OPM Topic 6 Forecast

Operations&ProductionManagement
2/21/2015
Operations &
Production Management
(OPM)
Dr. Muhammad Wasif
Visiting Faculty, IBA.
6 Forecasting
Resource Person : Dr. Muhammad Wasif
Operations & Production Management
ResourcePerson:Dr.MuhammadWasif
2/21/2015
Section 6.1
Introduction to Forecasting
33
Forecasting
Process of predicting a future event
Underlying
basis of all business
decisions
Production
Inventory
Personnel
Facilities
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Applications of Forecasting
Accounting
Cost/profit estimates
Finance
Cash flow and funding
Human Resources
Hiring/recruiting/training
Marketing
Pricing, promotion, strategy
MIS
IT/IS systems, services
Operations
Schedules, MRP, workloads
Product/service design
New products and services
Forecasting Time Horizon
Short-range forecast
Up to 1 year, generally less than 3 months

Purchasing, job scheduling, workforce levels, job
assignments, production levels
Medium-range
forecasting
Medium-range forecast
Long-range
forecasting
Long-range forecast
Short-range
forecasting
3 months to 3 years
Sales and production planning, budgeting
Production/operation control
3+ years
New product planning, facility location, research and
development
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Influence of Product Life Cycle

Introduction Growth Maturity Decline
Introduction and growth require longer forecasts than maturity

and decline
As product passes through life cycle, forecasts are useful in

projecting
Staffing levels (Human Resource Requirements)
Inventory levels (Supply chain management)
Factory capacity
Types of Forecasts
Economic forecasts
Address business cycle inflation rate, money

supply, housing starts, etc.
Technological forecasts
Predict rate of technological progress
Impacts development of new products
Demand forecasts
Predict sales of existing products and services
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Seven Steps in Forecasting

1
Determine the use of the forecast
Select the items to be forecasted
Determine the time horizon of the forecast
Select the forecasting model(s)
Gather the data
Make the forecast
Validate and implement results
Forecasts Idealism & Reality

Timely
Seldom Perfect
Accurate
Meaningful
Written
Easy to use
Based on Assumptions
Reality
Ideal
Reliable
Aggregate are more

accurate than individual
Accuracy decreases as time
horizon increases
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Approaches to Forecast
Qualitative Methods
Used when situation is vague and little data exist; for example New
products, New technology
Involves intuition, experience. e.g., forecasting sales on Internet
Quantitative Methods
Used when situation is stable and historical data exist; for example Existing
products, Current technology
Involves mathematical techniques, e.g., forecasting sales of color televisions
Overview of Qualitative Methods

Jury of executive opinion
Involves small group of high-level experts and managers
Combines managerial experience with statistical models
Quick decisions but group think is disadvantage
Delphi method
Iterative group process, continues until consensus is

reached
3 types of participants; Decision makers, Staff,

Respondents
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Overview of Qualitative Methods

Sales force composite
Each salesperson projects his or her sales
Combined at district and national levels
Tends to be overly optimistic
Consumer Market Survey
Ask customers about purchasing plans
What consumers say, and what they actually do are often different
Sometimes difficult to answer
Overview of Quantitative Approaches

1.
Naive approach
2.
Moving averages
3.
Exponential smoothing
4.
Trend projection
5.
Linear regression
time-series
models
associative
model
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Section 6.2
Time Series Forecasting
33

Set
of evenly spaced numerical data
Obtained
by observing response variable at regular
time periods
Forecast
based only on past values, no other
variables important
Assumes
that factors influencing past and present
will continue influence in future

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Trend Component
Persistent, overall upward or downward pattern
Changes due to population, technology, age, culture, etc.
Typically several years duration
Seasonal Component
Regular pattern of up and down fluctuations
Due to weather, customs, etc.
Occurs within a single year
Period
Week
Month
Month
Year
Year
Year
Length
Day
Week
Day
Quarter
Month
Week
Number of
Seasons
7
4-4.5
28-31
4
12
52

Cyclical Component
Repeating up and down movements
Affected by business cycle, political, and economic factors
Multiple years duration
Random Component
Erratic, unsystematic, residual fluctuations
Due to random variation or unforeseen events
Short duration and nonrepeating
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1- Naive Approach
Assumes demand in next

period is the same as demand in most recent period
e.g., If January sales were 68, then February sales will be 68
Sometimes cost effective and efficient
Can be good starting point
Simple to use, Virtually no cost
Cannot provide high accuracy
2- Moving Average Method
MA is a series of arithmetic means
Used if little or no trend
Used often for smoothing
Provides overall impression of data over time
Moving average =
demand in previous n periods

n
10
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2- Moving Average Method

Month
Actual
Shed Sales
3-Month
Moving Average
January
February
March
April
May
June
July
10
12
13
16
19
23
26
(10 + 12 + 13)/3 = 11 2/3

(12 + 13 + 16)/3 = 13 2/3
(13 + 16 + 19)/3 = 16
(16 + 19 + 23)/3 = 19 1/3
2- Weighted Moving Average Method
Used when some trend might be present
Older data usually less important
Weights based on experience and intuition
11
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2- Weighted Moving Average Method

Month
Actual
Shed Sales
January
February
March
April
May
June
July
10
12
13
16
19
23
26
3-Month Weighted
Moving Average
[(3 x 13) + (2 x 12) + (10)]/6 = 121/6

[(3 x 16) + (2 x 13) + (12)]/6 = 141/3
[(3 x 19) + (2 x 16) + (13)]/6 = 17
[(3 x 23) + (2 x 19) + (16)]/6 = 201/2
Weights Applied
3
2
1
6
Period
Last month
Two months ago
Three months ago
Sum of weights
Potential Problems With Moving Average
Increasing n smooths the forecast but makes it less

sensitive to changes
Do not forecast trends well
Require extensive historical data
12
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3 - Exponential Smoothing
Form of weighted moving average
Weights decline exponentially
Most recent data weighted most
Requires smoothing constant ()
Ranges from 0 to 1
Subjectively chosen
Involves little record keeping of past data
3 - Exponential Smoothing
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant a = .20

Ft = Ft1 + (At1 - Ft1)
New forecast = 142 + .2(153 142) = 144.2 144 units
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Effect of Smoothing Constants
Weight Assigned to
Smoothing
Constant
Most
Recent
Period
()
2nd Most 3rd Most 4th Most 5th Most

Recent
Recent
Recent
Recent
Period
Period
Period
Period
2
3
(1 - ) (1 - )
(1 - )
(1 - )4
= .1
.1
.09
.081
.073
.066
= .5
.5
.25
.125
.063
.031
Effect of Smoothing Constants

Chose high values of when underlying average is likely to change
Choose low values of when underlying average is stable
Demand
225
Actual
demand
200
= .5
175
= .1
150 |
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
Quarter
14
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Choosing
The objective is to obtain the most accurate forecast no

matter the technique
We generally do this by selecting the model that gives

us the lowest forecast error
Forecast error = Actual demand - Forecast value

= A t - Ft
Common Measures of Error

Mean Absolute Deviation (MAD)
MAD =
|Actual - Forecast|
n
Mean Squared Error (MSE)

MSE =
(Forecast Errors)2
n
15
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Common Measures of Error
Mean Absolute Percent Error (MAPE)

n
MAPE =
100|Actuali - Forecasti|/Actuali
i=1
Comparison of Forecast Error
Quarter
Actual
Tonnage
Unloaded
Rounded
Forecast
with
= .10
Absolute
Deviation
for
= .10
1
2
3
4
5
6
7
8
180
168
159
175
190
205
180
182
175
175.5
174.75
173.18
173.36
175.02
178.02
178.22
5.00
7.50
15.75
1.82
16.64
29.98
1.98
3.78
82.45
Rounded
Forecast
with
= .50
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
Absolute
Deviation
for
= .50
5.00
9.50
13.75
9.12
19.56
24.78
12.61
4.30
98.62
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MAD =
Quarter
|deviations|
Rounded
Actual
Tonnage
Unloaded
Forecast
with
= .10
Absolute
Deviation
for
= .10
For1 = .10180
175
5.00
2
168
175.5
7.50
=159
82.45/8174.75
= 10.3115.75
3
173.18
1.82
For45 = .50175
190
173.36
16.64
6
=205
98.62/8175.02
= 12.3329.98
7
8
180
182
178.02
178.22
1.98
3.78
82.45
Rounded
Forecast
with
= .50
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
Absolute
Deviation
for
= .50
5.00
9.50
13.75
9.12
19.56
24.78
12.61
4.30
98.62

MSE =
(forecastRounded
errors)2Absolute
Quarter
Actual
Tonnage
Unloaded
Forecast
with
= .10
Deviation
for
= .10
For1 = .10180
175
5.00
2
168
175.5
7.50
= 1,526.54/8
= 190.82
3
159
174.75
15.75
173.18
1.82
For45 = .50175
190
173.36
16.64
6 = 1,561.91/8
205
175.02
29.98
= 195.24
7
8
180
182
178.02
178.22
1.98
3.78
82.45
Rounded
Forecast
with
= .50
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
Absolute
Deviation
for
= .50
5.00
9.50
13.75
9.12
19.56
24.78
12.61
4.30
98.62
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n
100|deviation
Rounded i|/actual
Absolutei
1
Actual
MAPE = i =Tonnage
Quarter Unloaded
Forecast
with
n
= .10
Deviation
for
= .10
For
1 = .10
180
175
5.00
2
168
175.5
7.50
= 44.75/8
= 5.59%
3
159
174.75
15.75
4
175
173.18
1.82
For
= .50
5
190
173.36
16.64
6
205
175.02
29.98
= 54.05/8
= 6.76%
7
8
180
182
178.02
178.22
1.98
3.78
82.45
Rounded
Forecast
with
= .50
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
Absolute
Deviation
for
= .50
5.00
9.50
13.75
9.12
19.56
24.78
12.61
4.30
98.62

Quarter
Actual
Tonnage
Unloaded
Rounded
Forecast
with
= .10
1
2
3
4
5
6
7
8
180
168
159
175
190
205
180
182
175
175.5
174.75
173.18
173.36
175.02
178.02
178.22
MAD
MSE
MAPE
Absolute
Deviation
for
= .10
5.00
7.50
15.75
1.82
16.64
29.98
1.98
3.78
82.45
10.31
190.82
5.59%
Rounded
Forecast
with
= .50
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
Absolute
Deviation
for
= .50
5.00
9.50
13.75
9.12
19.56
24.78
12.61
4.30
98.62
12.33
195.24
6.76%
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0.1
1
2
3
4
5
6
7
8
Actial
180
168
159
175
190
205
180
182
MAD
MAPE
Dev.
175
175.5
174.75
173.18
173.36
175.05
178.02
178.22
5
7.5
15.75
1.82
16.64
29.95
1.98
3.78
82.42
10.3025
5.591537
0.3
0.4
0.2
F
Dev.
F
Dev.
F
Dev.
175
5
175
5
175
5
176
8
176.5
8.5
177
9
174.4
15.4
173.95
14.95
173.4
14.4
171.32
3.68 169.465
5.535
167.64
7.36
172.056
17.944 171.1255 18.8745 170.584
19.416
175.6448 29.3552 176.7879 28.21215 178.3504 26.6496
181.5158 1.51584 185.2515 5.251495 189.0102 9.01024
181.2127 0.787328 183.676 1.676047 185.4061 3.406144
81.68237
87.99919
94.24198
10.2103
10.9999
11.78025
5.545828
5.992131
6.436648
0.5
F
175
177.5
172.75
165.88
170.44
180.22
192.61
186.3
Dev.
5
9.5
13.75
9.12
19.56
24.78
12.61
4.3
98.62
12.3275
6.755313
Exponential Smoothing with Trend Adjustment

When a trend is present, exponential
smoothing must be modified
Forecast
Exponentially
Exponentially
including (FITt) = smoothed (Ft) + smoothed
(Tt)
trend
forecast
trend
Ft = (At - 1) + (1 - )(Ft - 1 + Tt - 1)
Tt = (Ft - Ft - 1) + (1 - )Tt - 1
Step 1: Compute Ft
Step 2: Compute Tt
Step 3: Calculate the forecast FITt = Ft + Tt
19
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Example
Month(t)
1
2
3
4
5
6
7
8
9
10
Actual
Demand (At)
12
17
20
19
24
21
31
28
36
Smoothed
Forecast, Ft
11
Smoothed
Trend, Tt
2
Forecast
Including
Trend, FITt
13.00

Example
Month(t)
1
2
3
4
5
6
7
8
9
10
Actual
Demand (At)
12
17
20
19
24
21
31
28
36
Smoothed
Forecast, Ft
11
Smoothed
Trend, Tt
2
Forecast
Including
Trend, FITt
13.00
Step 1: Forecast for Month 2

F2 = A1 + (1 - )(F1 + T1)
F2 = (.2)(12) + (1 - .2)(11 + 2)
= 2.4 + 10.4 = 12.8 units
20
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Example
Month(t)
1
2
3
4
5
6
7
8
9
10
Forecast
Actual
Smoothed
Smoothed
Including
Trend, Tt
Trend, FITt
Demand (At) Forecast, Ft
12
11
2
13.00
17
12.80
20
19
Step 2: Trend for Month 2
24
21
T2 = (F2 - F1) + (1 - )T1
31
28
T2 = (.4)(12.8 - 11) + (1 - .4)(2)
36
= .72 + 1.2 = 1.92 units

Example
Month(t)
1
2
3
4
5
6
7
8
9
10
Forecast
Actual
Smoothed
Smoothed
Including
Trend, Tt
Trend, FITt
Demand (At) Forecast, Ft
12
11
2
13.00
17
12.80
1.92
20
19
Step 3: Calculate FIT for Month 2
24
21
FIT2 = F2 + T2
31
28
FIT2 = 12.8 + 1.92
36
= 14.72 units
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Example
Month(t)
1
2
3
4
5
6
7
8
9
10
Actual
Demand (At)
12
17
20
19
24
21
31
28
36
Smoothed
Forecast, Ft
11
12.80
15.18
17.82
19.91
22.51
24.11
27.14
29.28
32.48
Smoothed
Trend, Tt
2
1.92
2.10
2.32
2.23
2.38
2.07
2.45
2.32
2.68
Forecast
Including
Trend, FITt
13.00
14.72
17.28
20.14
22.14
24.89
26.18
29.59
31.60
35.16

Example
35
Product demand
30
Actual demand (At)
25
20
15
Forecast including trend (FITt)

with = .2 and = .4
10
5
0 |
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
Time (month)
22
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4 - Trend Projections
Fitting a trend line to historical data points to project

into the medium to long-range
Linear trends can be found using the least squares

technique
y^ = a + bx
^ = computed value of the variable to
where y
be predicted (dependent variable)
a = y-axis intercept
b = slope of the regression line
x = the independent variable
Linear Regression Method

Values of Dependent Variable
Least squares method minimizes the sum of the squared errors (deviations)
Actual observation
(y-value)
Deviation7
Deviation5
Deviation6
Deviation3
Deviation4
Deviation1
(error)
Deviation2
Trend line, y^ = a + bx
Time period
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Linear Regression Method

Equations to calculate the regression variables
y^ = a + bx
b=
xy - nxy
x2 - nx2
a = y - bx
Linear Regression Method - Example

Year
2003
2004
2005
2006
2007
2008
2009
Time
Period (x)
Electrical Power
Demand
1
2
3
4
5
6
7
x = 28
x=4
b=
74
79
80
90
105
142
122
y = 692
y = 98.86
x2
xy
1
4
9
16
25
36
49
x2 = 140
74
158
240
360
525
852
854
xy = 3,063
3,063 - (7)(4)(98.86)
xy - nxy
=
= 10.54
2
2
140 - (7)(42)
x - nx
a = y - bx = 98.86 - 10.54(4) = 56.70

24
2/21/2015

Year
Time
Period (x)
2003
1
2004
2
2005
3
The
trend line
2006
4
2007^
5
2008y = 56.70
6
2009
7
x = 28
x=4
b=
Electrical Power
Demand
74
79
80
is
90
105
142
+ 10.54x
122
y = 692
y = 98.86
x2
xy
1
4
9
16
25
36
49
2
x = 140
74
158
240
360
525
852
854
xy = 3,063
3,063 - (7)(4)(98.86)
xy - nxy
=
= 10.54
2
2
140 - (7)(42)
x - nx
a = y - bx = 98.86 - 10.54(4) = 56.70

Power demand

160
150
140
130
120
110
100
90
80
70
60
50
Trend line,
y^ = 56.70 + 10.54x
|
2003
|
2004
|
2005
|
2006
|
2007
Year
|
2008
|
2009
|
2010
|
2011
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5 - Seasonal Variations In Data

The multiplicative seasonal model can adjust trend
data for seasonal variations in demand

Steps in the process:
1.
Find average historical demand for each season
2.
Compute the average demand over all seasons
3.
Compute a seasonal index for each season
4.
Estimate next years total demand
5.
Divide this estimate of total demand by the number of

seasons, then multiply it by the seasonal index for that
season
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San Diego Hospital
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Demand
2007 2008 2009
80
70
80
90
113
110
100
88
85
77
75
82
85
85
93
95
125
115
102
102
90
78
72
78
105
85
82
115
131
120
113
110
95
85
83
80
Average
2007-2009
Average
Monthly
90
80
85
100
123
115
105
100
90
80
80
80
94
94
94
94
94
94
94
94
94
94
94
94
Seasonal
Index

San Diego Hospital
Month
Demand
2007 2008 2009
Average
2007-2009
Average
Monthly
Seasonal
Index
Jan
80
85 105
90
94
Feb
70
85
85
80
94
Mar
80
93 Average
82
85 monthly 94
2007-2009
demand
Seasonal90index95= 115 Average monthly
Apr
100
94
demand
May
113 125 131
123
94
= 90/94 = .957
Jun
110 115 120
115
94
Jul
100 102 113
105
94
Aug
88 102 110
100
94
Sept
85
90
95
90
94
Oct
77
78
85
80
94
Nov
75
72
83
80
94
Dec
82
78
80
80
94
0.957
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San Diego Hospital
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Demand
2007 2008 2009
80
70
80
90
113
110
100
88
85
77
75
82
85
85
93
95
125
115
102
102
90
78
72
78
105
85
82
115
131
120
113
110
95
85
83
80
Average
2007-2009
Average
Monthly
Seasonal
Index
90
80
85
100
123
115
105
100
90
80
80
80
94
94
94
94
94
94
94
94
94
94
94
94
0.957
0.851
0.904
1.064
1.309
1.223
1.117
1.064
0.957
0.851
0.851
0.851

San Diego Hospital
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Demand
2007 2008 2009
Average
2007-2009
Average
Monthly
80
85 105
90
94
70
85Forecast
85
80
94
for 2010
80
93
82
85
94
90
95
115
100
94
Expected annual demand = 1,200
113 125 131
123
94
110 115 120
115
94
1,200
100 Jan
102 113
105 = 96
94
x .957
12
88 102 110
100
94
1,200
85
90
95
90
94
Feb
x .851 = 85
77
78
8512
80
94
75
72
83
80
94
82
78
80
80
94
Seasonal
Index
0.957
0.851
0.904
1.064
1.309
1.223
1.117
1.064
0.957
0.851
0.851
0.851
28
2/21/2015

2010 Forecast
2009 Demand
2008 Demand
2007 Demand
San Diego Hospital
140
130
Demand
120
110
100
90
80
70
|
J
|
F
|
M
|
A
|
M
|
J
|
J
|
A
|
S
|
O
|
N
|
D
Time
San Diego Hospital
29
2/21/2015
Section 6.3
Associative Forecasting
33
Associative Forecasting
Forecasting an outcome based on predictor variables
using the least squares technique
bx
where
computed value of the variable to be predicted
(dependent variable)
a = y-axis intercept
b = slope of the regression line
x = the independent variable though to predict the value of
the dependent variable
30
2/21/2015
Associative Forecasting - Example

Local Payroll
($ billions), x
1
3
4
2
1
7
4.0
Sales
Sales
($ millions), y
2.0
3.0
2.5
2.0
2.0
3.5
3.0
2.0
1.0
0
|
1
|
2
|
|
|
3 4
5
Area payroll
|
6
|
7

Sales, y
2.0
3.0
2.5
2.0
2.0
3.5
y = 15.0
Payroll, x
1
3
4
2
1
7
x = 18
x2
1
9
16
4
1
49
x2 = 80
xy
2.0
9.0
10.0
4.0
2.0
24.5
xy = 51.5
31
2/21/2015

^
y = 1.75 + .25x
Sales = 1.75 + .25(payroll)
If payroll next year

is estimated to be
$6 billion, then:
4.0
Sales = 1.75 + .25(6)

Sales = $3,250,000
Sales
3.25
3.0
2.0
1.0
0
|
1
|
2
|
|
|
3 4
5
Area payroll
|
6
|
7
Standard Error of the Estimate
A forecast is just a point estimate of a future value
This point is actually the mean

of a probability distribution
32
2/21/2015
Standard Error of the Estimate
Sy,x = .306
The standard
error of the
estimate is
$306,000 in sales
Monitoring and Controlling Forecasts

Tracking
Measures how well the forecast is predicting actual

values
Ratio of running sum of forecast errors (RSFE) to mean

absolute deviation (MAD)
Good tracking signal has low values
If forecasts are continually high or low, the forecast has

a bias error
33
2/21/2015
Monitoring and Controlling Forecasts

Tracking
RSFE
=
signal
MAD
(Actual demand in
period i Forecast demand
in period i)
Tracking
=
signal
|Actual - Forecast|/n)
Tracking Signal
Signal exceeding limit
Tracking signal
+
Upper control limit

Acceptable
range
0 MADs
Lower control limit

Time
34
2/21/2015
Tracking Signal - Example

Qtr
Actual
Demand
(AD)
1
2
3
4
5
6
90
95
115
100
125
140
Forecast
Demand
(FD)
100
100
100
110
110
110
Error
RSFE
(AD-FD)
-10
-5
+15
-10
+15
+30
-10
-15
0
-10
+5
+35
Absolute
Forecast
Error
|RSFE|
10
5
15
10
15
30
Cumulative
Absolute
Forecast
Error
MAD
(CAF)
CAF/Qtr
10
15
30
40
55
85
10.0
7.5
10.0
10.0
11.0
14.2
Tracking Signal - Example
Qtr
1
2
3
4
5
6
Tracking
Actual
Forecast
Signal
Demand Demand
(RSFE/MAD)
90 =100
-10/10
-1
-15/7.5
-2
95 =100
0/10 = 0
115 100
-10/10 = -1
100
110
+5/11 = +0.5
+35/14.2
+2.5
125 =110
140
110
Error
RSFE
Absolute
Forecast
Error
-10
-5
+15
-10
+15
+30
-10
-15
0
-10
+5
+35
10
5
15
10
15
30
Cumulative
Absolute
Forecast
Error
MAD
10
15
30
40
55
85
10.0
7.5
10.0
10.0
11.0
14.2
The variation of the tracking signal between -2.0 and

+2.5 is within acceptable limits
35
2/21/2015
Section 6.4
Miscellaneous Forecasting
33
Adaptive Forecasting
Its possible to use the computer to continually

monitor forecast error and adjust the values of the a
and b coefficients used in exponential smoothing to
continually minimize forecast error
This technique is called adaptive smoothing
36
2/21/2015
Focus Forecasting
Developed at American Hardware Supply, focus forecasting is

based on two principles:
1.
Sophisticated forecasting models are not always better than

simple ones
2.
There is no single technique that should be used for all

products or services
This approach uses historical data to test multiple

forecasting models for individual items
The forecasting model with the lowest error is then used to

forecast the next demand
Forecasting in the Service Sector
Presents unusual challenges
Special need for short term records
Needs differ greatly as function of industry and

product
Holidays and other calendar events
Unusual events
37
2/21/2015
Fast Food Restaurant Forecast

Percentage of sales
20%
15%
10%
5%
11-12
1-2
12-1
(Lunchtime)
2-3
3-4
7-8
6-7
(Dinnertime)
Hour of day
4-5
5-6
8-9
9-10
10-11
FedEx Call Center Forecast

12%
10%
8%
6%
4%
2%
0%
6
8
A.M.
10
12
Hour of day
6
8
P.M.
10
12
38
2/21/2015
References
Operations Management, 10th Ed., by J. Heizer &

B. Render
Operations Management, William J. Stevenson.
Operations Management, 7th Ed., N. Slack, A.B.

Jones, R. Johnston.
Cases in Operations Management, S. Chambers, C.

Harland, A. Harison, N. Slack.
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Operations&ProductionManagement

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

basis of all business

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Cash flow and funding

Pricing, promotion, strategy

IT/IS systems, services

Schedules, MRP, workloads

New products and services

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Forecasting Time Horizon

Up to 1 year, generally less than 3 months

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Influence of Product Life Cycle

Introduction and growth require longer forecasts than maturity

As product passes through life cycle, forecasts are useful in

Staffing levels (Human Resource Requirements)

Inventory levels (Supply chain management)

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Address business cycle inflation rate, money

Predict rate of technological progress

Impacts development of new products

Predict sales of existing products and services

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Seven Steps in Forecasting

Determine the use of the forecast

Select the items to be forecasted

Determine the time horizon of the forecast

Select the forecasting model(s)

Gather the data

Make the forecast

Validate and implement results

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Forecasts Idealism & Reality

Resource Person : Dr. Muhammad Wasif

Aggregate are more

Operations & Production Management

Involves intuition, experience. e.g., forecasting sales on Internet

Involves mathematical techniques, e.g., forecasting sales of color televisions

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Overview of Qualitative Methods

Involves small group of high-level experts and managers

Combines managerial experience with statistical models

Quick decisions but group think is disadvantage

Iterative group process, continues until consensus is

3 types of participants; Decision makers, Staff,

Resource Person : Dr. Muhammad Wasif

Operations & Production Management

Overview of Qualitative Methods

Each salesperson projects his or her sales

Combined at district and national levels

Tends to be overly optimistic

Consumer Market Survey

Ask customers about purchasing plans