## Questions and Answers

What is the purpose of market research in forecasting?

What is the sales force composite method based on?

What is the jury of executive opinion method used for?

What is the projection method based on?

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What is a time series in statistical analysis?

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What is the main concern in identifying a secular trend?

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What is the method of inspection in trend estimation?

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What is the most accurate method of forecasting if there is a relationship between past and future demands?

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What is the general approach to statistical forecasting?

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What is the main reason for modifying predictions from past data?

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What is a forecast in the context of production?

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What is the minimum time period a forecast should cover?

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What is one of the major purposes of forecasting?

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Why is forecasting for a new product more difficult?

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What is the Direct Survey method of forecasting?

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What is the Indirect Survey method of forecasting?

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What is the Limited Market Trial method of forecasting?

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What is the Related Information method of forecasting?

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What is Forecasting for Established Products?

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What is the purpose of Product Forecasting?

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What is the purpose of evaluating the expected error?

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What is assumed in the example of level demand with random variation?

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What is the advantage of using a moving average forecaster?

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What is a disadvantage of using a moving average forecaster?

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What is the purpose of exponential smoothing method?

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What is the condition for validating the forecast?

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What is the purpose of controlling the forecast?

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What is the result of using a moving average forecaster?

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What is a limitation of using a moving average forecaster?

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What is the purpose of using a control chart?

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What is the primary objective of forecasting in production?

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What is a major challenge in forecasting for a new product?

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What is the purpose of the Direct Survey method in forecasting?

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What is the purpose of comparing with an established product in forecasting?

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What is the main purpose of Facility Forecasting?

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What is the purpose of the Limited Market Trial method in forecasting?

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What is the purpose of the Related Information method in forecasting?

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What is the main purpose of Product Forecasting?

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How long should a forecast cover in terms of time period?

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What is the primary purpose of forecasting in production planning?

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What is the primary objective of analyzing socio-economics pressures, political changes, and attitudes in market research?

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Which forecasting method relies on the opinions of experts, including sales and marketing personnel?

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What type of change is characterized by a smooth and regular movement of a series over a long period of time?

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Which method of trend estimation involves selecting representative points and drawing a straight line through them?

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What is the primary advantage of using statistical methods in forecasting?

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What is the purpose of modifying predictions from past data in statistical forecasting?

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What type of demand is characterized by a regular fluctuation around a trend?

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What is the first step in the general approach to statistical forecasting?

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What is the primary limitation of using time series analysis in forecasting?

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What is the primary purpose of trend estimation in forecasting?

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What is the primary assumption made in the example of level demand with random variation?

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What is the benefit of using a moving average forecaster when the data contains uniform cyclic fluctuations?

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What is the purpose of extending the moving average to include more periods?

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What is the limitation of using a moving average forecaster when there are sharp turns in the data?

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What is the condition for validating the forecast in the example of level demand with random variation?

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What is the purpose of controlling the forecast?

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What is the result of using a moving average forecaster when the trend is linear or approximate?

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What is the advantage of using a moving average forecaster when there is no personal prejudice or bias?

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What is the disadvantage of using a moving average forecaster when the data selection is poor?

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What is the purpose of exponential smoothing method in forecasting?

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## 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?

### 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?

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## Description

Test your knowledge on production forecasting, including estimating demand, sales forecasting, and its applications in business decision making.