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OPM Heizer CH04 Forecasting 29112022 103140am 11052023 030736pm
OPM Heizer CH04 Forecasting 29112022 103140am 11052023 030736pm
Management
Chapter 4 -
Forecasting
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
Trend Cyclical
Seasonal Random
Components of Demand
Trend
component
Actual
demand
Average
demand over
Random four years
variation
| | | |
1 2 3 4
Year Figure 4.1
Trend Component
Persistent, overall upward or downward
pattern for a long period of time
Changes due to persistent change in
population demographic, technology, age,
culture, etc over a long time.
Typically several years or decades
duration
Cyclical Component
Repeating up and down movements for more
than a year
Affected by business cycle, political, and
economic factors occurring every few years
Few years duration
Often causal or
associative
relationships
0 5 10 15 20
Seasonal Component
Regular pattern of up and down
fluctuations within a year
Due to weather, customs, etc.
Occurs within a single year
0 5 10 15 20
Random Component
Erratic, unsystematic, fluctuations
Due to random variation or unforeseen
events
Short duration
M T W T F
Naive Approach
Assumes demand in next period is
the same as demand in most
recent period
e.g., If May sales were 48, then June
sales will be 48
Sometimes cost effective and
efficient
Moving Average Method
MA is a series of arithmetic means
Used if little or no trend
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
225 –
Actual a = .5
demand
200 –
Demand
175 –
a = .1
| | | | | | | | |
150 –
1 2 3 4 5 6 7 8 9
Quarter
Exponential Smoothing
Ft = Ft – 1 + a(At – 1 - Ft – 1)
n
∑ 100|actuali - forecasti|/actuali
MAPE = i=1
n
Comparison of Forecast Error
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1 180 175 5 175 5
2 168 176 8 178 10
3 159 175 16 173 14
4 175 173 2 166 9
5 190 173 17 170 20
6 205 175 30 180 25
7 180 178 2 193 13
8 182 178 4 186 4
84 100
Comparison of Forecast Error
∑ |deviations|
Rounded Absolute Rounded Absolute
MADActual
= Forecast Deviation Forecast Deviation
Tonage n
with for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1
For a = .10
180 175 5 175 5
2 168 = 84/8176 = 10.50 8 178 10
3 159 175 16 173 14
4 For a =175
.50 173 2 166 9
5 190 173 17 170 20
6 205 = 100/8
175= 12.50 30 180 25
7 180 178 2 193 13
8 182 178 4 186 4
84 100
Comparison of Forecast Error
∑ (forecast errors) 2
MSE = Actual Rounded
Forecast
Absolute
Deviation
Rounded
Forecast
Absolute
Deviation
Tonage n
with for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1
For a = .10
180 175 5 175 5
2 = 1,558/8176
168 = 194.75 8 178 10
3 159 175 16 173 14
4 For a =175
.50 173 2 166 9
5 190 173 17 170 20
6 = 1,612/8175
205 = 201.50 30 180 25
7 180 178 2 193 13
8 182 178 4 186 4
84 100
MAD 10.50 12.50
Comparison
n
of Forecast Error
∑ 100 |deviationi|/actuali
MAPE = i=1 Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonage with n for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1
For a180
= .10 175 5 175 5
2 168 = 45.62/8
176 = 5.70%
8 178 10
3 159 175 16 173 14
4 For a175
= .50 173 2 166 9
5 190 173 17 170 20
6 205 = 54.8/8
175 = 6.85%
30 180 25
7 180 178 2 193 13
8 182 178 4 186 4
84 100
MAD 10.50 12.50
MSE 194.75 201.50
Comparison of Forecast Error
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1 180 175 5 175 5
2 168 176 8 178 10
3 159 175 16 173 14
4 175 173 2 166 9
5 190 173 17 170 20
6 205 175 30 180 25
7 180 178 2 193 13
8 182 178 4 186 4
84 100
MAD 10.50 12.50
MSE 194.75 201.50
MAPE 5.70% 6.85%
Exponential Smoothing with Trend
Adjustment
When a trend is present, exponential smoothing
is a better way to go
Ft = a(At - 1) + (1 - a)(Ft - 1 + Tt - 1)
Tt = b(Ft - Ft - 1) + (1 - b)Tt - 1
Step 1: Compute Ft
Step 2: Compute Tt
Step 3: Calculate the forecast FITt = Ft + Tt
Exponential Smoothing with Trend
Adjustment Example
Forecast
Actual Smoothed Smoothed Including
Month(t) Demand (At) Forecast, Ft Trend, Tt Trend, FITt
1 12 11 2 13.00
2 17
3 20
4 19
5 24
6 21
7 31
8 28
9 36
10
Table 4.1
Exponential Smoothing with Trend
Adjustment Example
Forecast
Actual Smoothed SmoothedIncluding
Month(t) Demand (At) Forecast, Ft Trend, Tt
Trend, FITt
1 12 11 2 13.00
2 17
3 20
4 19
Step 1: Forecast for Month 2
5 24
6 21
7 31 F2 = aA1 + (1 - a)(F1 + T1)
8 28
9 36 F2 = (.2)(12) + (1 - .2)(11 + 2)
10 = 2.4 + 10.4 = 12.8 units
Table 4.1
Exponential Smoothing with Trend
Adjustment Example
Forecast
Actual Smoothed Smoothed Including
Month(t) Demand (At) Forecast, Ft Trend, Tt
Trend, FITt
1 12 11 2 13.00
2 17 12.80
3 20
4 19
Step 2: Trend for Month 2
5 24
6 21
7 31 T2 = b(F2 - F1) + (1 - b)T1
8 28
9 36 T2 = (.4)(12.8 - 11) + (1 - .4)(2)
10 = .72 + 1.2 = 1.92 units
Table 4.1
Exponential Smoothing with Trend
Adjustment Example
Forecast
Actual Smoothed Smoothed Including
Month(t) Demand (At) Forecast, Ft Trend, Tt Trend, FITt
1 12 11 2 13.00
2 17 12.80 1.92
3 20
4 19
Step 3: Calculate FIT for Month 2
5 24
6 21
7 31 FIT2 = F2 + T1
8 28
9 36
FIT2 = 12.8 + 1.92
10 = 14.72 units
Table 4.1
Exponential Smoothing with Trend
Adjustment Example
Forecast
Actual Smoothed Smoothed Including
Month(t) Demand (At) Forecast, Ft Trend, Tt Trend, FITt
1 12 11 2 13.00
2 17 12.80 1.92 14.72
3 20 15.18 2.10 17.28
4 19 17.82 2.32 20.14
5 24 19.91 2.23 22.14
6 21 22.51 2.38 24.89
7 31 24.11 2.07 26.18
8 28 27.14 2.45 29.59
9 36 29.28 2.32 31.60
10 32.48 2.68 35.16
Table 4.1
Exponential Smoothing with Trend
Adjustment Example
35 –
Actual demand (At)
Product demand 30 –
25 –
20 –
15 –
10 –
Forecast including trend (FITt)
5 –
0 – | | | | | | | | |
1 2 3 4 5 6 7 8 9
Figure 4.3
Time (month)
Trend Projections
Fitting a trend line to historical data points to
project into the medium-to-long-range
Linear trends can be found using the least squares
technique
^
y = a + bx
^ where y = computed value of the
variable to be predicted (dependent
variable)
a = y-axis intercept
b = slope of the regression line
x = the independent variable
Least Squares Method
Deviation5 Deviation6
Deviation3
Deviation4
Deviation1
Deviation2
Trend line, y =^ a + bx
Deviation5 Deviation6
Deviation3
Least squares method minimizes the sum
of the squared errors (deviations)
Deviation4
Deviation1
Deviation2
Trend line, y =^ a + bx
^
y = a + bx
Sxy - nxy
b=
Sx2 - nx2
a = y - bx
Least Squares Example
Time Electrical Power
Year Period (x) Demand x2 xy
1999 1 74 1 74
2000 2 79 4 158
2001 3 80 9 240
2002 4 90 16 360
2003 5 105 25 525
2004 6 142 36 852
2005 7 122 49 854
∑x = 28 ∑y = 692 ∑x2 = 140 ∑xy = 3,063
x=4 y = 98.86
130 –
120 –
110 –
100 –
90 –
80 –
70 –
60 –
50 –
| | | | | | | | |
1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Seasonal Variations In Data
The multiplicative seasonal model can modify
trend data to accommodate seasonal variations in
demand
110 –
100 –
90 –
80 –
70 –
| | | | | | | | | | | |
J F M A M J J A S O N D
Time