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4   Forecasting
Hei!er and "enderHei!er and "ender
#perations $anagement, 10e#perations $anagement, 10e
Principles o% #perations $anagement, &ePrinciples o% #perations $anagement, &e
PowerPoint slides b 'e%% Hel
 
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What is Forecasting? What is Forecasting? 
Process o% predicting a %uture e(ent
)nderling basis o% all business decisions
Production
In(entor
Personnel
*acilities
hort-range %orecast
Purchasing, ob scheduling, wor%orce le(els, ob assignments, production le(els
$edium-range %orecast
/ong-range %orecast
Forecasting Time HorizonsForecasting Time Horizons
 
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Influence ofInfluence of Product Life CycleProduct Life Cycle
Introduction and growth reuire longer %orecasts than maturit and decline
3s product passes through li%e ccle, %orecasts are use%ul in proecting
ta%%ing le(els
 
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Product Life CycleProduct Life Cycle Introduction 5rowth $aturit 6ecline
   #    $
    ,    t  r   a    t  e   g       8   I  s   s   u   e   s
/ittle product di%%erentiation
"educe capacit
*igure 2.7
1.costs are very high 2.slow sales volumes to start 3.little or no competition 4.demand has to be created 5.customers have to be prompted to try the product maes no
mone at this
stage
1.costs reduced due to economies of scale 2.sales volume increases signicantly 3.protability begins to rise 4.public awareness increases 5.competition begins to increase with a few new players in establishing market increased
competition leads
to price decreases
 
TypesTypes of Forecastsof Forecasts
Economic %orecasts
3ddress business ccle in%lation rate, mone suppl, housing starts, etc.
;echnological %orecasts
6emand %orecasts
 
Strategic ImportanceStrategic Importance  of Forecasting of Forecasting 
Human "esources  Hiring, training, laing o%% worers
9apacit  9apacit shortages can result in undependable deli(er, loss o% customers, loss o% maret share
uppl 9hain $anagement  5ood supplier relations and price ad(antages
 
Seven StepsSeven Steps in Forecasting in Forecasting 
1. 6etermine the use o% the %orecast
2. elect the items to be %orecasted
+. 6etermine the time hori!on o% the %orecast
4. elect the %orecasting model>s?
7. 5ather the data
:. $ae the %orecast
=. @alidate and implement results
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Forecasting pproachesForecasting pproaches
)sed when situation is (ague and little data e<ist
ew products
ew technolog
Bualitati(e $ethodsBualitati(e $ethods
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Forecasting pproachesForecasting pproaches
)sed when situation is CstableD and historical data e<ist
E<isting products
Buantitati(e $ethodsBuantitati(e $ethods
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!vervie" of!vervie" of #ualitative $ethods#ualitative $ethods
1. 'ur o% e<ecuti(e opinion
Pool opinions o% high-le(el e<perts, sometimes augment b statistical models
2. 6elphi method
 
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!vervie" of!vervie" of #ualitative $ethods#ualitative $ethods
+. ales %orce composite
4. 9onsumer $aret ur(e
3s the customer 
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In(ol(es small group o% high-le(el e<perts and managers
5roup estimates demand b woring together 
9ombines managerial e<perience with statistical models
"elati(el uic
 
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Sales Force CompositeSales Force Composite
Each salesperson proects his or her sales
9ombined at district and national le(els
ales reps now customersD wants
;ends to be o(erl optimistic
 
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(elphi $ethod (elphi $ethod  Iterati(e group
process, continues until consensus is reached
+ tpes o% participants
"espondents >People who can mae (aluable  udgments?
 
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Consumer $ar)et Survey Consumer $ar)et Survey 
3s customers about purchasing plans
hat consumers sa, and what the actuall do are o%ten di%%erent
ometimes di%%icult to answer 
 
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!vervie" of!vervie" of #uantitative pproaches#uantitative pproaches
1. ai(e approach
2. $o(ing a(erages
+. E<ponential smoothing
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et o% e(enl spaced numerical data
#btained b obser(ing response (ariable at regular time periods
*orecast based onl on past (alues, no other (ariables important
3ssumes that %actors in%luencing past and present will continue in%luence in %uture
Time SeriesTime Series Forecasting Forecasting 
 
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;rend
easonal
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Components of (emand Components of (emand 
   6   e   m   a   n    d    %  o   r   p   r  o    d   u   c    t   o   r   s   e   r  (    i  c   e
F F F F
;rend component
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Persistent, o(erall upward or downward pattern
9hanges due to population, technolog, age, culture, etc.
;picall se(eral ears duration
Trend Trend  Component Component 
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"egular pattern o% up and down %luctuations
6ue to weather, customs, etc.
#ccurs within a single ear
SeasonalSeasonal Component Component 
umber o%  Period /ength easons
 
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"epeating up and down mo(ements
3%%ected b business ccle, political, and economic %actors
$ultiple ears duration
Cyclical Cyclical  Component Component 
 
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Erratic, unsstematic, CresidualD %luctuations
6ue to random (ariation or un%oreseen e(ents
hort duration and nonrepeating
*andom*andom Component Component 
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 ssociative ssociative Forecasting Forecasting 
)sed when changes in one or more independent (ariables can be used to predict
the changes in the dependent (ariable
$ost common techniue is linear  regression analsis
 
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 ssociative ssociative Forecasting Forecasting 
*orecasting an outcome based on predictor (ariables using the least suares techniue
y   a  +' 
where y  computed (alue o% the (ariable to be predicted >dependent (ariable?
a y -a<is intercept
+ slope o% the regression line

 
 
Forecasting at (isney World Forecasting at (isney World 
5lobal port%olio includes pars in Hong Jong, Paris, ;oo, #rlando, and 3naheim
"e(enues are deri(ed %rom people how man (isitors and how the spend their mone
 
 
Forecasting at (isney World Forecasting at (isney World 
6isne generates dail, weel, monthl, annual, and 7-ear %orecasts
*orecast used b labor management, maintenance, operations, %inance, and par scheduling
 
 
Economic model includes gross domestic product, cross-e<change rates, arri(als into the )3
 
 
Inputs to the %orecasting model include airline specials, *ederal "eser(e policies, all treet trends, (acation8holida schedules %or +,000 school districts around the world
3(erage %orecast error %or the 7-ear %orecast is 7K