OM Module 2
OM Module 2
Forecasting
• Forecasting are estimated occurrence, timing or
magnitude of future events . Forecasting is a
subjective estimates of the future.
• Forecasts affect decisions and activities throughout an
organization
– Accounting, finance department
– Human resources department
– Marketing department
– MIS department
– Operations department
– Product / service design department
Forecasting in operations
• Manager should know the customer demand
of product and services to plan long and short
range estimates of each product/services and
overall demand to plan operations activities.
• Detail forecasting for individual items are used
for planning.
• Product demand forecasts are used to plan for
capacity, location and layout over a much
longer time span.
Forecasting as a planning tool
• In majority of the situations certainty of
happening a event is not there
• Assumptions are carried out during such
situations
• E.g.: adding a new product line in a
manufacturing unit
• Forecasting addresses these issues and provide
the manager with a set of tools and techniques
for the estimation process
• Forecast are the estimates of timing and
magnitude of the occurrence of future events
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Key functions of forecasting
• A tool for predicting events related to operations
planning and control
• An estimation tool
• A way of addressing the complex and uncertain
environment surrounding business decision
making
• A vital perspective for the planning process in
organizations
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Need of forecasting
• Majority of activities depends on future sales.
• Demand forecasting-decision on 3 M’s –men, material,
machinery.
• It is always necessary in the changing necessary and
uncertain technical, economical and market scenario.
• It throws light on the future trend of the market
• Needed for material planning in order to make
material available in right quantities and at the right
time for production.
• It is needed for schedule production activities in order
to ensure maximum utilization of plants capacity
Sources of data
• Source can be direct (primary)or indirect (secondary).
• Published documents by government and professional
bodies
• News papers, books and magazines
• Historical data
• Expert opinion
• Delphi technique
• Surveys or opinion polls
• Market research
• Trial marketing, Point of sales data systems
• Forecast from supply chain partners
Forecasting time horizon
• Time horizon:
• Short term forecasting
• Long term forecasting
• Medium term forecasting
Forecasting Across the Organization
• Forecasting is critical to management of all
organizational functional areas
– Marketing relies on forecasting to predict demand and
future sales
– Finance forecasts stock prices, financial performance,
capital investment needs..
– Information systems provides ability to share databases
and information
– Human resources forecasts future hiring requirements
TYPES OF FORECASTING MODELS
• Qualitative methods – Judgmental methods
Forecasts generated subjectively by the forecaster
Educated guesses
Non quantitative forecasting technique based upon expert
opinions and intuition . Typically uses when there are no
data available.
• Quantitative methods:
Forecasts generated through mathematical modeling
Qualitative Methods
Quantitative Methods
• Time Series Models:
– Assumes information needed to generate a forecast is
contained in a time series of data
– Assumes the future will follow same patterns as the past
© Wiley 2007
Moving Average
Time Series Models (continued)