Upload
sagkarande
View
20
Download
2
Tags:
Embed Size (px)
DESCRIPTION
4
Citation preview
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
1
Program : MBA
Semester : II
Subject Code : MB0044
Subject Name : Production and Operations Management
Unit number : 4
Unit Title : Forecasting
Lecture Number : 4
Lecture Title : Forecasting
HOME NEXT
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
2
Production and Operations Management
Objectives:
After studying this unit, you should be able to:
Describe forecasting
Explain the strategic importance, cost implementation and decision making of forecasting
Classify forecasting process
List the methods of forecasting
Explain product life cycle and time series
Describe associative models of forecasting
Explain accuracy of forecasting
HOME NEXT PREVIOUS
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
Lecture Outline
Introduction
Strategic Importance of Forecasting
Why Forecasting is Required
Cost Implementations of Forecasting
Decision Making Using Forecasting
Classification of Forecasting Process
Methods of Forecasting
Quantitative Methods
Product Life Cycle
Associative Models of Forecasting
Accuracy of Forecasting
Summary
Check Your Learning
Activity
3
HOME NEXT PREVIOUS
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
4
Introduction
Forecasting is the art and science of predicting the future events.
Forecasting may involve taking historical data and projecting them
into the future with some sort of mathematical model.
Forecasting is synonymous with estimating and prediction, though forecasting is considered to be more scientific rather than a crude or vague guesswork.
In this session, you will learn about the importance of forecasting, the
cost implementations of forecasting, the process for decision making
using forecasting, the classifications and methods of forecasting, the
selection of the forecasting method and the associative models of
forecasting.
HOME NEXT PREVIOUS
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
5
Strategic Importance of Forecasting
HOME NEXT PREVIOUS
Forecasting influences three key activities. They are:
The number of persons required is a function of the production output which, in turn, depends on demand forecasting
Human Resources
Capacity refers to the ability to meet the demand in terms of resources and the preparedness on the part of the company
Capacity
Supply chain management refers to all the activities that enable the right product at the right place at the right price
Supply Chain Management
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
6
HOME NEXT PREVIOUS
Why Forecasting is Required
Forecasting is required for: Production planning Financial planning Personnel planning Scheduling planning Facilities planning Process design and planning
Forecasting helps to:
Improve employee relations
Improve materials management
Get better use of capital and facilities
Improve customer service
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
7
HOME NEXT PREVIOUS
Cost Implementations of Forecasting
Forecasting requires special efforts and involves inputs from experts which cost a lot to the companies. Well-trained experts and associations substantially invest in human resources and hence charge their clients for the service rendered.
From the above figure, it is understood that to keep the total cost of forecasting to a minimum, it is necessary that the forecasting effort has to be raised up to a level at which certain uncertainty is acceptable and hence, there is preparedness for some possible loss.
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
8
Decision Making using Forecasting
HOME NEXT PREVIOUS
Forecasts are always subject to uncertainty because of the changing environment and hence, any attempt to improve the forecast accuracy only increases the cost but not the accuracy. Keeping this in mind, the managerial decision makers adopt the following rule: Actual decision = Decision assuming forecasting is correct + Allowance for forecast error The error in forecast is calculated by: Forecast error = Actual demand Forecast Demand
The figure depicts the process of forecasting and the associated factors.
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
9
Classification of Forecasting Process
HOME NEXT PREVIOUS
The different forecasting methods based on the context or focus are:
Based on type of
database
Quantitative
Qualitative
Based on forecast
time period
Short range
Medium range
Long range
Based on methodology
Time methods
Casual methods
Predictive methods
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
10
Methods of Forecasting
HOME NEXT PREVIOUS
Time series analysis
Moving averages
Exponential moving averages
Box Jenkins method
Trend projections
Fourier series
Causal methods
Regression analysis
Input output model
Leading indicators
Simulations model
Economic models
Market surveys
Nominal group testing
Historical analysis
Jury of executive opinion
Life cycle analysis
Delphi method
Qualitative methods Quantitative methods
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
11
Quantitative Methods
HOME NEXT PREVIOUS
Quantitative methods include Time series, Nave method, Moving average method, and Exponential smoothing method. A time series is defined as a set of values pertaining to a variable collected at regular intervals. The figure shown below depicts the components of a time series.
Components of a Time Series
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
12
Product Life Cycle
HOME NEXT PREVIOUS
The demand for a product keeps changing as it passes through different stages in its life cycle. The demand starts with zero value and keeps rising as the product moves along the life cycle and gradually diminishes once the product is outdated or obsolete. The figure depicts the product life cycle and volume of demand graphically.
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
13
Selection of Forecasting Method
Because cost, time, and skills are involved, the choice of a forecasting
method is based on several factors. They are:
HOME NEXT PREVIOUS
Form of forecast required
Forecast horizon, period, and interval
Data availability
Accuracy required Behaviour of process
being forecasted
Cost of development, installation, and operation
Case of operation
Management comprehension and cooperation
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
14
Associative Models of Forecasting
HOME NEXT PREVIOUS
Regression and correlation techniques are means of describing the association between two or more variables. Two types of regressions are simple and multiple regression. Regression is also categorised as linear and nonlinear regression based on the severity of relationship and characteristics. The following table shows the examples.
Simple Multiple
Linear Y= a +b x Y=a+bx1+cx2+dx3
Non-linear Y= a+bx2 Y=A+BX1+CX22+DX3
3
The forecasting procedures using regression involves the following steps: 1. The variables are plotted along Cartesian or rectangular coordinates 2. A trend equation is developed 3. The equation is used for forecasting 4. The variables are not necessarily related on a time basis
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
15
Accuracy of Forecasting
HOME NEXT PREVIOUS
Several measures of error in forecast have been developed to examine the issue of error in forecast. Here, we look at two widely used and popular measure applicable to a wide variety of methods. These two measures are:
Mean Absolute Deviation
(MAD)
MAD is often used to measure how closely forecast values are matching the actual data.
MAD = Sum of absolute deviations for n periods / number of periods.
Standard Error (SE) of
estimate
The standard error of estimate measures the variability or scatter of the observed values around the regression line.
The formula for
calculating SE is:
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
16
Summary
Forecasting is the art and science of predicting the future events.
The three activities of forecasting are Human resources, Capacity and
Supply chain management.
Forecasting basically helps to overcome the uncertainty about the
demand and thus provides a workable solution.
Forecasting requires special efforts and involves inputs from experts
which cost a lot to the companies.
Forecasting is broadly classified as quantitative and qualitative.
Qualitative methods include Market survey, Delphi method, Historical
analysis and quantitative methods include Time series analysis and
Causal methods.
The two measures of error in forecast developed to examine the issue of
error in forecast are Mean Absolute Deviation and Standard Error of
Estimate.
HOME NEXT PREVIOUS
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
17
Check Your Learning
1. Name the types of forecasting methods?
Ans: The forecasting methods can be classified into:
Quantitative
Qualitative
2. Why is forecasting required?
Ans: Forecasting is required for:
Production planning
Financial planning
Personnel planning
Scheduling planning
Facilities planning
Process design and planning
HOME NEXT PREVIOUS
C o n f i d e n t i a l
MB0044-Production and Operations Management
Unit-4 Forecasting
18
Assume that you are the sales manager in a company that manufactures cars. Your company wants to manufacture a SUV for the high-end users and has asked you to prepare a report to forecast sales of SUVs for this segment. What are the factors that you will consider to make this report? Which forecast method will be suitable for this purpose?
Activity
HOME PREVIOUS