DEMAND AND

PRODUCTION
PLANNING
 What is Forecasting
Process of predicting a future event
Underlying basis of all business decisions

Production
Inventory
Personnel
Facilities

Forecasting Time Horizons
Short-range forecast
 Up to 1 year, generally less than 3 months
 Purchasing, job scheduling, workforce levels, job assignments, production levels

 Medium-range forecast
 3 months to 3 years
 Sales and production planning, budgeting

 Long-range forecast
 3+ years
 New product planning, facility location, research and development
 Principles Of Forecasting
1- Forecasts are rarely perfect.

2- Forecasts are more accurate for groups or families of

items rather than for individual items.

3- Forecasts are more accurate for shorter than longer time

horizons
 STEPS IN THE FORECASTING
PROCESS
1- Decide what to forecast
2- Evaluate and analyze appropriate data.
3-Select and test the forecasting model
4-Generate the forecast
5- Monitor forecast accuracy.
 Forecasting Approaches
Qualitative forecasting methods
1. Jury of executive opinion
 Pool opinions of high-level experts, sometimes augment by statistical
models
 ‘Group-think’
disadvantage (Top manager can influence others)
2. Delphi method
 Panel of experts, queried iteratively
3. Sales force composite
 Estimates from individual salespersons working with
customers
 Tends to be overly optimistic (Bonuses)
4. Market Research
 Ask the customer
 What consumers say, and what they actually do are often
different
 Survey and interviews
 Quantitative forecasting methods
Time series models
Based on the assumption that a forecast can be generated from the information
contained in a time series of data.
Series of observations taken at regular intervals over a specified period of time.
Causal models
Based on the assumption that the variable being forecast is related to other
variables in the environment.
Sometimes called associative models