30 Questions
What is a forecast in the context of production?
An estimate of the level of demand expected for a production of several products for some period of time in the future
What is the primary purpose of forecasting in production?
To estimate the demand for a product in a specific market
What is the main challenge in forecasting for a new product?
Lack of past data
What is the Direct Survey method of forecasting?
A method that asks customers about their purchase intentions
What is the purpose of a Limited Market Trial?
To predict the product's acceptance
What is the Related Information method of forecasting?
A method that uses an index to forecast sales
Why is forecasting important in production planning?
To plan production and make informed decisions
What is the Indirect Survey method of forecasting?
A method that uses sales agents' opinions
What is the main purpose of a forecast in facility planning?
To determine the size of a plant expansion
What is the Comparing with Established Product method of forecasting?
A method that compares with established products
What is the primary purpose of market research in forecasting?
To analyze socio-economics pressures and predict future demands
What is the sales force composite method based on?
Subjective opinions of marketing and sales personnel
What is the main limitation of the jury of executive opinion method?
It is not scientific
What is the primary purpose of time series analysis in forecasting?
To identify trends and patterns in historical data
What is the secular trend in time series analysis?
Long-term changes in the data
What is the method of inspection or freehand method in trend analysis?
A method of plotting the data on a graph paper and drawing a line
What is the main advantage of statistical methods of forecasting?
They are accurate and reliable
What is the primary purpose of modifying predictions from past data in statistical forecasting?
To account for changes in the market
What is the general approach to statistical forecasting?
Make a plot of demand versus time and analyze the trend
What is the primary purpose of analyzing past data in statistical forecasting?
To identify trends and patterns in the data
What is the primary goal of evaluating the expected error in statistical technique selection?
To determine the most appropriate forecasting method
In the case of Level Demand with Random Variation, which forecaster is generally considered adequate and appropriate?
Constant Forecaster
What is the primary advantage of using a Moving Average Forecaster?
It gives a fair picture of long-term movement in the data
What is the disadvantage of using a Moving Average Forecaster with a short period?
It cuts out corners, resulting in data loss
What is the primary purpose of controlling the forecast using a Moving Range Chart?
To take action when the forecast is out of control
What is the condition for the validity of a forecast using the Exponential Smoothing Method?
All of the above conditions are satisfied
What is the primary advantage of using the Exponential Smoothing Method?
It is suitable for data with uniform cyclic fluctuations
What is the result of the analysis in Example 1?
All of the above
What is the purpose of revising the forecaster when an out-of-control condition is observed?
To adjust the forecasting method to the new cause system
What is the primary consideration when taking action regarding the demand and its cause system?
The consideration of all aspects of the cause system is 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?
Estimate the level of demand for a product over a period of time. Forecasts are usually made in terms of sales or physical units under specific marketing programs and economic conditions.
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