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25 Cards in this Set
- Front
- Back
What is forecasting
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Process of predicting a future event
underlying basis of all business decisions(production, inventory, personnel, facilities) |
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Types of Forecasts by Time Horizon
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Short Range Forecast: up tp 1 year, less than 3 months
Job scheduling, worker assignments Medium Range: 3 months to 3 years Sales and production planning, budgeting Long Range: 3+ years, new product planning, facility location |
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Short vs Medium vs Long term forecasting
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Medium/long: forecasts deal with more comprehensive issues and support management decisions regarding planning and products, plants and processes
Short Term: forecasting usually employs different methodologies than longer term forecasting Short Term: forecasts tend to be more accurate then longer term forecasts |
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Influence of Product lifestyle
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Introduction, growth, maturity, decline
Stages of intro and growth require longer forecasts than maturity and decline Forecasts useful in projecting: staffing levels, inventory levels, factor capacity |
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Strategy in Product Life Cycle: Introduction
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Introduction: Best period to increase market share, R&D product engineering critical- develop design of product, short production runs
high production costs limited models attention to quality |
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PLC: Growth
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Practical to change price or qualtiy image, strengthen niche
forecasting critical product and process reliability competitive product improvements and options increase capacity shift toward product focused enhance distribution |
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PLC: Maturity
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Poor time to change image, price, quality
Competitive costs become critical defend market position Standardization Less rapid production Optimum capacity increasing stability of process long term production runs Product improvement and cost cutting |
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PLC: Decline
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Cost control critical
Little product differentiation Cost minimization Over capacity in the industry Prune line to elimiate items not returning good margin Reduce capacity |
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Types of Forecasts:
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Economic Forecasts: adress business cycle eg. inflation rate, money supply
Technological Forecasts: predict rate of tech progress Predict acceptance of new product Demand Forecast: predict sales of existing product |
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Seven Steps in Forecasting
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Determine the use of forecast
select items to be forecasted determine time horizon of forecast select forecast model gather data make forecast validate and implement results |
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Forecasting Approaches
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Qualitative Method:
Used when situation is vague and little data exists(new product, new tech) Involves intuition experience( eg forecasting sales on internet) Quantitative Methods: Used when situation is "stable" and historical data exists( existing products/ current tech) Involves mathematical techniques(forecasting sales of color tv's) |
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Overview of Qualitative Methods
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Jury of executive opinion: pool opinions of high level execs, sometimes augment w/ stat models
Delphi Method: Panel of experts, queried Sales Force Composite: estimates from individual salespersons are reviewed for reasonableness, then aggregated Consumer Market Survey: ask the consumer |
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Delphi Method
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Iterative group process
3 types of ppl, (decision makers, staff, respondents) Reduces "group think" |
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What is a Time Series?
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Set of evenly spaced numerical data( obtained by observing responsive variable at regular time periods
Forecast based only on past values( assumes factors influencing past and present will continue to influence future) |
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Time Series Components
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Trend
Cyclical Seasonal Random |
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Trend Component
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Persisten, overall upward or down pattern
due to population, tech several years duration |
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Seasonal Component
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Regular pattern of up/down fluctuations
Due to weather, customs Occurs within 1 year |
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Cyclical Component
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Repeating up/downs
due to interactions of factors influencing economy usually 2-10 years in duration |
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Random Component
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Erratic, unsystematic
Due to random variation or unforseen events(tornado, earthquake) Short duration, non repeating |
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Naive Approach
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Assumes demand in next period= demand in most recent period
Sometimes cost effective and efficient |
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Moving Average Method
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MA is a series of arithmetic means
used if little or no trend used for smoothing equaiton= sum(demand in previous n periods)/n |
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Weighted Moving Average Method
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Used when trend is present
weights based on intuition equation: sum(weight for period n)(demand in n period)/ sum of wieghts |
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Disadvantages Moving Averages
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Increasing n makes forecast less sensitive to changes
Do not forecast trends well Require much historical data |
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Exponential Smoothing Method
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form of weighted moving average
weights decline exponentialy requires smoothing constant: ranges from 0 to 1 ; subjectively chosen Involves little record keeping of past data |
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Choosing smoothing constant
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seek to minimize mean absolute deviation
forecast error=demand-forecast |