OM 300 1nd Edition Lecture 22 Outline of Last Lecture 1 What is forecasting 2 Forecasting Time Horizons 3 Influence of Product Life Cycle 4 Types of Forecasts 5 7 Steps in Forecasting and Realities 6 Quality Methods Outline of Current Lecture I What is forecasting Current Lecture What is forecasting Process of predicting a future event Underlying basis of all business decisions o Production o Inventory o Personnel o Facilities Forecasting Time Horizons Short range forecast o Up to 1 year generally less than 3 months o Purchasing job scheduling workforce levels job assignments production levels Medium range forecast o 3 months to 3 years o Sales and production planning budgeting Long range forecast o 3 years o New product planning facility location research and development Distinguishing Differences Medium Long range forecasts deal with more comprehensive issues and support management decisions regarding planning and products plants and process Short range forecasting usually employs different methodologies than long term Short term forecasts tend to be more accurate than long term Influence of Product Life Cycle These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Introduction and growth require longer forecasts than maturity and decline As product passes through life cycle forecasts are useful in projecting o Staffing levels o Inventory levels o Factory capacity Types of Forecasts Economic forecasts o Address business cycle inflation rate money supply housing starts etc Technological forecasts o Predict rate of technological progress o Impacts development of new products Demand forecasts o Predict sales of existing products and services Strategic Importance of Forecasting Human Resources Hiring training laying off workers Capacity Capacity shortages can result in undependable delivery loss of customers loss of market share Supply Chain Mgt Good supplier relations and price advantages Seven Steps in Forecasting 1 Determine the use of forecast 2 Select the items to be forecasted 3 Determine the time horizon of the forecast 4 Select the forecasting model 5 Gather the data 6 Make the forecast 7 Validate and implement results The Realities Forecasts are seldom perfect unpredictable outside factors may impact the forecast Most techniques assume an underlying stability in the system Product family and aggregated forecasts are more accurate than individual product forecasts Forecasting Approaches Qualitative Methods o Used when situation is vague and little data exist New products New technology o Involves intuition experience Ex Forecasting sales on internet Quantitative o Used when situation is stable and historical data exist Existing products Current technology o Involves mathematical techniques Ex forecasting sales of color televisions Overview of Qualitative Methods 1 Jury of executive opinion a Pool opinions of high level experts sometimes augmented by statistical models i Involves small group of high level experts and managers ii Group estimates demand by working together iii Combines managerial experience with statistical models iv Relatively quick v Group Think disadvantage 2 Delphi method a Panel of experts queried iteratively i Iterative group process continues until consensus is reached 1 3 Types of Participants a Decision makers b Staff c Respondents 3 Sales force composite a Estimates from individual salespersons are reviewed for reasonableness then aggregated i Each salesperson projects his or her sales ii Combined at district and national levels iii Sales reps know customers wants iv Tends to be overly optimistic 4 Consumer Market Survey a Ask the customer about purchasing plans b What consumers say and what they actually do are often different c Sometimes difficult to answer
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