Introduction to

Operations Management

Talk 10:
Forecasting
Linh Phuc
Email: tgkhoafmt01@hanu.edu.vn
MSTeam: tgkhoafmt10@hanu.edu.vn
 a. Simple Moving
1. Naive Methods
average

Content 1. Time-series
models
2. Techniques for
Averaging
b. Weighted
moving average

3. Linear trend c. Exponential

A. Quantitative equation smoothing

1. Simple Linear
Regression
2. Associative
models
Forecasting 2. Multiple
techniques Regression
1. Executive
Opinions

2. Salesforce
Opinions
B. Qualitative
3. Consumer
Surveys

4. Delphi method

• Reading material: Chapter 3, Jay Heizer, Barry Render (2020). Operations Management, Sustainability and Supply
chain management, edition 13th. Pearson.

• Case study: P. 185 - 188, Chapter 4, Jay Heizer, Barry Render (2020). Operations Management, Sustainability and
Supply chain management, edition 13th. Pearson.
 a. Simple Moving
1. Naive Methods
A 1. Time-series 2. Techniques for
average

b. Weighted
models Averaging moving average
Assumption:
The future is an
extension of the past
3. Linear trend c. Exponential
Quantitative  Historical data can be equation smoothing
forecasting models used to predict future
demand.
- Use mathematical 1. Simple Linear
techniques
- Based on historical Regression
data
2. Associative
- Use causal models
(explanatory) variables 2. Multiple
Assumption:
- Less accurate as the
One or more factors Regression
forecast’s time horizon
(independent variables)
increases
are related to demand
They can be used to
predict future demand.

3. Forecast
Accuracy
 Trend variations Cyclical variations
- or  movements over many - Wavelike movements that
years are longer than a year
- Reason: factors such as - Reason: macroeconomic
population growth, population and political factors.
shifts, cultural changes, and Time series
income shifts. A time-ordered sequence of
observations taken at regular intervals.
Seasonal variations
- Peaks and valleys that
Random variations
repeat over a consistent
interval such as hours, days, - Reason: force majeure
weeks, months, years, or
seasons.
A.1.1 - Naive Methods
Explanation: the estimate for the next
period is equal to the actual demand for the
immediate past period.
Formula:

where: = forecast for THIS period t

= actual demand for the PREVIOUS period t-1
A.1.2 - Techniques for Averaging
a) Simple Moving Average Forecast
 Explanation: uses historical data to calculate a moving average and
works well when the demand is fairly stable over time.
 Formula:

where: = forecast for THIS period t

= actual demand for period i
n = No. of periods used to calculate moving average
t>n
A.1.2 - Techniques for Averaging
b) Weighted Moving Average Forecast
 Explanation: An n-period weighted moving average forecast is the
weighted moving average of the n-period observations, using unequal
weights.
 Formula:

where: = forecast for THIS period t

= actual demand for period i
= weight assigned to period i; >0;
n = No. of periods used to calculate moving average
t>n
A.1.2 - Techniques for Averaging
c) Exponential Smoothing Forecast
 Explanation: the forecast for the next period’s demand is the current
period’s forecast adjusted by a fraction of the difference between the
current period’s actual demand and forecast.
 Formula:

where: = forecast for THIS period t

= forecast for the PREVIOUS period t-1
= actual demand for the PREVIOUS period t-1
= smoothing constant (0 ≤ ≤ 1)
A.1.3 - Linear trend equation
 Explanation: using simple linear regression (trend line) to fit a line to
a series of data occurring over time.
 Formula: The trend line equation

where: = forecast or dependent variable

t = time variable, also independent variable values
;
y = dependent variable values
n = No. of observations
A.2.1 - Simple Linear Regression

 Explanation: Just like the linear trend model, but the x variable is an
explanatory variable of demand, instead of time.
 Formula: The regression equation

where: = forecast or dependent variable

x = explanatory or independent variable values
;
y = dependent variable values
n = No. of observations
A.2.2 - Multiple Regression

 Explanation: Just like the Simple Linear Regression Forecast, but

instead of 1, there are several explanatory variables.
 Formula: The multiple regression equation

where: = forecast or dependent variable

= kth explanatory or independent variable values
= constant
= regression coefficient of the independent variable
A.3 - Forecast Accuracy
1) Forecast error is the difference between the actual quantity and
the forecast.

where: = forecast error for period t

= actual demand for period t
= forecast for period t

2) Measures of forecasting accuracy (n = No. of errors)

 1. Executive
Opinions
B
2. Salesforce
Opinions
B. Qualitative
3. Consumer
- Based on intuition or
judgmental evaluation Surveys
- Used to develop long-range
projections (current data is not
very reliable), and for new
product introductions (current
data is limited and/or
4. Delphi method
unavailable).
B.1 - Executive Opinion
 Basically a meeting of senior
management executives to forecast the
market
 Apply for: long-range planning and new
product introductions; general demand
forecasting.
 Pros: They are knowledgeable and
experienced in their field, their forecast
will be valuable
 Cons: If one member’s views dominate
the discussion, then the value and
reliability of the outcome can be
diminished.
B.2 - Salesforce Opinions
 Based on the knowledge of
sales team about the market
and estimates of customer
needs.
 Apply for: all kind of projects.
 Pros: The forecast tends to be
reliable because salespeople
are close to customers.
 Cons: Individual biases could
negatively impact the
effectiveness of this approach.
B.3 - Consumer Surveys
• Design a forecasting questionnaire.
1

• Choose the target population.

2

• Carry out the survey through telephone, mail, Internet,

3 or personal interviews.

• Collect and analyze data.

4

• Make forecasts from the results.

5
 B.4 - Delphi Method

Accumulate,
Summarize and Send Announce final result
• Round 1 out results • Round n
• Experts • Round 2 • Experts • Final round
respond • Experts respond • Reach
Accumulate, respond Accumulated, consensus
Summarize and Send Summarize and Sent
out results out

 Apply for: high-risk technology forecasting; large, expensive projects;

or major new product introductions.
 Pros: Group members do not physically meet  avoid the scenario
where one or a few experts could dominate a discussion
 Cons: time-consuming and very expensive
Thank you