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FARE 3310 Chapter 4 Notes.docx - FARE 3310 Chapter 4 Notes:...

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FARE 3310 Chapter 4 Notes: ForecastingWhat is Forecasting?Art and science of predicting future eventsMay involve taking historical data and projecting them into the future with a mathematical modelMay be subjective or an intuitive predictionMay be based on demand driven data and projecting them into the futureInfluenced by product position in its lifecycle, whether sales are in an introduction, growth, maturityor decline stageForecasting Time HorizonsShort range forecastoTime span of one year but is generally less than 3 monthsoUsed for planning purchasing, job scheduling, workforce levels, job assignments andproduction levelMedium range forecastoSpans from 3 months to 3 yearsoUseful in sales planning, production planning and budgeting, cash budgeting and analysis ofvarious operating plansLong range forecastoSpans of 3 years or moreoUsed in planning for new products, capital expenditure, facility location or expansion, andR&DMedium and long run forecasts deal with more comprehensive issues and support managementdecisions regarding planning and products, plants and processesShort term forecasting usually employs different methodologies than longer-term forecastingoMathematical techniques are commonoLess quantitative methods are useful in predicting issuesShort range forecasts tend to be more accurate than long range forecastsThe Influence of Product Life CycleMost successful products pass through 4 stages: introduction, growth, maturity and declineProducts in the first 2 stages of the life cycle need longer forecasts than those in the last 2 stagesForecasts that reflect life cycle are useful in projecting different staffing levels, inventory levels andfactory capacity as the product passes from first to last stageTypes of ForecastsEconomic forecasts: planning indicators that are valuable in helping organizations prepare mediumto long range forecastsTechnological forecasts: long term forecasts concerned with rates of technological progressDemand forecasts: projections of a company’s sales for each time period in the planning horizonoDrive a company’s production, capacity, and scheduling systems and serve as inputs tofinancial, marketing and personnel planningThe Strategic Importance of ForecastingForecast is the only estimate of demand until actual demand becomes knownSupply chain managementoGood supplier relations and the ensuring advantages in product innovation, cost and speedto market depend on accurate forecastsoCollaborative planning, forecasting and replenishment combines the intelligence of multiplesupply chain partnersoCreates significantly more accurate info that can power the supply chain to greater salesand profitHuman resourcesoHiring, training and laying off workers all depends on anticipated demandoIf HR departments must hire additional workers without warning, training declines andquality of workforce suffersCapacityoWhen capacity is inadequate, the resulting shortages can lead to loss of customers andmarket shareoWhen excess capacity exists, costs skyrocketSeven Steps in the Forecasting System

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Term
Winter
Professor
N/A
Tags
Forecasting, Linear Regression, Regression Analysis, 1 ft, Overview of Quantitative Methods

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