Product groups units departmental capacities hours

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Product groups Units Departmental capacities Hours, strokes, pounds, gallons, units, or customers per time period Work force Workers, hours Purchased materials Units, pounds, gallons Inventories Units, dollars Short- range Weeks Specific products Units Labor-skill classes Workers, hours Machine capacity Units, hours, gallons, strokes, pounds, or customers per time period Cash Dollars Inventories Units, dollars
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Forecasting in Operations Forecast for operations Time horizon MGT level Product & process design Long range Top Capacity requirement planning Long/ intermediate Top / middle Aggregate production planning Intermediate Middle Production scheduling Short Low
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Impact of Inaccurate Demand Forecasting If forecasting is consistently higher than actual demand, then … If forecasting is consistently lower than actual demand, then …
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Time Demand Actual Demand Forecasting 1. If forecasting is Consistently Higher than Actual Demand
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Time Demand Actual Demand Forecasting 2. If forecasting is Consistently Lower than Actual Demand
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Forecasting an Internal Part of Business Planning
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Forecasting Systems
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Forecasting Techniques (I) Qualitative approach: 1. Delphi methods 2. Marketing research and analysis 3. Historical analogy 4. ……………..
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Forecasting Techniques (II) Quantitative Approach A. Time series analysis 1.simple moving average 2. weighted moving average 3.exponential smoothing 4………………… B. Causal relationship models : 1.regression analysis 2.econometric models 3………………..
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Selection of Forecasting Techniques Principle of Forecasting : * When past data are known as good indicator for the future. * The pattern of the future can be recognized from the past data. Qualitative Techniques are used when: * Data unavailable * Unknown pattern change
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Selection of Forecasting Techniques (II) Quantitative Techniques: A. Time series models: use when past demand is the best indicator for future demand. B: Causal relationship model: used when the demand of an item is dependent on other underlying factors.
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Three Simple Time Series Models 1. Simple moving average: given number of periods to be averaged 2. Weighted moving average: given (n) and weights (w j ) 3. Simple exponential smoothing: give α (smooth constant) F t = (A t-1 + A t-2 + … + A t-n ) / n F t = W 1 *A t-1 + W 2 *A t-2 + … + W n *A t-n F t = F t-1 + α* (A t-1 – F t-1 ) = α* A t-1 + (1-2) F t-1 F t - Forecasting for Period t A t - Actual Demand in Period t N - Number of Period to be averaged W 1 , W 2 ,… W n , ΣW i = 1 0 ≤ α ≤ 1
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Exercise #1 Assume that your stock of merchandise is maintained based on the forecast demand. If the distributor’s sales personnel call on the first day of each month, compute your forecast sales by each of the three methods requested here.
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