30 Questions
What is the primary assumption in the level demand with random variation case?
The cause system was unchanged and unchanging during the period studied.
What is the purpose of using a moving average forecaster?
To eliminate periodic fluctuations in a time series.
What is a disadvantage of using a moving average method?
It tends to lag behind the trend.
What is the purpose of controlling the forecast?
To take action regarding the demand and its cause system.
What is the result of using a moving average with a period equal to the period of cycles?
Cyclic fluctuations are eliminated.
What is the benefit of using an exponential smoothing method?
It provides a fair picture of long-term movement in data.
What is the purpose of using a control chart?
To evaluate the validity of the forecaster.
What is the result of violating the assumption of an unchanged cause system?
The forecast is inaccurate.
What is the purpose of using a moving range chart?
To control the forecast.
What is the benefit of using a constant forecaster in a level demand with random variation case?
It is generally adequate and appropriate.
What is the primary objective of a production forecast?
To estimate the level of demand for a product over a period of time
What is the purpose of a facility forecast?
To determine the necessity for and the size of plant expansion
Why is forecasting for a new product challenging?
Because there is limited historical data available
What is the purpose of a direct survey method?
To gather information from customers about their purchasing intentions
What is an indirect survey method used for?
To predict the attitude and behavior of customers through sales agents
What is the purpose of a related information method?
To find an index that directly varies with the sales volume
What is the purpose of a limited market trial?
To test the product acceptance of a new product
What is the main advantage of a facility forecast?
It helps in determining the necessity for and the size of plant expansion
What is the primary challenge in forecasting for a new product?
Lack of data about the product's market
What is the main difference between a direct survey method and an indirect survey method?
The source of information for forecasting
What is the primary goal of market research in demand forecasting?
To identify the future demands of a product based on socio-economic pressures
What is the main drawback of the jury of executive opinion method?
It is not scientific
What is the term used to describe the long-term trend in a time series analysis?
Secular trend
What is the method of estimating trends that involves selecting representative points and drawing a straight line?
Selected point method
What is the purpose of modifying the prediction from past data in statistical forecasting?
To incorporate future events that may affect sales
What is the first step in the general approach to statistical forecasting?
Make a plot of demand versus time
What is the term used to describe the smooth and regular movement of a series over a long period of time?
Basic trend
What is the primary advantage of using statistical methods in demand forecasting?
They are most accurate provided there is a relationship between past and future
What is the main difference between time series analysis and correlation analysis?
Time series analysis is used for identifying trends, while correlation analysis is used for identifying relationships
What is the purpose of using moving averages in time series analysis?
To smooth out irregular variations
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?
Test your knowledge on production forecasting, a crucial step in the manufacturing process that helps estimate demand and make informed decisions.
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