FORECASTING

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
 Distinguishing Differences

 Medium/long range forecasts deal with more

comprehensive issues and support
management decisions regarding planning and
products, plants and processes
 Short-term forecasting usually employs
different methodologies than longer-term
forecasting
 Short-term forecasts tend to be more
accurate than longer-term forecasts
 Types of Forecasts
 Economic forecasts
 Address business cycle – inflation rate, money
supply, housing starts, etc.
 Technological forecasts
 Predict rate of technological progress
 Impacts development of new products
 Demand forecasts
 Predict sales of existing products and services
 Seven Steps in Forecasting
 Determine the use of the forecast
 Select the items to be forecasted
 Determine the time horizon of the forecast
 Select the forecasting model(s)
 Gather the data
 Make the forecast
 Validate and implement results
 WHY FORECASTING
There are many circumstances and reason, but forecasting is inevitable in developing
plans to satisfy future demand.
 Most firm cannot wait until orders are actually received before they start to plan
what to produce.
 Customers usually demand delivery in reasonable time, and manufacturers must
anticipate future demand for products or services
 Firms that make standard products need to have saleable goods immediately
available.
 Firms that make-to-order cannot begin making a product before a customer
places, but labor and resources are required to meet demand.
 WHY FORECASTING
Many factors influence the demand for a firm’s products and services. Although it is not
possible to identify all of them, or their effect on demand, it is helpful to consider some
major factors.

 General business and economic condition.

 Competitive factors.
 Market trends such as changing demand.
 The firm’s own plans for advertising, promotion, pricing and product
changes.
 WHAT IS FORECASTING?
Forecasting means “TO PREDICT OR ESTIMATE” ( A FUTURE EVENT OR TREND )

“Forecasting is a technique that uses historical data as input to

make informed estimates that are predictive in determining the
direction of future trends.”
 Manufacturing Planning and Control
Systems

The plan gives general direction about how

the company hopes to achieve these
objectives.
It is based on long range forecast and
includes participation from…….
Marketing
Finance
Production
Engineering
 DEMAND FORECASTING
 Strategic Business Plan
 Its purpose is to provide time to plan for those things that take long to change. For
production, the SBP should provide sufficient time for resource planning, plant
expansion, capital equipment purchase.

 Production Planning
 Production planning is concerned with manufacturing activity for the next one to
three years. For manufacturing, it means forecasting those items needed for
production planning, such as budgets, labor planning, lead time, procurement
items and overall inventory levels.

 Master Production Scheduling

 MPS is concerned with production activity from the present to a few months ahead.
Forecasting are made for individual items, as found on a MPS, individual item
inventory levels, raw materials and components parts, labor planning.
 DEMAND FORECASTING
• A-380 is the largest passenger aircraft.
• 202 planes were ordered, only 29 were
delivered to Air France, Emirates, Qantas.
•A-380 can carry 500 passenger .

• Boeing took a different approach,

importance given was to more efficient fuel
planes that could carry 210 to 310
passengers.
PRODUCTION LEVELING
PRODUCTION LEVELING
SELF TEST
 CHARACTERISTIC OF DEMAND
Demand Patterns
 A pattern is the general shape of a time series. Some individual data
points will not fall exactly on the pattern, they tend to cluster around
it.
 The pattern shows that actual demand varies from period to period.
There are four reasons for this
 Trends ( Rise & Fall or No Change from period to period )
 Seasonality( Demand Fluctuation depend on weather, holiday season
or particular event )
 Random variation ( Number of factors affects demand during specific
period on random basis )
FORECASTING TECHNIQUES
FORECASTING TECHNIQUES
EXAMPLE PROBLEM
EXAMPLE PROBLEM