( BME-1 )

Forecasting Demand

Topic 4
Learning Objectives
01 Define what is forecasting.

02 Understand the three-time horizons and

which models apply for each.

03 Explain when to use each of the four

qualitative models.

Explain when to use each of the four

04 qualitative models.
INTRODUCTION
 Good forecast are an essential part of efficient service and
manufacturing operations. In this module, we will examine
the different types of forecasts and present a variety of
forecasting models. Its purpose is to show that there are may
ways for manager to forecast.
DISCUSSION
What is Forecasting?
 Forecasting is the art and science of predicting future
events. It may involve taking historical data and projecting
them into the future with some sort of mathematical model
and it can either be a subjective or intuitive prediction. Or it
may involve a combination of these-that is, a mathematical
model adjusted by a manager’s good judgement.
 2. Medium-range forecast
Forecasting Time Spans from 3 months to 3
years. Useful in sales

Horizons planning, production

planning, and budgeting,
cash budgeting and
analysis of various
operating plans.

1.Short-Range Forecast
Has a span of up to one 3. Long-range forecast
year but less than 3 Takes 3 years or more in
months. Used for time span. Used in planning
planning, job scheduling, for new products, capital
workforce levels, job expenditures, facility
assignments and location or expansion &
production levels. research and development.
A forecast is usually classified by the future time horizon that it covers, and can be categorized as:
Features that Distinguished
Short-term from Medium &
2. Employs Different
Long-range Forecast Methodologies

3. Tend to be More
1.Deal with More
Accurate
Comprehensive issues
Influence of Product Life Cycle in
Forecasting
 Another factor in developing
sales forecast is the PLC.
 Products and even services
sell at a constant level
throughout their lives. Most
successful products pass
through (1) introduction, (2)
growth, (3) maturity and (4)
decline stage.
Influence of Product Life Cycle in
Forecasting
 Products in the first two
stages of the life cycle need
longer forecast than those in
the maturity and decline
stages.
 Forecast that reflect life cycle
are used in projecting different
staffing levels, inventory and
factory capacity as the
product passes from the first
to the last stage.
 2. Technological Forecasts
Concerned with rates of
Types of Forecasts technological progress, which
can result in the birth of
exciting new products,
requiring new plants and
equipment.

1.Economic Forecasts 3. Demand Forecasts

Address the business Projections of demand for
cycle by predicting company’s products or
inflation rates, money services. It drives a company’s
supplies, housing starts production, capacity and
and other planning scheduling systems and serves
indicators. as inputs to financial
marketing and personal
planning.
Organizations use these three major types of forecast in planning future operations.
Strategic Importance of
Forecasting
 Good forecasts are critical in all aspects of the business.
The forecast is the only estimate of demand until actual
demand is known.
 Impact of Product Demand
2. Capacity
When capacity is inadequate,
the resulting shortages can
lead to loss of customers and
a market share.
3. Supply-Chain Management
Good supplier relations and the
ensuing price advantages for
materials and parts depend on
1. Hunan Resources accurate forecast.
Hiring, training and laying off workers all depend
on anticipated demand. If the HRD must hire
additional workforce without warning, the amount
of training declines and the quality of workforce
suffers.
Steps in the Forecasting
System
 Forecasting follows the seven basic steps. These seven
steps present a systematic way of initiating, designing and
implementing a forecasting system. When the system is to
used to generate forecast regularly over time, data must be
routinely collected.
 Steps in Forecasting System

4. Select the forecasting

model (s)
3. Determine the time-
horizon of the forecast.

2. Select the items to be

forecasted.

1. Determine the use of

forecast.
 Steps in Forecasting System

7. Validate and
implement the results.

6. Make the forecast.

5. Gather the data

needed to make the
forecast.
Forecasting Approaches
 There are two general approaches to forecasting. One is
quantitative analysis and the other is qualitative approach.
Quantitative forecast use a variety of mathematical models
that rely on historical data and/or associative variables to
forecast demand. Qualitative forecast incorporate such
factors as the decision maker’s intuition, emotions, personal
experiences and value system in reaching a forecasts. In
practice, a combination of the two is usually effective .
Overview of Qualitative Methods
Jury of Executive Opinion
 Under this method, the opinions of a group of high-
level experts or managers, often in combination
with statistical models, are pooled to arrive at a
group estimate of demand.

Delphi Method
 There are 3 different participants in this method
namely decision makers, staff personnel and
respondents.
 Decision makers usually consist of a group of 5-10
experts who will be making the actual forecast.
 Staff personnel assist decision makers by
preparing, distributing, collecting and summarizing
a series of questionnaires and survey results.
 Respondents are a group of people, often located in
different places, whose judgements are valued.
Overview of Qualitative Methods
Sales Force Composite

 A forecasting technique based on salesperson’s

estimates of expected sales. These forecast are
reviewed to ensure that they are realistic.

Consumer Market Survey

 A forecasting method that solicits input from

customers or potential customers regarding future
purchasing plans.
 It can help not only in preparing a forecast but also
on improving product design and planning for a
new product.
Overview of Quantitative Methods
Naive Approach-Time Series Model

 A forecasting technique which assumes that

demand in the next period is equal to demand in
the most recent period.

Moving Average-Time Series Model

 A forecasting method that uses an average of the

“n” most recent periods of data to forecast the next
period.
Overview of Quantitative Methods

Exponential Smoothing-Time Series Model

 A forecasting technique based on salesperson’s

estimates of expected sales. These forecast are
reviewed to ensure that they are realistic.

Trend Projection-Time Series Model

 A time-series forecasting method that fits a trend

line to a series of historical data points and then
projects the line into the future for forecasts.
Overview of Quantitative Methods

Linear Regression-Associative Model

 A straight-line mathematical model to describe the

functional relationships between independent and
dependent variables.
Monitoring & Controlling
Forecasts
 Once a forecast has been completed, it should not be
forgotten. No manager wants to be reminded that his/her
forecast is inaccurate, but a firm needs to determine why
actual demand differed significantly from that project.
 Monitoring & Controlling Forecasts
2. Bias 3. Adaptive Smoothing
A forecast that is consistently An approach to exponential
higher or consistently lower smoothing forecasting in
than actual values of a time which the smoothing
series. constant is automatically
changed to keep errors to a
minimum.

1. Tracking Signal 4. Focus Forecasting

A measurement of how well a Forecasting that tries a variety of
forecast is predicting actual computer models and selects the
values best one for a particular
application..
Forecasting in the Service
Sector
 Forecasting in the service sector presents some unusual
challenges. A major technique in the retail sector is tracking
demand by maintaining good short-term records.
 Service Sector Forecasting
Fast-Food Restaurants

Fast food restaurants are

Specialty Retails Shops
well aware not only of weekly,
daily, and hourly but even 15-
Specialty retails facilities
minite variations in demand
such as flower shops, may
that influence sales, therefore
have other unusual demand
detailed forecast of demand are
patterns and those patterns
needed.
will differ depending on the
holiday.
 ASSESSMENT
(PERFORMANCE TASK)
For BSHM
Goal Forecasts the number of consumers in your business

Role Operations Manager

Audience General Manager

Situation Siam Hotel will has expanded operations in Ozamiz City. The
Hotel General Manager ask you to prepare a forecast by using
any of the qualitative methods on the number of consumers who
will patronize your business. You are task to create a forecast
report.
Product Forecast Report

Standards Your work will be judge according to the appropriateness of your

forecast report based on the qualitative methods on your
business enterprise.
For BSTM
Goal Forecast the number of travelers.

Role Operations Manager

Audience Travel & Tour Manager

Situation ZAHRA Travel and Tour has expanded operations in Ozamiz

City. The Travel & Tour Manager ask you to prepare a forecast
by using any of the qualitative methods on the number of
travelers who will patronize your business. You are task to
create a forecast report.
Product Forecast Report

Standards Your work will be judge according to the appropriateness of your

forecast report based on the qualitative methods on your
business enterprise.
REFLECTION
A skeptical manager asks you what
medium-range forecast can be used
for. Give your insights to him.
Rubric for Performance Tasks

Content 30 points
Creativity 20 points
Relevance to the idea/topic 20 points