Industrial Safety

Ergonomics: is a science that study about interaction between

people and the things they do, equipment they use & the
environments they work, travel & play in. If good fit is
achieved:-
The stresses on people are reduced
They are more comfortable
They can do things more quickly & easily
Increase safety on the job, &
They make fewer mistakes
 Cont.
It is the science of adapting products & processes to human
characteristics & capabilities in order to improve well-being
& optimize productivity
Ergonomics (or human factors) is the scientific discipline
concerned with interactions among humans and other elements
of a system.
Aims to improve human well-being and overall system
performance by optimizing human-system compatibility.
Ergonomics (or human factors) :Human-system interaction
design considerations include physical, cognitive, social,
organizational and environmental factors."
 Plant layout Vs Ergonomics
Many of the problems encountered in the ergonomic design of man
& controls will be found in the design of workplace layouts
 The efficiency of the operator will depend upon how the
work places designed
 Human-system interaction design:
Considerations
Physical factors
Social factors
Workstation factors: Sitting: chairs, work benches,
Displays,
Environmental factors
Benefits of Workplace Ergonomics
An effective ergonomics process can benefit your organization
in a number of different ways.
Ergonomics reduces costs.
Ergonomics improves productivity
Ergonomics improves quality
Ergonomics improves employee engagement
Ergonomics creates a better safety culture.