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Unformatted text preview: Chapter 4: Forecasting Forecasting: Process of predicting a future event Underlying basis of all business decisions: production, inventory, personnel, facilities Forecasting Time Horizons Short range forecast o Up to 1 yr, generally less than 3 months o Used for: purchasing, job scheduling, workforce levels, job assignments, production levels o Usually employs different methodologies than longer-term forecasting o Tend to be more accurate than longer-term forecasts Medium Range Forecast o 3 months to 3 years o Used for: Sales & production planning, budgeting Long-Range Forecast o 3 plus years o Used for: new product planning, facility location, research & development Differences: o Medium/long range forecasts deal w/more comprehensive issues & support management decisions regarding planning & products, plants & processes Influence of Product Life Cycle Intro & growth require longer forecasts than maturity & decline As product passes through life cycle, forecasts are useful in projecting: staffing levels, inventory levels, factory capacity Product Life Cycle Introduction: best period to increase market share; R&D engineering is critical o Product design & development critical o Frequent product & process design changes o Short production runs o High production costs o Limited models o Attention to quality Growth: Practical to change price or quality image; strengthen niche o Forecasting critical o Product & process reliability o Competitive product improvements & options o Increase capacity o Shift toward product focus o Enhance distribution Maturity: Poor time to change image, price, or quality; competitive costs become critical; defend market position o Standardization o Less rapid product changes- more minor changes o Optimum capacity o Increasing stability of process o Long production runs o Product improvement & cost cutting Decline: Cost control critical o Little product differentiation o Cost minimization o Overcapacity in the industry o Prune line to eliminate items not returning good margin o Reduce capacity Types of Forecasts : Economic forecasts: planning indicators valuable in helping organizations prepare medium-to long-range forecasts o Address business cycle- inflation rate, money supply, housing starts, etc. Technological forecasts: long-term forecasts concerned w/the rates of technological progress o Impacts development of new products Demand Forecasts: projections of a companys sales for each time period in the planning horizon o Predict sales of existing products & services Strategic Importance of Forecasting Human Resources- hiring, training, laying off workers Capacity- Capacity shortages can result in undependable delivery, loss of customers,...
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- Spring '07