Lecture 2

Lecture 2 - 540:453 Production Control Lecture 2:...

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1 540:453 Production Control Lecture 2: Forecasting (Ch. 2) Prof. T. Boucher 1 Introduction to Forecasting What is forecasting? – Primary function is to predict the future – Not just a guess – Definite methods of predicting future events Why are we interested? – Forecasts provide helpful information to make better decisions – Rewards of good forecasting or penalties for bad forecasting can be high – Forecasting is easier and cheaper now Examples: who uses forecasting in their jobs? – forecast demand for products and services – forecast availability of manpower – forecast inventory and materiel needs daily – forecast stock market 2
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2 Characteristics of forecasts Forecasts are rarely perfect, almost always going to be wrong. A good forecast is more than a single number and also gives some mean and standard deviation – range (high and low) Forecasting aggregate (grouped) units is generally easier than forecasting individual units. – Forecast of the family of products has less variance than an individual product Forecast are more accurate for shorter than longer time periods – Forecasts made further out into the future are less accurate. – The further into the future, the less reliable the forecast will be! 3 Forecasting and Management • Strategic Planning – Successful strategic planning requires accurate forecasts of future products and markets • Operations – Accurate forecasting determines how much inventory a company must keep at various points along its supply chain • Customer Service Levels – Accurately forecasting customer demand is a key to providing good quality service 4
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3 Forecasting Horizons Long Term – 1+ years into the future – R&D, plant location, product planning – Principally judgment-based Intermediate Term – 1 season to 1 year – Aggregate planning, capacity planning, sales forecasts – Mixture of quantitative methods and judgment Short Term – 1 day to 1 season – Demand forecasting, staffing levels, purchasing, inventory levels – Quantitative methods 5 Different Types of Forecasting Methods 6
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4 Forecasting Methods Qualitative (subjective) = people expertise – Sales Force Composites – Customer Surveys – The Delphi Method • Individual opinions are compiled and reconsidered. Repeat until overall group consensus is reached. Quantitative (objective) = math models – Causal models • Predict one parameter as a function of other parameters – Demand = f(interest rates, growth in GNP, …) – Time series models • Predict a parameter as a function of past values of that parameter 7 Subjective (Qualitative) Forecasting Management, marketing, purchasing, and engineering are sources for internal qualitative forecasts Uses management judgment, expertise, and opinion to predict future demand Refers to methods that measure either individual or group opinion.
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Lecture 2 - 540:453 Production Control Lecture 2:...

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