Midlands State University Faculty of Commerce

Department of Business Management

Name. Reg No. Level. Programme.

Chapanda Kudakwashe Gracious R0645087 4.2 (PDP) Business Management

BM403 Assignment Question. FORECASTING TECHNIQUES Due date. 8 March 201

I went to United Panel Beaters located in Gweru light industry. The company offers panel beating services, that is their job is to repair damage to the bodywork of vehicles. From the researches that I did with the company I discovered that the company did some forecasting in trying to predict their future demand. Heizer and Render (1991) defined forecasting as the art and science of predicting future events. Forecasting techniques used by united panel beaters. The United Panel Beaters in Gweru uses a naïve approach to forecast their future demand. This is the simplest method of forecasting and it assume that demand in the next period is just equal to demand in the most recent period. For example if the company had 23 jobs this week their forecast will be also 23 jobs for next week. The forecasted and actual demand for the company Forecasted demand (jobs) Monday Tuesday Wednesday Thursday Friday Saturday Total 5 4 4 4 6 8 31 Actual demand from 1 to 6 March 2009 (jobs) 3 4 3 2 5 6 23

As from the table above the forecasted demand for the week (31jobs) was mainly based on what had happened the previous week. However there was a great variance between the actual demand and forecasted demand that is (23-31=-8). Analysis of the naïve approach The naïve approach is the most cost-effective and efficient objective forecasting model. It at least provides a starting point against which the more sophisticated models can be compared. The main advantages of this forecasting technique are: • It produces rapid results this helps the management to have a rough idea of how many spare parts they should buy to meet the demand. This also allows the management to employ enough people to meet the demand.

The technique can easily accommodate frequent updates. Considering that we have a very unstable economic environments, so many changes are taking place leading to some fluctuations in demand. So using more recent data seem to be more beneficial than historical data.

Another advantage of this method is that it is very inexpensive to implement and maintain. No computer nor quantitative capabilities are required hence the company need not to employ expensive workers adding to the costs of their services.

Disadvantages of the technique • The approach often provides a limited practical level of accuracy. It does not take into consideration other factors that may affect demand such as liquidity issues, holidays, politics, economy and factors. Currently it can be noted that people in Zimbabwe are experiencing liquidity problems. This means the demand for car repair services are very low. The company must also consider the issue of holidays when many people will be traveling and the likelihood of accidents. Judgmental technique The company also use judgmental technique to forecast their demand. This method takes the opinion of small group of high level managers. There are normally individuals or groups within the organization whose judgment and opinions regarding the future are as valid or more valid than those of outside experts. Top managers are the key group involved in the development of forecasts for strategic plans. They are generally most familiar with their firms’ own capabilities and resources. The main disadvantage of this method is that the view of one manager perhaps the most senior executive can bias the entire jury. Forecasting demand for united panel beaters using other quantitative methods Moving average Moving averages are useful if we can assume that market demands will stay fairly steady over time. The simple moving average method uses several demand values during the

recent past to develop a forecast. This tend to smooth out the random increases and decreases of a forecast that uses only one period. Forecasting using two-day and three-day averages Actual Forecast for 8-13 demand 1-6 March (jobs) 2March (jobs) day moving average 3 4 (3+4)/2 = 3.5 3 (4+3)/2 = 3.5 2 (3+2)/2 = 2.5 5 (2+5)/2 = 3.5 6 (5+6)/2 = 5.5 23 Forecast for 8-13 March (jobs) 3day moving average (3+4+3)/3 = 3.3 (4+3+2)/3 = 3 (3+2+5)/3 = 3.3 (2+5+6)/3 = 4.7

Monday Tuesday Wednesday Thursday Friday Saturday Total Exponential smoothing

Exponential smoothing is one of the most popular and frequently used forecasting technique. Exponential smoothing requires minimal data. Only the forecast for the current period, the actual demand for the current period and a weighting factor called smoothing constant are necessary. A smoothing constant is the weighting factor given to the most recent data in exponential smoothing forecasts. The basic exponential smoothing formula can be shown as follows: New forecast = last period’s forecast + smoothing constant (last period actual demand – last period forecast) Forecast using exponential approach (0.3 and 0.5 constant) Forecasted Actual Forecasted demand for demand 1-6 demand for 1-6 1-6 March march (jobs) March 0.3 constant Monday 5 3 5+0.3(3-5) = 4.4 Tuesday 4 4 4+0.3(4-4) = 4 Wednesday 4 3 4+0.3(3-4) = 3.7 Thursday 4 2 4+0.3(2-4) = 3.4 Friday 6 5 6+0.3(5-6) = 5.7 Saturday 8 6 8+0.3(6-8) = 7.4 Total 23 28.6 Forecasted demand 1-6 March 0.5 constant 5+0.5(3-5) = 4 4+0.5(4-4) = 4 4+0.5(3-4) = 3.5 4+0.5(2-4) = 3 6+0.5(5-6) = 5 8+0.5(6-8) = 7 26.5

Qualitative methods Delphi method This method is a group process that allows experts, who may be located in different places, to make forecasts. It is more structured and time consuming and requires the involvement of a larger number of people than the judgmental technique. The Delphi method is a procedure for acquiring informed judgments and opinions from knowledgeable individuals using a series of questionnaires to develop a consensus forecast about what will occur in the future. Advantages If used effectively the method eliminates the problem of senior management biases. Disadvantages The technique is more structured and time consuming. The environment which the companies are operating currently is very unstable so we need a method that is quick to respond to changes in the market. Consumer market survey This method solicits input from consumers regarding their future purchasing plans. A survey may be conducted by sales or market research representatives polling clients by mailing questionnaires, telephone conducts, or by personal interviews. Advantages This method is very reliable since the questionnaires will be filled by the potential customers. It is the demand that we want to forecast so we should include the customers in our forecasting. Disadvantages Not only is the method time-consuming, expensive, and difficult to prepare for, but the results may end up being unreliable and subject to consumer change of heart.

Sign up to vote on this title
UsefulNot useful