MGMT 300: 9-2 - 9-2b - Chapter 09 Forecasting and Demand Planning

Forecasts of __________ are needed at ___ levels of ________ decision making.

FUTURE DEMAND; all; organizational

What planning horizon do INTERMEDIATE-RANGE FORECASTS cover? What are they necessary to plan for?

1.) A 3- to 12-month period. 2.) They are necessary to PLAN workforce levels, ALLOCATE budgets among divisions, SCHEDULE jobs and resources, and ESTABLISH purchasing plans.

See Exhibit 9.4 Call Center Volume for following question. 1.) What is this data an example of? 2.) What do we see regarding the TREND and what else do we see? 3.) To develop a RELIABLE FORECAST FOR THE FUTURE, what do we need to take into account?

1.) A TIME SERIES 2.) We can see both an INCREASING trend over the entire six years along with SEASONAL PATTERNS within each of the years. a.) During the first three quarters of each year, call volumes increase, followed by a rapid decrease in the fourth quarter as customers presumably turn their attention to the holiday season. 3.) Both the long-term trend and the annual seasonal pattern.

What planning horizon do LONG-RANGE FORECASTS cover? What are they necessary to plan for?

1.) A planning horizon of 1 to 10 years. 2.) They are necessary to plan for the expansion of facilities and to determine the future needs for land, labor, and equipment.

What period may SEASONAL PATTERNS occur over? Give an example.

1.) A year 2.) Examples: a.) Example 1: Demand for cold beverages is low during the winter, begins to rise during the spring, peaks during the summer months, and then begins to decline in the autumn. b.) The opposite yearly pattern is true for manufacturers of coats and jackets.

Give 2 examples of IRREGULAR VARIATION (IMPORTANT).

1.) Hurricane can cause a surge in demand for building materials, food, and water. 2.) After 9/11 terrorist attacks, many forecasts predicted US financial trends + airline passenger had to be DISCARDED due to effects of this event.

What 4 things can TRENDS be?

1.) Increasing or Decreasing; Linear or Nonlinear

1.) To explain the PATTERN OF DATA in a time series, what is often helpful? 2.) What may different TIME SERIES exhibit? 3.) What is understanding these characteristics vital to?

1.) It is often helpful to think in terms of 5 characteristics: a.) Trend b.) Seasonal c.) Cyclical d.) Random Variation e.) Irregular (one-time) Variation. 2.) Different TIME SERIES may exhibit one or more of these characteristics. 3.) Understanding these characteristics is vital to selecting the appropriate FORECASTING MODEL OR APPROACH

What does a TIME SERIES provide? Give 2 examples of TIME SERIES.

1.) It provides the data for UNDERSTANDING how the variable that we wish to forecast has changed HISTORICALLY. 2.) The daily ending Dow Jones stock index; the MONTHLY VOLUME OF SALES for a product.

Although data generally exhibit _________, what does a TREND show? What is this gradual shifting over time usually due to?

1.) Random fluctuations 2.) A trend shows GRADUAL SHIFTS or MOVEMENTS to relatively higher or lower values over a longer period of time. 3.) This gradual shifting over time is usually due to long-term factors like.... a.) Changes in performance b.) Changes in technology c.) Changes in productivity d.) Changes in pop. e.) Changes in demographic characteristics f.) Changes in customer preferences.

Definition: CYCLICAL PATTERNS; give an example.

1.) Regular patterns in a data series that take place over long periods of time. 2.) Movement of stock market values during "bull" and "bear" market cycles.

What is RANDOM VARIATION caused by? What does it tend to be?

1.) Short-term, unanticipated, and nonrecurring factors. 2.) Unpredictable.

What are STATISTICAL METHODS OF FORECASTING based on? What is this called?

1.) The analysis of historical data. 2.) A TIME SERIES

Definition: RANDOM VARIATION; what is it sometimes called?

1.) The unexplained deviation of a time series from a predictable pattern such as a trend, seasonal, or cyclical pattern. 2.) NOISE

What planning horizon do SHORT-RANGE FORECASTS cover? What are they use for?

1.) Up to 3 months. 2.) They are used by operations managers to plan production schedules and assign workers to jobs, determine short-term capacity requirements, and aid shipping departments in planning transportation needs + establishing delivery schedules.

We generally think of seasonal patterns occurring within 1 year, but similar repeatable patterns might occur over the _______ during a ______, over _______, during a ______, or ______ during a ______. Give 2 examples.

1.) weeks, month; days, week; hours, day 2.) Example 1: Pizza delivery peaks on the weekends; Example 2: customer call volume might peak in the morning and taper off throughout the day.

What might the time buckets be for a LONG-TERM PLANNING HORIZON?

A firm might forecast in yearly time buckets.

Definition: IRREGULAR VARIATION

A one-time variation that is explainable.

Definition: TIME SERIES

A set of observations measured at successive points in time or over successive periods of time.

What might a TIME BUCKET be?

A year, quarter, month, week, day, hour, or even a minute.

Why are forecasts never 100%?

Because of RANDOM VARIATION.

Definition: SEASONAL PATTERNS

Characterized by REPEATABLE PERIODS of ups and downs over short periods of time.

What may different days of the week have when it comes to SEASONAL PATTERNS?

Different days of the week might have DIFFERENT SEASONAL PATTERNS.

What 2 things are important in forecasting when it comes to horizons and planning horizons? (IMPORTANT)

Selecting the right planning horizon LENGTH and time bucket SIZE.

Definition: PLANNING HORIZON

The LENGTH of time on which a forecast is based.

What might the time bucket(s) be for a SHORT-RANGE PLANNING HORIZON?

The time bucket might be an hour or less.

Definition: TIME BUCKET

The unit of measure for the time period used in a forecast. (technical definition: time-period size used in the MRP explosion process and are usually one week in length).

What TIME BUCKET be for CUSTOMER CALL CENTERS?

They might forecast customer demand in 5-, 6-, or 10-minute intervals.

Definition: TREND

Underlying pattern of growth or decline in a time series.