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Need and Importance of Forecasting Introduction 2. Concept of forecasting 3. Need of forecasting in POM 4. General steps in the forecasting 5. Importance and application of forecast in POM
1.
Forecasting
Introduction
Operations Strategy & Competitiveness Quality Management Strategic Decisions Design of Products and Services Process Selection and Design Capacity and Facility Decisions
Forecasting
Forecasting
a) 3.7,
b) 2.5,
4.5,
6.5,
8.5,
10.5,
Forecasting
a) 3.7,
b) 2.5,
4.5,
6.5,
8.5,
10.5, 12.5
MIS
Operations Product/service design
Timely
Reliable
Accurate
Written
Application
Indicators
Time span
New plant for Long term demand, long production term production capacity expansion of all producers.
Forecast enables Op manager to take better action regarding future. Enables Op manager to discharge their function more effectively. Op Manager is better informed to set up objective more clearly. Thinking, alternative generation and selection becomes more focused. Organize and implement his action with time line.
Forecast Importance directly proportional to (Result of action based on forecast) (Result of an action for the same situation without any forecast) If the difference is positive and large then importance is more otherwise not important. Forecast Error = (value forecast-value actually happened) For smaller error we have to use most sophisticated model of forecasting.
Methods of Forecasting
All forecasting methods can be divided into two broad categories: Qualitative
Quantitative.
Division of forecasting methods into qualitative and quantitative categories is based on the availability of historical time series data. Many forecasting techniques use past or historical data in the form of time series. A time series is simply a set of observations measured at successive points in time or over successive periods of time.
Methods of Forecasting
All forecasting methods can be divided into two broad categories: Qualitative A key advantage of these procedures is that they can be applied in situations where historical data are simply not available. And if historical data are available, significant changes in environmental conditions affecting the relevant time series may make the use of past data irrelevant and questionable in forecasting future values of the time series.
Executive Judgement
Qualitative Methods
Briefly, the qualitative methods are: Executive Judgment: Opinion of a group of high level experts or managers is pooled. Sales Force Composite: Each regional salesperson provides his/her sales estimates. Those forecasts are then reviewed to make sure they are realistic. All regional forecasts are then pooled at the district and national levels to obtain an overall forecast. Market Research/Survey: Solicit input from customers pertaining to their future purchasing plans. It involves the use of questionnaires, consumer panels and tests of new products and services.
Qualitative Methods
Delphi Method:
As opposed to regular panels where the individuals involved are in direct communication, this method eliminates the effects of group potential dominance of the most vocal members. The group involves individuals from inside as well as outside the organization.
Typically, the procedure consists of the following steps: Each expert in the group makes his/her own forecasts in form of statements The coordinator collects all group statements and summarizes them The coordinator provides this summary and gives another set of questions to each group member including feedback as to the input of other experts. The above steps are repeated until a consensus is reached.
Regression Models
1. Naive
Example-1; The sale of a product is 100 units in Nov-13. What is the sales forecast of this product in Dec-13?
Solution; The sales forecast for the month of Dec-13 will be 100 units of product.
Feb-10
Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10
12
13 16 19 23 26 30 28 18 (10+12+13)/3= 11.66
Nov-10
Dec-10
16
14
Feb-10
Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10
12
13 16 19 23 26 30 28 18 (10+12+13)/3= 11.66 (12+13+16)/3= 13.66 (13+16+19)/3= 16 (16+19+23)/3= 19.33 (19+23+26)/3= 22.66 (23+26+30)/3= 26.33 (26+30+28)/3= 28
Nov-10
Dec-10
16
14
(30+28+18)/3= 25.33
(28+18+16)/3= 20.66
Weight Applied
3 2 1
________
Period
Last month Two months ago Three months ago
6 Forecast = (3x sales of last month + 2x sales 2 months ago+1x sales 3 months ago) / 6 i.e Sum of weight
Actual Sales 10 12 13 16
(3x13+2x12+10x1)/6= 12.16
May-10
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10
19
23 26 30 28 18 16 14
(3x16+2x13+1x12)/6= 14.33
(3x16+2x18+1x28)/6= 18.66
Example 4:
Calculate the quarterly seasonal forecast as per given data
Quarter 1 2 3 4 Sales estimate in $ 100000 120000 140000 160000 Quarterly seasonal Seasonal forecast in $ indices 1.3 0.9 0.7 1.15 1.3*100000=130000 0.9*120000=108000 0.7*140000=98000 1.15*160000=184000
Consider Example-5 for forecasting based upon seasonal variation data and Example-6 Trend projection data
QUESTIONS