Krajewski IN Chapter 13 - Chapter 13 Forecasting TEACHING...

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Chapter 13 Forecasting TEACHING TIP This chapter focuses on demand forecasts. Forecasting methods may be based on mathematical models that use available historical data, on qualitative methods, or they may be based on a combination of both—as demonstrated in Unilever’s customer demand planning system. Managerial Practice 13.1 “Wal-Mart Uses CPFR and the Internet to Improve Forecast Performance” shows how collaboration among the value chain improves forecast accuracy. A. Forecasting Across the Organization TEACHING TIP Mention the Hewlett-Packard example: forecasting overall demand may originate with marketing, but internal customers throughout the organization depend on forecasts to formulate and execute their plans as well. 1. Emphasize that forecasts are critical inputs to business plans, annual plans, and budgets. a. Finance needs forecasts to project cash low and capital requirements. b. Human resources needs forecasts to anticipate hiring and training needs. c. Marketing is a primary source for sales forecast information. d. Operations needs forecasts to plan output levels, purchases of services and materials, workforce and output schedules, inventories, and long-term capacities. 2. Managers throughout the organization make forecasts on many different variables other than future demand, such as competitor strategies, regulatory changes, technological changes, processing times, supplier lead times, and quality losses. 3. Forecasts are important to managing both processes and value chains. B. Demand Patterns 1. There are five basic patterns of most demand time series. a. Horizontal—the fluctuation of data around a constant mean. b. Trend—the systematic increase or decrease in the mean of the series over time. c. Seasonal—a repeatable pattern of increases or decreases in demand, depending on time of day, week, month, or season. d. Cyclical—the less predictable gradual increases or decreases in demand over longer periods of time (years or decades). 13-1
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13-2 Chapter 13: Forecasting TEACHING TIP Cyclical patterns are influenced by business cycles and the service or product life cycle. e. Random—the unforecastable variation in demand. C. Designing the Forecasting System 1. Deciding what to forecast a. Level of aggregation b. Units of measure 2. Choosing the type of forecasting technique a. Qualitative methods Judgment methods b. Quantitative methods Causal methods Time-series analysis c. Key factor in choosing the proper forecasting approach is the time horizon for the decision requiring forecasts. 3. Forecasting with computers a. Many forecasting software packages are available for all sizes of computers and offer a wide variety of forecasting capabilities and report formats. b.
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Krajewski IN Chapter 13 - Chapter 13 Forecasting TEACHING...

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