05 Forecasting & Smoothing Methods

05 Forecasting & Smoothing Methods - Lesson 05...

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05 - 1 Lesson 05 Forecasting & Smoothing Methods Sales will be $200 million! Forecasting is the process of predicting the future The forecast is the basis for business decisions involving . Financial . Production . Inventory . Personnel . Facilities
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05 - 2 How do you decide what How do you decide what to produce when you to produce when you don’t know what your don’t know what your customers will buy? customers will buy? Marshall L. Fisher, The Wharton School, University of Pennsylvania
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05 - 3 Products differ Raw Materials Component Suppliers Manufacturer Retailers Consumers Supply Chains and Strategies differ Factories in ASIA DC in US Marshall L. Fisher, The Wharton School, University of Pennsylvania
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05 - 4 Gale Weisenfeld, VP, Planning / MIO, Federated Department Stores Forecasting is a collaborative effort
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05 - 5 There a several facts that are true about forecasting. . Those businesses that adopt a forecasting discipline do better than those who do not . Of those that forecast, those who do it “better” are typically more successful . Forecasting provides direction for an organization detailed functional activities There is an old saying “if you do not know where you are going then any road you take will get you there”. Forecasting provides a road for each functional area of the organization to follow. Forecasting Facts
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05 - 6 Organization Finance Operations Marketing Determines the revenue to be generated and the operating costs associated with the schedules to produce a financial P/(L) forecast for stock holders, bankers, and executive management Warehousing can plan staffing for stocking/shipping Production looks at demand and on-hand inventory to develop a schedule and determine capacity requirements to meet demand and maintain safety stock Purchasing can use the Initiates the forecast in $ or units (typically) Manages the forecasting process Functional Areas and Forecasting
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05 - 7 Forecast, Production Plan and Inventory Simplistically, once the future demand is forecasted, 6 Month Forecast 1 2 3 4 5 6 Forecast Demand 10 8 12 14 10 8 Production Plan 10 10 10 12 12 10 a manufacturing production plan is developed, Inventory 10 10 12 10 8 10 12 resulting in an inventory plan which can be evaluated against financial objectives. If inventory is too high , plan alternatives must be considered. This course will deal with each of these operational
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05 - 8 Simpl e Sophisticate d Computer Systems Quantitative Mathematical/Stati stical Methods Forecasting Techniques
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05 - 9 Forecasting Is Not An Exact Science Even with all the sophisticated tools, a good forecast is typically supported by the qualitative insights . Judgment . Experience . Intuition
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05 - 10 Features Common to Forecasts . Unattended computer forecasts are usually not as good as computer forecasts that incorporate qualitative insights . Forecasts are rarely (if ever) correct … one of the objectives of forecasting is to be the “least” wrong . Forecasts are more accurate if developed at the group rather than the item level ( Consider a Hanes underwear style with 4 style can be forecasted more . Forecast accuracy is greatest for periods
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05 Forecasting & Smoothing Methods - Lesson 05...

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