Documente Academic
Documente Profesional
Documente Cultură
Ch. 5: Forecasting
POM - J. Galvn
Learning Objectives
POM - J. Galvn
What is Forecasting?
Process of predicting a future event Underlying basis of all business decisions
Production Inventory Personnel Facilities
POM - J. Galvn 3
ShortShort-range forecast
Up
MediumMedium-range forecast
months to 3 years Sales & production planning, budgeting
LongLong-range forecast
3+
Medium/long range forecasts deal with more comprehensive issues and support management decisions regarding planning and products, plants and processes. ShortShort-term forecasting usually employs different methodologies than longerlongerterm forecasting ShortShort-term forecasts tend to be more accurate than longer-term forecasts. longerPOM - J. Galvn 5
Stages of introduction & growth require longer forecasts than maturity and decline Forecasts useful in projecting
staffing levels, inventory levels, and factory capacity
Types of Forecasts
Economic forecasts
Address
Technological forecasts
Predict
Demand forecasts
Predict
Determine the use of the forecast Select the items to be forecast Determine the time horizon of the forecast Select the forecasting model(s) Gather the data Make the forecast Validate and implement results
POM - J. Galvn 8
Realities of Forecasting
Forecasts are seldom perfect Most forecasting methods assume that there is some underlying stability in the system Both product family and aggregated product forecasts are more accurate than individual product forecasts
POM - J. Galvn 9
Forecasting Approaches
Qualitative Methods Quantitative Methods
Used when situation is Used when situation vague & little data is stable & historical exist data exist New products Existing products New technology Current technology Involves intuition, Involves mathematical experience techniques e.g., forecasting sales e.g., forecasting sales on Internet of color televisions
POM - J. Galvn 10
Jury of executive opinion Pool opinions of high-level executives, sometimes highaugment by statistical models Sales force composite estimates from individual salespersons are reviewed for reasonableness, then aggregated Delphi method Panel of experts, queried iteratively Consumer Market Survey Ask the customer
POM - J. Galvn
11
Combines managerial experience with statistical models Relatively quick Group-think disadvantage
POM - J. Galvn 12
Sales
13
Delphi Method
Decision Makers
(Sales?) (Sales will be 50!)
Reduces groupgroupthink
POM - J. Galvn
Respondents
(Sales will be 45, 50, 55)
14
POM - J. Galvn
15
Nave approach Moving averages Exponential smoothing Trend projection Linear regression
POM - J. Galvn
Time-series Models
Causal models
16
5-22
Moving Average
Exponential Smoothing
Trend Projection
Linear Regression
POM - J. Galvn
17
Set of evenly spaced numerical data Obtained by observing response variable at regular time periods Forecast based only on past values Assumes that factors influencing past, present, & future will continue Example Year: 1993 1994 1995 1996 1997 Sales: 78.7 63.5 89.7 93.2 92.1
POM - J. Galvn
18
Trend
Cyclical
Seasonal
POM - J. Galvn
Random
19
Trend Component
Persistent, overall upward or downward pattern Due to population, technology etc. Several years duration
Response
Cyclical Component
Repeating up & down movements Due to interactions of factors influencing economy Usually 2-10 years duration 2Cycle Response
Seasonal Component
Regular pattern of up & down fluctuations Due to weather, customs etc. Occurs within 1 year
Summer Response
1984-1994 T/Maker Co.
22
Random Component
Any observed value in a time series is the product (or sum) of time series components Multiplicative model Yi = Ti Si Ci Ri (if quarterly or mo. data) Additive model Yi = Ti + Si + Ci + Ri (if quarterly or mo. data)
POM - J. Galvn
24
Naive Approach
Assumes demand in next period is the same as demand in most recent period e.g., If May sales were 48, then June sales will be 48 Sometimes cost effective & efficient
1995 Corel Corp.
POM - J. Galvn 25
MA is a series of arithmetic means Used if little or no trend Used often for smoothing
Forecast
94
95 96 Year
POM - J. Galvn
97
98
27
Increasing n makes forecast less sensitive to changes Do not forecast trend well Require much historical data
1984-1994 T/Maker Co.
POM - J. Galvn
28
Used for forecasting linear trend line Assumes relationship between response variable, Y, and time, X, is a linear function Yi ! a bX i Estimated by least squares method
b>0
Scatter Diagram
Sales 4 3 2 1 0 92
Sales vs. Time
93
94
95
96
Time
POM - J. Galvn 31
Slope:
b ! i ! n x i n x
i !
x i y i nx y
Y-Intercept:
a ! y bx
POM - J. Galvn 32
Find average historical demand for each season by summing the demand for that season in each year, and dividing by the number of years for which you have data. Compute the average demand over all seasons by dividing the total average annual demand by the number of seasons. Compute a seasonal index by dividing that seasons historical demand (from step 1) by the average demand over all seasons. Estimate next years total demand Divide this estimate of total demand by the number of seasons then multiply it by the seasonal index for that season. This provides the seasonal forecast. 33 forecast. POM - J. Galvn
Y-intercept
^ Yi = a + b X i
Dependent (response) variable
POM - J. Galvn
^ =a +b X Yi i
X
Observed value
POM - J. Galvn 35
Slope:
b ! i ! n x i n x
i !
x i y i nx y
Y-Intercept:
a ! y bx
POM - J. Galvn 36
Interpretation of Coefficients
Slope (b) (b
Estimated
If
Y-intercept (a) (a
Average
If
value of Y when X = 0
Correlation
Answers: how strong is the linear how relationship between the variables? Coefficient of correlation Sample correlation coefficient denoted r
-1.0
-.5
+.5
+1.0
r=1
^ Yi = a + b Xi X
r = -1
^ Yi = a + b Xi X
r = .89
^ Yi = a + b Xi X
r=0
^ Yi = a + b Xi X
40
POM - J. Galvn
Smallest
Mean
POM - J. Galvn
41
Desired Pattern
POM - J. Galvn
42
Tracking Signal
Measures how well forecast is predicting actual values Ratio of running sum of forecast errors (RSFE) to mean absolute deviation (MAD)
Good
Time
POM - J. Galvn
POM - J. Galvn
45
Forecasting example
SALES DURING LAST YEAR
LAST YEAR Spring Summer Fall Winter TOTAL ANNUAL SALES ESTIMATION: Real sales 200 350 300 150 1000 Annual increase of sales 10,00%
What are the estimated seasonal sales amount for next year?
POM - J. Galvn 46
1000
POM - J. Galvn
1000
47
(10% increase) Seasonal factor As calculated 0,8 1,4 1,2 0,6 Next year's seasonal forecast Avg.sales* Factor 220 385 330 165 1100
48