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Module 7 Forecasting

The document discusses forecasting in logistics and operations management. It covers different forecasting time horizons, variables, types, qualitative and quantitative approaches, time series and associative models, and monitoring forecasts. Forecasting is predicting future events using historical data and mathematical models.

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5 views

Module 7 Forecasting

The document discusses forecasting in logistics and operations management. It covers different forecasting time horizons, variables, types, qualitative and quantitative approaches, time series and associative models, and monitoring forecasts. Forecasting is predicting future events using historical data and mathematical models.

Uploaded by

abdul.samadyo3
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FORECASTING

IN LOGISTIC AND OPERATION


MANAGEMENT
What Is forecasting?
Forecasting is an art and science of predicting future events.

Forecasting may involve in taking historical data (such as past


sales) and projecting them into the future with a mathematical
model.

Good forecasts are an essential part of efficient service and


manufacturing operations.
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 upto 1

year but is generally less than 3 months.

2. Medium range forecast; A medium range forecast or

intermediate forecast generally spans from 3 months t0 3 years.

3. Long range forecast; Generally 3 years or more in time span


Variables of Forecasting
Past Demand
Lead Time
Inventory turnover
Planned advertising or marketing efforts
State of Economy
Competitors
TYPES OF FORECASTS;
 ECONOMIC FORECASTS; Such forecast indicates the business
cycle by predicting inflation rates, money supplies, housing
starts, and other planning indicators.

 TECHNOLOGICAL FORECASTS; Such forecast are concerned


with rates of technological progress, which can result in the birth
of new products, requiring new plants and equipments.

 DEMAND FORECASTS; Such forecasts are projection of demand


for a company’s product or services. Forecasts drive decisions, so
managers need immediate and accurate information about
demand. These forecasts may use recent point of sales (POS).
SEVEN STEPS IN FORECASTING SYSTEM;
Forecasting follows seven basic steps;
1.Determine the use of forecast.
2.Select the items to be forecast.
3.Determine the time horizons of the forecast.
4.Select the forecasting model.
5.Gather the data needed to make the forecast.
6.Make the forecast.
7.Validate and implement the results.
FORECASTING APPROACHES;
1.QUANTITATIVE FORECASTS;
Forecast that use variety of mathematics models that
rely n historical data and associative variables to
forecast demand.
2.QUALITATIVE FORECASTS;
Forecasts incorporate such factors as the decision
maker’s intuition, emotions, personal experiences, and
value system in reaching a forecast.
OVERVIEW OF QUALITATIVE METHODS;
1.JURY OF EXECUTIVE OPINION; A forecasting technique that
uses the opinion of small group of high level managers to form a
group estimate of demand.

2.DELPHI METHOD; A forecasting technique using a group


process that allows experts to make forecast.

3.SALES FORCE COMPOSITE; A forecasting technique based on


salesperson estimated of expected sales.

4.MARKET SURVEY; This method solicits input from customers or


potential customers regarding future purchasing plans.
OVERVIEW OF QUANTITATIVE METHODS;
We consider five different techniques of quantitative
method:
1.NAIVE APPROACH
2.MOVING APPROACH Time series model

3.EXPONENTIAL SMOOTHING
4.TREND PROJECTION
5.LINEAR REGRESSION Associative model
TWO MODELS OF FORECASTS;
1.TIME SERIES MODELS:
Time series models predict on the assumptions that the
future is a function of 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.
2.ASSOCIATIVE MODELS:
Associative models, such as linear regression,
incorporate the variables or factors that might
influence the quantity being forecast.
NAIVE 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.
MOVING WEIGHTED AVERAGE
EXPONENTIAL SMOOTHING
ASSOCIATIVE FORECASTING
METHODS;
REGRESSION AND CORRELATION:
1.LINEAR REGRESSION ANALYSIS;
A straight line mathematical models to describe the
functional relationship between independent and
dependant variables.
2.CORRELATION;
A measure of the strength of the relationship between
two variables.
3.MULTIPLE REGRESSION;
An associative forecasting method with more than one
independent variable.
MONITORING OR CONTROLLING
FORECAST

TRACKING SIGNAL
A tracking signal is a measurement of how well a
forecast is predicting actual values. As forecast is
updated every week, month or quarter, the newly
available demand data are compared to the forecast
values.
FORECASTING IN THE SERVICE SECTOR
Forecasting in the service sector presents some unusual
challenges. A major technique in the retail sector is
tracking demand by maintaining good short term
records.
For example, a barber shop catering to men expects
peak flows on Friday, Saturday and Sunday.
Another example of Fast food restaurant;
Restaurants are well aware not only of weekly, daily, and
hourly but even 15 minutes variations in demand that
influence sales.

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