In trying to lower cost, good quality, and fast delivery, you are only as good as
Your suppliers
What is forecasting?
-The process of making a prediction on the future based on past and present data
-Most commonly done by analyzing trends
Why is forecasting important?
All businesses operate under uncertainty
Decisions must be made that affect the future
Forecasting provides an 'educated guess' about the future of the company
Strategic planning
Long-term capacity/expansion planning that provides broad goals and directions for the entire business.
The job with any forecast decision is to
minimize the risk
Is it better to overestimate or underestimate forecasts?
It depends on the penalty of each. Do lost sales cost more, or does excess inventory cost more?
What is the foundation of any successful operations team?
Forecasting
Forecasting helps determine:
-What to buy
-When to buy it
-How much to buy
Are forecasts ever right?
NO. Forecasts are ALWAYS wrong
The more specific a forecast, the _____ accurate it will be
less
Forecasts are more accurate for ______ time periods
shorter
Every forecast should include a
confidence level
Short-Term Forecasting
-Hours to weeks ahead
-Weather, day of the week, holidays
Medium term forecasting
-Months to years ahead
-Seasonality, fuel prices, electric vehicles
long term forecasting
-Years to decades ahead
-population growth, GDP
Types of forecasting methods
qualitative and quantitative
What types of research make up qualitative forecasting?
-Market research
-Expert analysis
-Historical analogy
What types of research make up quantitative forecasting?
-Time Series
-Casual relationships
-Simulation
Are all models linear?
No
Moving Average
a forecasting model that computes a forecast as the average of demands over a number of immediate past periods
Simple Moving Average
forecast is the average of a fixed number of past periods
Weighted Moving Average
a forecasting model that assigns a different weight to each period's demand according to its importance
-Usually more recent data is more important
Least Squares Method
A procedure for using sample data to find the estimated linear regression equation.
Do we want R^2 to be high or low?
High
Demand shaping
the company influences what future demand will be
What are examples of demand shaping?
-price management
-sales incentives, promotions, or coupons
-advertising
-social media chatter
Types of Forecasting Errors
-Quantity demanded
-Product specifications
Three components of demand
-Randomness
-Trends
-Seasonality