60 Questions
What is the purpose of market research in forecasting?
To analyze marketing forces and socio-economic pressures
What is the sales force composite method based on?
Salespeople's opinions
What is the jury of executive opinion method used for?
Collecting opinions of experts
What is the projection method based on?
Historical sales data
What is a time series in statistical analysis?
A chronological data with a dependent variable
What is the main concern in identifying a secular trend?
Long-term changes
What is the method of inspection in trend estimation?
A graphical method
What is the most accurate method of forecasting if there is a relationship between past and future demands?
Statistical method
What is the general approach to statistical forecasting?
Plotting demand versus time
What is the main reason for modifying predictions from past data?
To consider events that will probably happen in the future
What is a forecast in the context of production?
An estimate of the level of demand for a product in the future
What is the minimum time period a forecast should cover?
A time period at least as long as the period of time required to make a decision and put it into effect
What is one of the major purposes of forecasting?
To determine the necessity for and size of plant expansion
Why is forecasting for a new product more difficult?
Because there is limited historical data available
What is the Direct Survey method of forecasting?
A method that uses a representative sample of customers to forecast future sales
What is the Indirect Survey method of forecasting?
A method that uses the attitude and behavior of customers through salesmen, agents, wholesalers, and retailers
What is the Limited Market Trial method of forecasting?
A method that involves a limited selling of a product to test its acceptance
What is the Related Information method of forecasting?
A method that uses an index that directly varies with sales volume
What is Forecasting for Established Products?
Forecasting for products that have historical sales data available
What is the purpose of Product Forecasting?
To determine the intermediate planning for existing products to be manufactured with existing facilities
What is the purpose of evaluating the expected error?
To evaluate the accuracy of the forecasting model
What is assumed in the example of level demand with random variation?
The cause system was unchanged and unchanging during the period studied
What is the advantage of using a moving average forecaster?
All of the above
What is a disadvantage of using a moving average forecaster?
It tends to cut out corners
What is the purpose of exponential smoothing method?
To analyze the difference between old forecast and new observation
What is the condition for validating the forecast?
All of the above and eight successive points on either side of the center line
What is the purpose of controlling the forecast?
To take action relative to the forecaster or the demand
What is the result of using a moving average forecaster?
A fair good picture of general long-term movement in data
What is a limitation of using a moving average forecaster?
It tends to lag behind the trend
What is the purpose of using a control chart?
To establish the validity of the forecast
What is the primary objective of forecasting in production?
To determine the necessity for and size of plant expansion
What is a major challenge in forecasting for a new product?
No past information is available to predict the future
What is the purpose of the Direct Survey method in forecasting?
To approach a representative sample of customers to predict future demand
What is the purpose of comparing with an established product in forecasting?
To compare sales figures of the new product with an existing product
What is the main purpose of Facility Forecasting?
To determine the necessity for and size of plant expansion
What is the purpose of the Limited Market Trial method in forecasting?
To test the acceptance of a new product in a limited market
What is the purpose of the Related Information method in forecasting?
To find a factor that directly varies with the sales volume
What is the main purpose of Product Forecasting?
To determine the short-time scheduling of existing products
How long should a forecast cover in terms of time period?
At least as long as the period of time required to make and implement a decision
What is the primary purpose of forecasting in production planning?
To make informed decisions about production planning
What is the primary objective of analyzing socio-economics pressures, political changes, and attitudes in market research?
To forecast future demands of a product
Which forecasting method relies on the opinions of experts, including sales and marketing personnel?
Jury of executive opinion method
What type of change is characterized by a smooth and regular movement of a series over a long period of time?
Secular trend
Which method of trend estimation involves selecting representative points and drawing a straight line through them?
Selected point method
What is the primary advantage of using statistical methods in forecasting?
They are highly accurate if there is a relationship between past and future demands
What is the purpose of modifying predictions from past data in statistical forecasting?
To account for events that will or will probably happen in the future
What type of demand is characterized by a regular fluctuation around a trend?
Cyclic demand
What is the first step in the general approach to statistical forecasting?
Make a plot of demand versus time
What is the primary limitation of using time series analysis in forecasting?
It assumes that past patterns will continue into the future
What is the primary purpose of trend estimation in forecasting?
To identify the underlying pattern in the data
What is the primary assumption made in the example of level demand with random variation?
The demand data is representative of the demand.
What is the benefit of using a moving average forecaster when the data contains uniform cyclic fluctuations?
It eliminates periodic fluctuations in the data.
What is the purpose of extending the moving average to include more periods?
To increase the smoothing of the data.
What is the limitation of using a moving average forecaster when there are sharp turns in the data?
It converts sharp turns into small curvatures.
What is the condition for validating the forecast in the example of level demand with random variation?
All conditions are satisfied in the control chart.
What is the purpose of controlling the forecast?
To take action relative to the forecaster or the demand.
What is the result of using a moving average forecaster when the trend is linear or approximate?
It gives a fair good picture of general long-term movement in the data.
What is the advantage of using a moving average forecaster when there is no personal prejudice or bias?
It is simpler and does not require fitting a curve.
What is the disadvantage of using a moving average forecaster when the data selection is poor?
Care must be taken in selecting the period of the moving average.
What is the purpose of exponential smoothing method in forecasting?
To determine the difference between the old forecast and new observation.
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?
Test your knowledge on production forecasting, including estimating demand, sales forecasting, and its applications in business decision making.
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