Forecast S

FORCASTING AND
DEMAND PLANNING
CHAPTER 11
DAVID A. COLLIER AND JAMES R. EVANS
OM3 Chapter 11 Forecasting and Demand Planning

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 11
FORECASTING AND DEMAND PLANNING
Forecasting and Demand Planning

Forecasting is the process of projecting the
values of one or more variables into the
future.
Types
of forecasts:
Long-range
forecasts in total sales dollars
(top management level)
Aggregate forecasts of sales volume
(middle management level)
Forecasts of individual units (operational
level)
CHAPTER 11
Exhibit 11.1 The Need for Forecasts in a Value Chain

CHAPTER 11
Basic Concepts in Forecasting

The planning horizon is the length of
time on which a forecast is based.
This spans from short-range forecasts
with a planning horizon of under 3
months to long-range forecasts of 1 to
10time
years.
The
bucket is the unit of measure for
the time period used in a forecast.

CHAPTER 11
Statistical Forecasting Models

Statistical forecasting is based on the
assumption that the future will be an
extrapolation of the past.
Judgmental forecasting relies upon
opinions and expertise of people in
developing forecasts.

CHAPTER 11
Judgmental Forecasting
Judgmental forecasting relies upon
opinions and expertise of people in
developing forecasts.
Grass Roots forecasting is simply asking
those who are close to the end consumer,
such as salespeople, about the customers
purchasing plans.
The Delphi method consists of forecasting
by expert opinion by gathering judgments
and opinions of key personnel based on
their experience and knowledge of the
situation.
CHAPTER 11

A time series is a set of observations
measured at successive points in time or
over successive periods of time.
A time series pattern may have one or
more of the following five characteristics:
Trend
Seasonal patterns
Cyclical patterns
Random variation (or noise)
Irregular (one time) variation

CHAPTER 11

A trend is the underlying pattern of growth or
decline in a time series.
Seasonal patterns are characterized by
repeatable periods of ups and downs over short
periods of time.
Cyclical patterns are regular patterns in a data
series that take place over longer periods of time.
Random variation (sometimes called noise) is
the unexplained deviation of a time series from a
predictable pattern, such as a trend, seasonal, or
cyclical pattern.
Irregular variation is a one-time variation that
is explainable.
CHAPTER 11
Exhibit 11.2 Example Linear and Nonlinear Trend Patterns

CHAPTER 11
Exhibit 11.3 Seasonal Pattern of Home Natural Gas Usage

10
CHAPTER 11
Exhibit Extra Trend and Business Cycle Characteristics

(each data point is 1 year apart)

11
CHAPTER 11
Exhibit 11.4
Call Center Volume
Example of a
time series with
trend and
seasonal
components:

12
CHAPTER 11
Exhibit 11.5 Chart of Call Volume

13
CHAPTER 11
What do you think?

Think of a pizza
delivery franchise
located near a
college campus.
What factors that
influence demand do
you think should be
included in trying to
forecast demand for
pizzas?
14
CHAPTER 11
Single Moving Average

A moving average (MA) forecast is an
average of the most recent k observations
in a time series.
[11.4]
Ft+1 = (most recent k observations)/k
= (At + At1 + At2 + ... + Atk+1)/k
MA methods work best for short planning
horizons when there is no major trend,
seasonal, or business cycle pattern.
As the value of k increases, the forecast
reacts slowly to recent changes in the time
series data.
15
CHAPTER 11
Solved Problem
Develop three-period and four-period moving-average
forecasts and single exponential smoothing forecasts with
a = 0.5. Compute the MAD, MAPE, and MSE for each.
Period
Demand
Period
Demand
86
91
93
93
88
96
89
10
97
92
11
93
94
12
95

16
CHAPTER 11
Single Exponential Smoothing

Single Exponential Smoothing (SES) is
a forecasting technique that uses a
weighted average of past time-series
values to forecast the value of the time
series in the next period.
Ft+1 = At + (1 )Ft
= Ft + (At Ft)
[11.5]

17
CHAPTER 11
Exhibit 11.9 Summary of Single Exponential Smoothing Milk-Sales

Forecasts with = 0.2

18
CHAPTER 11
Exhibit 11.10 Graph of Single Exponential Smoothing Milk-Sales Forecasts

with = 0.2

19
CHAPTER 11
Forecasting in Practice
Managers use a variety of judgmental and
quantitative forecasting techniques.
Statistical methods alone cannot account
for such factors as sales promotions,
competitive strategies, unusual economic
disturbances, new products, large one-time
orders, labor complications, etc.
Statistical forecasts are often adjusted to
account for qualitative factors.
20
CHAPTER 11
he demand for rental cars in Florida and other
warm climates peaks during college spring break

season. Call centers and rental offices are flooded
with customers wanting to rent a vehicle. National
Car Rental took a unique approach by developing a
customer-identification forecasting model, by which
it identifies all customers who are young and rent
cars only once or twice a year. These demand
analysis models allow National to call this target
market segment in February, when call volumes are
lower, to sign them up again. The proactive
strategy is designed to both boost repeat rentals 21

CHAPTER 11

22
Where to find
PPT on Bb
content
CHAPTER 11
Chapter 11 (No section

2.3 and 4. The
equation 11.8 is not
required.)

23

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FORCASTING AND

DAVID A. COLLIER AND JAMES R. EVANS

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Exhibit 11.1 The Need for Forecasts in a Value Chain

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Basic Concepts in Forecasting

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Statistical Forecasting Models

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

FORECASTING AND DEMAND PLANNING

Basic Concepts in Forecasting

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Basic Concepts in Forecasting

FORECASTING AND DEMAND PLANNING

Exhibit 11.2 Example Linear and Nonlinear Trend Patterns

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Exhibit 11.3 Seasonal Pattern of Home Natural Gas Usage

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Exhibit Extra Trend and Business Cycle Characteristics

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Exhibit 11.5 Chart of Call Volume

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

What do you think?

FORECASTING AND DEMAND PLANNING

Single Moving Average

FORECASTING AND DEMAND PLANNING

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Single Exponential Smoothing

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Exhibit 11.9 Summary of Single Exponential Smoothing Milk-Sales

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Exhibit 11.10 Graph of Single Exponential Smoothing Milk-Sales Forecasts

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

FORECASTING AND DEMAND PLANNING

he demand for rental cars in Florida and other

warm climates peaks during college spring break

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

OM3 Chapter 11 Forecasting and Demand Planning

FORECASTING AND DEMAND PLANNING

Chapter 11 (No section

OM3 Chapter 11 Forecasting and Demand Planning

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