FORECASTING. “All forecasts are wrong. The best we can hope for is to reduce the amount of error .” Unknown. If Forecasts are usually wrong, why bother?. To reduce the uncertainty in our decision making. Forecasts aid us in planning. They allow us to plan for contingencies.
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“All forecasts are wrong. The best we can hope for is to reduce the amount of error.” Unknown
…for capacity planning.
(Effective capacity, capacity cushion, etc.)
…for production scheduling.
(Lot sizes, aggregate planning, etc.)
…to plan inventory needs.
(Order quantities, safety stock, etc.)
…to better match supply and demand.
Most operations forecasting is time-series. (Historic data is correlated with time.)
There are five basic patterns of most time series.
If the data has a pattern, you can select an appropriate forecasting model.
Sales history by month.
If the data has no pattern, you cannot do forecasting!
Sales history by month.Rules for Time-Series Forecasting
“Few companies err by more than five percent when forecasting total demand for all of their products. However, errors in forecasts for individual items may be much higher.”What does this tell you?
* You will need to know how to do these.
Short Term: (Up to three months)
Medium Term (3 months–2 years)
(3 months–2 yrs)
(over 2 years)
• Individual products or services
• Total sales
• Groups of products or services
• Total sales
• Inventory Mgt.
• Final assembly scheduling
• Workforce scheduling
• Master Prod. scheduling
• Staff planning
• Production planning
• Aggregate Prod. scheduling
• Facility location
• Capacity planning
• Process management
• Time series• Causal
The moving average method involves the use of as many periods of past demand as desired or deemed appropriate. The stability of the demand series generally determines how many periods.
This is a 4-period moving average.
22 becomes the forecast for week #5 23.25becomes the forecast for week #6.
6-week moving average forecast
Actual Data Historic Data
WeekComparison of 3- and 6-Week Moving Average Forecasts
A longer averaging period soothes the fluctuations.
n= 4 periods for the average
Averages are rounded to the nearest whole numbers.
This process is called FOCUS FORECASTING.
(You do have to remember this.)
Update historic data
Prepare Initial ForecastsForecasting As a Process
The forecast process itself, typically done on a monthly basis, consists of structured steps. They often are facilitated by someone who might be called a demand manager, forecast analyst, or demand/supply planner.
It is not simply a matter of running a computer model!
Review by Operating Committee5
Finalize and Communicate6