28 Questions
What is the primary purpose of a production forecast?
To estimate the level of demand for a product
What is the main challenge in forecasting for a new product?
Lack of past information
What is the purpose of a direct survey method in forecasting?
To gather information from customers about their purchasing intentions
What is the indirect survey method used for in forecasting?
To gather information about customer attitudes and behavior
What is the purpose of comparing with an established product in forecasting?
To estimate the sales of a new product by comparing it with a similar established product
What is the limited market trial method used for in forecasting?
To test the product acceptance of a new product in a limited market
What is the related information method used for in forecasting?
To predict future sales based on an index that directly varies with the sales volume
What is the primary benefit of production forecasting?
To improve production planning and decision-making
What is the primary objective of market research in forecasting future demands?
To identify changing socio-economic pressures and their impact on product demand
What is the basis of the sales force composite method of forecasting future demands?
Subjective opinions of marketing and sales personnel
What is the primary limitation of the jury of executive opinion method?
It is not a scientific method
What is the primary focus of time series analysis in forecasting?
Identifying long-term trends and patterns
What is the primary advantage of the projection method of forecasting?
It is based on historical data and objective analysis
What is the term for the long-term movement of a time series, reflecting continuous growth, stagnation, or decline?
Secular trend
What is the primary method of estimating trends in statistical forecasting?
Method of averages
What is the primary consideration when using statistical methods in forecasting?
The modification of predictions based on future events
What is the primary approach to statistical forecasting?
Analyzing historical data to identify trends and patterns
What is the primary advantage of statistical methods in forecasting?
They are the most accurate method of forecasting
What is the primary objective of evaluating the expected error in a statistical technique?
To measure the accuracy of the forecast
What is the assumption made in the level demand with random variation example?
The cause system is unchanged and unchanging during the period studied
What is the advantage of using a moving average forecaster in certain cases?
It eliminates periodic fluctuations in the data
What is the disadvantage of using a moving average forecaster when the trend is non-linear?
It tends to lag behind the trend
What is the purpose of controlling the forecast of Ex.1 by Moving Range Chart?
To take action relative to the forecaster or the demand
What is the condition for establishing the validity of d1- 99 as a forecaster for Ex.1?
All conditions of the control chart are satisfied
What is the action that should be taken when an out-of-control condition is observed in the Moving Range Chart?
Revise the forecaster including new cause system
What is the characteristic of a stable cause system?
The control chart indicates stability
What is the advantage of using the Exponential Smoothing Method?
It is a simple method that requires minimal data
What is the purpose of using a control chart in forecasting?
To monitor the forecast and take action when necessary
Study Notes
Production Forecasting
- Forecasting is an estimate of the level of demand for a product over a certain period of time in the future.
- A forecast should cover a time period at least as long as the period of time required to make a decision and to put that decision into effect.
Purposes of Forecasting
- Determine the necessity for and the size of plant expansion (Facility Forecast).
- Determine intermediate planning for existing products to be manufactured with existing facilities.
- Determine short-time scheduling of existing products to be manufactured on existing equipment (Product Forecast).
Forecasting for a New Product
- Difficult task as no past information is available to predict the future.
- Methods:
- Direct Survey method: approach a representative sample of customers to predict future demand.
- Indirect Survey method: predict customer attitude and behavior through salesmen, agents, wholesalers, retailers, etc.
- Comparing with Established Product: compare sales figures with an existing similar product.
- Limited Market Trial: test the product in a limited market to gauge acceptance.
Forecasting for an Established Product
- Methods:
- Related Information method: find an index that directly varies with sales volume (e.g., birth rate for baby food sales).
- Market Research: analyze marketing forces, socio-economic pressures, and changing patterns to predict future demand.
- Sales Force Composite method: gather opinions from salespeople to estimate future sales.
- Jury of Executive Opinion method: gather opinions from experts on future sales.
- Projection Method: project future sales based on historical data using time series analysis or correlation and regression analysis.
Time Series Analysis
- A time series is a chronological data with a dependent variable (e.g., sales, production figures) and an independent variable (unit of time).
- Components of a time series:
- Long period changes (Trend)
- Short period changes (Seasonal, Cyclic, Irregular)
- Methods of Estimating Trends:
- Methods of Inspection or Freehand methods
- Methods of Averages:
- Selected point method
- Semi-avg.method
- Moving Avg.methods
- Statistical methods
Statistical Methods
- General Approach to Statistical Forecasting:
- Plot demand versus time.
- Determine which statistical technique to use.
- Evaluate the expected error.
- Decide whether to use the technique or find a better one.
Moving Average Forecaster
- A moving average can be used as a forecaster to eliminate periodic fluctuations in a time series.
- Advantages:
- Gives a good picture of general long-term movement in data.
- No personal prejudice or bias.
- Cyclic fluctuations are completely eliminated if the period of moving average is equal to the period of cycles.
- Simple to use without fitting a curve.
- Disadvantages:
- Tendency to cut out corners, resulting in loss of data at the ends.
- No mathematical equation for forecasting.
- Sharp turns in the graph are reduced to small curvatures.
- Care must be taken in selecting data and the period of moving average.
Exponential Smoothing Method
- Used to determine the validity of a forecast by comparing it with new observations.
- Conditions to determine the validity of a forecast:
- Of three successive points, are two or more in either region A?
- Of five successive points, are four or more in either region B?
- Are the eight successive points on either side of the center line?
Learn about the importance of forecasting in production, including estimating demand and determining plant expansion. Understand the purposes of forecasting and its role in intermediate planning.
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