Chapter 11 - Demand Management and Forecasting
DEMAND MANAGEMENT AND FORECASTING
Review and Discussion Questions
Examine Exhibit 11.3 and suggest which model you might use for (1) bathing suit demand,
(2) demand for new houses, (3) electrical power usage, (4) new plant expansion plans.
While any of the models in Exhibit 11.3 can potentially be used to forecast any of the items,
the following models are generally appropriate: (1) Bathing suit demand could be forecasted
using exponential smoothing.
The time horizon is short, model complexity and cost is low,
model accuracy is fair and data requirements are very low.
(2) Demand for new houses can
be forecasted using linear regression.
The time horizons are long, model complexity is medi-
um high, model accuracy is medium high and data requirements are high.
(3) Causal regres-
sion models might be used to forecast electrical power usage.
The time horizon is long, mod-
el complexity is fairly high, model accuracy is high and data requirements are high.
plant expansion plans can be forecast using qualitative forecasting techniques.
This takes in-
to account nonquantifible issues when planning plant expansion.
What is the logic in the least squares methods of linear regression analysis?
The least squares method tries to fit the line to the data that minimizes the sum of the squares
of the vertical distance between each data point and its corresponding point on the line.
Explain the procedure to create a forecast using the decomposition methods of least squares
Decomposition of a time series means finding the series’ basic components of trend, season-
ality, and cyclical.
The process is:
Decompose the time series into its components
Find seasonal components
Deseasonalize the demand
Find trend component
Forecast future values of each component.
Project trend component into the future
Multiply trend component by seasonal component
Give some very simple rules you might use to manage demand for a firm’s product.
ample is ―limited to stock on hand.‖)
Demand management can be in terms of: order control—―limited to stock on hand,‖ lead
time—―allow six weeks for delivery,‖ need—―supply the parts to inoperative units first,‖
time open—―close up early every day,‖ or ―closed on Saturdays,‖ plus others as mentioned in
the text such as price cuts, incentives, promotions, etc.
What strategies are used by supermarkets, airlines, hospitals, banks, and cereal manufacturers
to influence demand?