CH 11 OM

o MA methods work best for

short planning horizons when there is no major trend, seasonal, or business cycle patterns, that is, when demand is relatively stable and consistent. As the value of k increases, the forecast reacts slowly to recent changes in the time se- ries because older data are included in the computation.

variation (or noise

sometimes called noise) is the unexplained deviation of a time series from a predictable pattern, such as a trend, seasonal, or cyclical pattern. Ran- dom variation is caused by short-term, unanticipated, and nonrecurring factors and is unpredictable. Because of random variation, forecasts are never 100 percent accurate

Trends

is the underlying pattern of growth or decline in a time series Trends can be increasing or decreasing and can be linear or nonlinear. - Although data generally exhibit random fluctuations, a trend shows gradual shifts or movements to relatively higher or lower values over a longer period of time. This gradual shifting over time is usually due to such long-term factors as changes in performance, technology, productivity, population, demographic characteristics, and customer preferences

Exponential smoothing... Question options: Works best for long-term forecasting Yields a mathematically optimal solution Assigns weights to past data that decay exponentially as the data gets older Cannot be adapted to handle trend

Assigns weights to past data that decay exponentially as the data gets older

Which of the following is not a valid approach to gathering data for judgmental forecasting? Question options: Questionnaire Telephone contact Personal interview Company records

Company records

Which of the following is not a statistical method? Question options: Delphi Exponential smoothing Moving average Linear regression

Delphi

why use forecastin

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.

Repeatable periods of ups and downs over short periods of time are called ____. Question options: Trends Seasonal patterns Cyclical patterns Irregular variatio

Seasonal patterns

____ forecasts are needed for planning production schedules and to assign workers to jobs. Question options: Long-range Intermediate-range Short-range Demand planning

Short-range

Seasonal Patterns

are characterized by repeatable periods of ups and downs over short periods of time. Seasonal patterns may occur over a year; for example, the demand for cold beverages is low during the winter, begins to rise during the spring, peaks during the sum- mer months, and then begins to decline in the autumn. Manufacturers of coats and jackets, however, expect the opposite yearly pattern

Cyclical patterns

are regular patterns in a data series that take place over long periods of time. A common ex- ample of a cyclical pattern is the movement of stock market values during "bull" and "bear" market cycles

- 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 o In the Delphi method, a group of people, possibly from both inside and outside the organization, is asked to make a prediction, such as industry sales for the next year. o Experts are not consulted as a group so as not to bias their prediction

Trends are characterized by repeatable periods of ups and downs over short periods of time. Question options: True False

false

- Short-range forecasts

focus on the planning horizon of up to three months and are used by operations man- agers to plan production schedules and assign workers to jobs, to deter- mine short-term capacity requirements, and to aid

- Long- range forecasts

forecasts cover a planning horizon of 1 to 10 years and are necessary to plan for the expansion of facilities and to determine future needs for land, labor, and equipment.

Good forecasts are needed

in all organizations to drive analyses and decisions re- lated to operations

Long-range forecasts

in total sales dollars (top management level)

-Irregular (one time) variation

is a one-time variation that is explainable. For example, a hurricane can cause a surge in demand for building materials, food, and water. After the 9/11 terrorist attacks on the United States, many forecasts that pre- dicted U.S. financial trends and airline pas- senger volumes had to be discarded due to the effects of this one-time event.

time series

is a set of observations measured at successive points in time or over successive periods of time. - A time series provides the data for understanding how the variable that we wish to forecast has changed historically

- A moving average (MA) forecast

is an average of the most recent "k" observations in a time series o Look at most recent K observation o MA methods work best for short planning horizons when there is no major trend, seasonal, or business cycle pattern

Statistical forecasting

is based on the assumption that the future will be an extrapolation of the past

- Grass Roots forecasting

is simply is asking those who are close to the end consumer, such as salespeople, about the customers' purchasing plans.

planning horizon

is the length of time on which a forecast is based. ~ product lifecycle

Forecasting

is the process of projecting the values of one or more variables into the future

time bucket

is the unit of measure for the time period used in a forecast. - A time bucket might be a year, quarter, month, week, day, hour, or even a minute. For a long-term planning horizon, a firm might forecast in yearly time buckets; for a short-range planning horizon, the time bucket might be an hour or less

Types of forecasts:

long rage and aggregate forcasts

Aggregate forecasts

of sales volume (middle management level) real time , quarterley • Forecasts of individual units (operational level)

- Intermediate-range forecasts

over a 3- to 12-month period are needed to plan work- force levels, allocate budgets among divisions, sched- ule jobs and resources, and establish purchasing plans

Poor forecasting can result

poor inventory and staffing decisions, resulting in part shortages, inadequate customer service, and many customer complaints

Judgmental forecasting

relies upon opinions and expertise of people in developing forecasts - Qualiatitive, uses opinions and information - Other common approaches to gathering data for judgmental forecasts are surveys using questionnaires, telephone contact, and personal interviews

Better operational decisions can be made by integrating forecasting with value chain and capacity management systems t/f

true

In forecasting, irregular variation that is explainable can normally be discarded. Question options: True False

true

Long-range forecasts expressed in sales dollars are more meaningful to top managers than to managers at the operations level. Question options: True False

true

The Delphi method is a forecasting approach that is based on expert opinion. Question options: True False

true