Forecasting

and
Demand
Planning
All these forecasts are incorporated
into a labor demand planning
system that matches staffing
schedules with anticipated demand.
 Forecasting is the process of
projecting the values of one or
more variables into the future.
Many firms integrate forecasting
with value chain and capacity
management systems to make
better operational decisions.
FORECASTING
AND DEMAND
PLANNING
Organizations
make many
different types
of forecasts.
5
❑Top managers need long-range forecasts expressed in
total sales dollars for use in financing planning and for
sizing and locating new facilities.
❑Lower organizational levels, however, managers of
the various product groups need aggregate forecasts of
sales volume for their products in units that are more
meaningful to them.
❑Managers of individual manufacturing facilities
need forecasts by brand and size to plan material usage
and production schedules.
BASIC
CONCEPTS OF
FORECASTING
It is important to
understand some
basic concepts that
are used in
forecasting model
development.
8
Forecasting Planning Horizon

Long-range
Immediate-range
Short-range
The time bucket is the unit of
measure for the time period
used in a forecast.
 Selecting the right planning
horizon length and time bucket
size for the right situation is an
important part of forecasting.
 Data Patterns in Time Series

Statistical methods of
forecasting are based on the
analysis of historical data,
called TIME SERIES.
 Data Patterns in Time Series

❑Trend
❑Seasonal
❑Cyclical
❑Random variation (irregular)
Various Trend Patterns
Seasonal
 Forecast Errors and Accuracy
All forecasts are subject to error, and
understanding the nature and size of errors is
important to making good decisions.

Forecast error is the difference between the

observed value of the time series and the forecast.
 Steps in 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.
Types of Forecasting Method
Techniques of Forecasting
1.Judgmental forecasts
2.Time-series forecasts
3.Associative models
Types of Qualitative Forecast

❑ Executive Opinions
❑ Salesforce Opinions
❑ Consumer Surveys
❑ Delphi Method
Time Series
Simple Mean
Simple Moving Average
Weighted Moving Average
Associate Forecasting Technique
 SELECTING THE RIGHT
FORECASTING MODEL

•Amount and type of available data

•Degree of accuracy required
•Length of forecast horizon
•Data patterns present
FORECASTING
IN PRACTICE
Managers use a
variety of judgmental
and quantitative
forecasting
techniques.

28
 Many managers begin with
statistical forecasts and then
combine them, either objectively
by averaging or in a subjective
manner.
 Poor forecasting can result in poor
inventory and staffing decisions,
resulting in part shortages, inadequate
customer service, and many customer
complaints.