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RES342 / RES 342 / WEEK FIVE 5 DISCUSSION QUESTIONS PART 1 OF 3
What is the purpose of forecasting? Why are forecasts not always correct? Wha...
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Unit 2Management of Conversion SystemChapter 3: ForecastingLesson 5
:
Forecasting Models
Learning Objectives
The role of Time in forecasting
Types of forecasting
Quantitative versus Qualitative Methods of forecastingHello students, today we will discuss a very interesting topic – forecasting.What comes to your mind when you think of the term forecasting? ……Everyday a shop owner thinks how many items he would be able to sell.The florist at the roadside keeps flower thinking in mind how much he would be able tosell by the end of the evening.Here they are applying forecasting- albeit on a miniscule scale.But let us probe further.
What is Forecasting?
Well, friends as we all know a very critical aspect of managing any organization is the planning for the future. Hence, Forecasting is the art and science of predicting futureevents. Forecasts are required throughout an organization and at all levels of decisionmaking in order to plan for the future and make effective decisions. The principal use of forecasts in operations management is in predicting the demand for manufactured products and services for time horizons ranging from several years down to 1 day.Depending on the planning horizon, forecasting can be classified in three ways:
Short – range forecasting(up to 1 year)
Medium – range forecasting(up to 3 years)
Long – range forecasting(more than 3 years)Ok. Then. So far, so good. Now let us explore further. Now, who’s going to tell me about the various types of forecasts? No, Come on.How about a forecast of today’s weather?You see light. Excellent.We march ahead then.
Types of forecasts
In general, a contemporary business organization employs three distinct types of forecasts.These are given under:1. Economic forecasts2. Technological forecasts3. Demand forecasts
Economic forecasts
address the business cycle by predicting inflation rates, moneysupplies, housing starts, and other planning indicators.
Technological forecasts
are concerned with rates of technological progress, which canresult in the birth of exciting new products, requiring new plants and equipment.
Demand forecasts
are projections of demand for a company’s products or services.These forecasts, also called sales forecasts, drive a company’s production, capacity, andscheduling systems and serve as inputs to financial, marketing, and personnel planning.
What is the strategic importance of forecasting?
Forecasting plays a very important role in the following areas:
Human resource management(- hiring, training and laying-off workers all depend on anticipated demand.)
Capacity planning(– when capacity is inadequate, the resulting shortages can mean undependabledelivery, loss of customers, and loss of market share.)
Supply – chain management(– good supplier relations and the ensuing price advantages for materials and partsdepend on accurate forecasts.)Dear students, now that we have a clear idea of forecasting and its significance, let us tryto focus on the different facets of forecasting.Facilityandcapacity planningPersonnelhiringProductionschedulesTransportationlogisticsMaterial planningPersonnelschedulesDemandForecast
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