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Demand Forecasting PDF
Demand Forecasting PDF
Definition.
․ An estimate of future demand.
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Demand Forecasting.
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Why Forecast ?
․ To plan for the future by reducing uncertainty.
․ To anticipate and manage change.
․ To increase communication and integration of planning teams.
․ To anticipate inventory and capacity demands and manage lead times.
․ To project costs of operations into budgeting processes.
․ To improve competitiveness and productivity through decreased
costs and improved delivery and responsiveness to customer
needs.
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Demand Forecasting.
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5. Collect data for input to forecasting models and test models for forecast
accuracy.
8. Report forecast accuracy and determine the root cause for variance
between forecast and actual data. Periodically assess the forecast system
for performance, so that changes can be made to the forecasting
approach where necessary.
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Demand Forecasting.
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Demand Forecasting.
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Demand Forecasting.
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■ Causal Forecasting.
․ Causal forecasting assumes that demand is related to some underlying factor for
factors in the environment. Causal forecasting methods develop forecasts after
establishing and measuring an association between the dependent variable and
one or more independent variables.
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Qualitative Forecasting Methods.
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․ Panel Consensus. In a panel consensus, the idea that two heads are better
than one is extrapolated to the idea that a panel of people from a variety of
positions can develop a more reliable forecast that a narrow group. Panel
forecasts are developed through open meetings with free exchange of idea from
all levels of management and individuals.
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Qualitative Forecasting Methods.
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․ Delphi Method. The Delphi method conceals the identity of the individuals
participating in the forecasting. Everyone has the same weight. Procedurally, a
moderate creates a questionnaire and distributes it to participants. Their
response are summed and given back to the entire group along with a new set
of questions.
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Quantitative Forecasting Methods.
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Quantitative Forecasting Methods.
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․ y i = a + bx i + e i
n n n
․ b =
n ∑ x iy i - ∑ x i
i=1 (
)( ∑ y )
i=1 i=1
2
i
=
S xy
n n S xx
n ∑ x -( ∑ x )
2
i i
i=1 i=1
n n
∑ y i - b i∑
i=1 =1
xi
․ a = = y-bx
n
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Quantitative Forecasting Methods.
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․ Example.
Demand over the past three months has been 120, 135, and
114 units. Using a three-moving average, calculate the forecast for the
fourth month.
120 + 135 + 114 369
Forecast for month 4 = = = 123
3 3
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Quantitative Forecasting Methods.
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Weighted Moving Average.
․ Whereas the simple moving average gives equal weight to each component of
moving average database, a weighted moving average allows any weights to be
placed on each element, providing, of course, that the sum of all weights
equals 1.
F t = w 1A t - 1 + w 2A t - 2 + ..... +w nA t - n
where w i = Weight to be given to the actual occurrence for the period t-n
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Exponential Smoothing.
․ A type of weighted moving average forecasting techniques in which past
observations are geometrically discounted according to their age. The heaviest
weight is assigned to the most recent data.
Ft = α A t-1 + ( 1 - α) F t-1
α = Smoothing factor. (0 ≤ α ≤ 1)
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Exponential Smoothing.
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Exponential Smoothing.
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Trend Effects in Exponential Smoothing.
․ An upward or downward trend in data collected over a sequence of time periods
causes the exponential forecast to always lad behind (be above or below) the
actual occurrence.
․ To correct the trend, smoothing constant delta ( δ ) can be used. The delta
reduces the impact of the error that occurs between the actual and the forecast.
FIT t = F t + T t
F t = FIT t - 1 + α( A t - 1 - FIT t - 1 )
T t = T t - 1 + δ ( F t - FIT t - 1 )
where T t = The exponential smoothed trend for period t.
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Trend Effects in Exponential Smoothing.
Sol)
FIT t - 1 = F t - 1 +T t - 1 = 100 +10 = 110
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Quantitative Forecasting Methods.
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Quantitative Techniques.
■ Quantitative Methods : Box and Jenkins Methods.
․ A forecasting approach based on regression and moving average models, where
the model is based not regression of independent variables, but on past
observation of the item to be forecast, at varying time lags, and on previous
error values from forecasting.
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Quantitative Forecasting Methods.
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Seasonality.
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Seasonality.
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Causal Relationship of Forecasting.
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Forecasting Management.
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Forecasting Management.
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∑( A t - F t )
Bias =
n
∑ ∣A t - F t∣
MAD = or MAD t = MAD t - 1 + α∣A t - F t∣
n
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Forecasting Management.
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2. Which of the following statements is TRUE about the integration of planning systems
and the level of forecast accuracy ?
A. They are independent.
B. The planning system should include information on the level of forecast accuracy.
C. Forecast accuracy is implied in the planning process system.
D. Once the data are input into the planning system they do not change.
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Performance Check.
3. Which of the following is MOST directly affected by forecast inaccuracy ?
A. Capacity. B. Quality. C. Budget. D. Planning.
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Performance Check.
6. Which of the following depend on external conditions affecting on demand ?
A. Sales promotions. B. Product life cycle.
C. Economic cycle. D. Product price policy.
7. Given the following information, calculate the new forecast for Product A using
exponential smoothing.
․ Alpha factor - 0.7
․ Actual Demand - 600.
․ Old Forecast - 562.
․ Seasonal Index - 2.1
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Performance Check.
8. Which of the following is the BEST statement about the general principles of
forecasting ?
A. Forecasting are more accurate for individual items than for groups of items.
B. Forecasting are more accurate for distant periods of time.
C. Every forecast should include an estimate of error.
D. Forecasts are usually accurate.
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Performance Check.
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Performance Check.
Solutions.
1 2 3 4 5 6 7 8 9 10
C B D A A C D C B D
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