chopra & meindl -forecasting.ppt
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Forecasting conceptsTRANSCRIPT
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Forecasting
[ref. Chopra & Meindl pages 68 to 75]
Forecasting is a scientific method of determining
demand in future
Starting point for all strategic planning
Importance of strategy in spite of uncertainty in
future
Logistical areas of production scheduling,
inventory control, and aggregate planning need
demand forecast
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Some characteristics of forecasts
Forecasts are almost always wrong
Forecasts are more accurate for groups or
families of items
• motor cars and models
Aggregate forecasts are more accurate
• annual rainfall and daily rainfall
Forecasts are more accurate for short periods
(tomorrow, next year)
Forecast should include an estimate of error
Forecasts are no substitutes for facts
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Components of forecast
Past demand
Planned advertising or marketing efforts
Planned price discounts
State of economy
Competitors’ actions
forecaster’s knowledge and judgment
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Major categories of forecasts
(forecasting methods)
Qualitative & quantitative forecasts
Qualitative forecasting
• Forecast is based on personal judgment
• Subjective (opinion based)
• can be obtained in less time
• When facts are unavailable for other methods
• Made for specific items based on aggregate
forecast for markets)
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Some qualitative methods of forecasting
Market surveys – potential customers’ opinions
Delphi method
Panel consensus
Life cycle analogy
Informed judgment – sales force
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Quantitative forecasting
Fact based, scientific models
Causal-Correlating demand to specific causal
factors in environment. Estimate these causal
factors and forecast demand. Ambient temperature
and coffee consumption! Monsoon and rice
production!
Econometric models-statistical analysis of
various sectors of economy
Input-output models
• Examine flow of products and services for
markets and market segments
• Generally used for project needs
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Simulation – using computer simulation to
simulate sectors of economy
Time series
1.Regression analysis
• Statistical method
• Developing analytical relationship between two
variables
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• Using statistical tools on past data to identify
trend, under stable environmental situations and
demand
2.Moving average method
Simple moving average – estimator decides
the period over which average is taken. 3 months
or so
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MONTHS ACTUAL FORECAST
JANUARY 4200 -
FEBRUARY 4300 -
MARCH 4350 -
APRIL - 4283
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MONTHS WEIGHTS SALES WEIGHTED SALES
JANUARY 2 4200 8400
FEBRUARY 3 4300 12,900
MARCH 5 4350 21,750
TOTAL 10 43050
Weighted forecast for April = 4305
Weighted moving average
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Major factors that influence demand forecast:
Demand and promotions
-one product stealing demand of another
product (tooth powder and tooth paste, motor car
and motorbikes)
Lead times
-forecast methods need to be more accurate
(sophisticated) if lead times are longer, as
forecasts tend to become weak for a long span of
time. If supply sources are available with short
lead times, forecast methods need not be very
accurate (sophisticated)
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Influence of product variants on each other
is to be judged and if required
joint forecast may be made
Full shirts and half shirts, shirts and T-shirts,
different models of same product
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Appropriate technique for forecast
Take the dimensions of forecast into account to
determine forecasting method. These dimensions
are
• geographical area
• product groups
• customer groups
Take criteria into account
• accuracy
• time horizon
• data availability
• experience of the forecaster
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Establish performance and error measures to
use forecast accurately:
Lead time as a performance measure. Forecast
accuracy is required to be highest at the end of
this lead-time.
Difference between forecast and actual should
be measured for estimating error.
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Forecast Approaches
Top-Down Approach (decomposition approach)
• A national level forecast for SKU of company
• performance pattern of locations in the past
• forecast for various locations
• demand is assumed to be uniform across the
national market
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Bottom-Up Approach (decentralized approach)
• Forecast for individual locations
• Cumulative forecast for company at national
level