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PowerPoint presentation to accompany
Heizer, Render, Munson
Operations Management, Thirteenth Edition
Principles of Operations Management, Eleventh Edition
Trend Cyclical
Seasonal Random
Seasonal peaks
Actual demand
line
Average demand
over 4 years
Random variation
| | | |
1 2 3 4
Time (years)
Figure 4.1
0 5 10 15 20
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Random Component
► Erratic, unsystematic, ‘residual’
fluctuations
► Due to random variation or unforeseen
events
► Short duration
and nonrepeating
M T W T
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Example
MONTH ACTUAL SHED SALES
January 10
February 12
March 13
April 16
May 19
June 23
July 26
August 30
September 28
October 18
November 16
December ?
Weighted
moving
average
30 –
25 –
Sales demand
20 –
Actual sales
15 –
Moving average
10 –
(from Example 1)
5–
| | | | | | | | | | | |
J F M A M J J A S O N D
Figure 4.2 Month
Ft = a At – 1 + (1– a) Ft – 1)
WEIGHT ASSIGNED TO
MOST 2ND MOST 3RD MOST 4th MOST 5th MOST
RECENT RECENT RECENT RECENT RECENT
SMOOTHING PERIOD PERIOD PERIOD PERIOD PERIOD
CONSTANT (a ) a (1 – a ) a (1 – a )2 a (1 – a )3 a (1 – a )4
a = .1 .1 .09 .081 .073 .066
225 –
Actual a = .5
demand
200 –
Demand
175 –
a = .1
| | | | | | | | |
150 –
1 2 3 4 5 6 7 8 9
Quarter
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Impact of Different
225 –
Actual a = .5
► Choose high of values
demand
when
200 – underlying average
Demand
is likely to change
► Choose low values of
175 –
when underlying average a = .1
is stable
| | | | | | | | |
150 –
1 2 3 4 5 6 7 8 9
Quarter
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Selecting the Smoothing
Constant
The objective is to obtain the most
accurate forecast no matter the
technique
We generally do this by selecting the
model that gives us the lowest forecast
error according to one of three preferred
measures:
► Mean Absolute Deviation (MAD)
► Mean Squared Error (MSE)
► Mean Absolute Percent Error (MAPE)
Σ|Deviations|
MAD = 10.31 12.33
n
1 12 6 21
2 17 7 31
3 20 8 28
4 19 9 36
5 24 10 ?
a = .2 b = .4
25 –
20 –
15 –
10 – Forecast including trend (FITt)
5 – with = .2 and = .4
0 –
| | | | | | | | |
1 2 3 4 5 6 7 8 9
Time (months)
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