Forecasting

[ref. Chopra & Meindl pages 68 to 75]

 Starting point for all strategic planning
 Importance of strategy in spite of uncertainty
 Logistical areas of production scheduling,
inventory control, and aggregate planning need
demand forecast
Characteristics of forecasting
 Forecast error
 Accuracy of Short term/long term forecast
Accuracy of Aggregate/specific forecast,forecast
for automobiles as against forecast for specific
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 Components of forecast
 Past demand
 Planned advertising or marketing efforts
 Planned price discounts
 State of economy
 Competitors’ actions
Manager’s knowledge and judgment

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 Forecasting methods
Qualitative methods, Time series method,
Causal method, and Simulation method.
 Qualitative methods:judgmental methods
advantage of critical knowledge
 Time series method: using statistical tools on
past data to identify trend. Under stable
environmental situations and demand.
Moving average method
 Causal method: correlating demand to specific
causal factors in environment. Estimate these
causal factors and forecast demand. Ambient
temperature and coffee consumption! Monsoon
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 Simulation: this is a combination of time series
and causal methods. estimate the impact of causal
factors on demand
Basic approach to demand forecasting
Top down and bottom up

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Major factors that influence demand forecast:
Demand and promotions, one product stealing
demand of another product.
Forecast needs to be accurate if lead times are
longer. If supply sources are available with short
lead times forecast need not be very accurate.
Influence of product variants on each other is to
be judged and if required joint forecast may be
made.

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 Appropriate technique for forecast
Take the dimensions of forecast into account to
determine forecasting method. These dimensions
are geographical area, product groups, and
customer groups
Take criteria into account-accuracy, time
horizon, data availability, experience of the
forecaster

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Establish performance and error measures to
use forecast accurately:
 Lead time as a performance measure. Forecast
accuracy is required to be highest at the end of
this lead-time.
 Difference between forecast and actual should
be measured for estimating error.

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