30 Questions
What is the primary purpose of production forecasting?
To estimate the level of demand for a product in the future
What is the main challenge with forecasting for a new product?
There is no past information available to predict the future.
What is the Direct Survey method used for?
To survey customers to predict their future purchases.
What is the purpose of the Related Information method of forecasting?
To find an index that directly varies with sales volume.
Why is forecasting important for production planning?
To ensure the production of the right quantity of products.
What is the purpose of Short-time Scheduling?
To schedule production for a short period of time.
What is the purpose of the Indirect Survey method?
To predict customer behavior through sales agents.
What is the benefit of using the Comparing with Established Product method?
It helps to forecast demand by comparing sales figures with similar products.
Why is it necessary to consider external factors when forecasting?
To account for changes in the market, economy, and customer behavior.
What is the purpose of the Limited Market Trial method?
To test a new product in a limited market to predict its acceptance.
What is the primary objective of evaluating the expected error in forecasting?
To evaluate the effectiveness of the forecasting model
What is the assumption made in the case of level demand with random variation?
The demand data studied for the periods are truly representative of the demand
What is the disadvantage of moving average forecasting?
It tends to lag behind the trend
What is the purpose of controlling the forecast using a Moving Range Chart?
To take action regarding the forecaster or demand when an out-of-control condition is observed
What is the result of extending the moving average to include more periods?
It increases the smoothing of the forecast but decreases the sensitivity to more recent data
What is the use of exponential smoothing method?
To adjust the forecast based on new observations
What is the condition for a stable cause system?
All conditions of the control chart are satisfied
What is the advantage of moving average forecasting?
It gives a fair good picture of general long-term movement in data
What action should be taken when an out-of-control condition is observed in the Moving Range Chart?
Revise the forecaster including the new cause system
What is the result of using a moving average forecaster with a period equal to the period of fluctuations?
Cyclic fluctuations are completely eliminated
What is the primary objective of market research in forecasting?
To identify the future demands of a product
Which method of forecasting involves collecting opinions from salespeople and marketing personnel?
Sales Force Composite Method
What is the primary limitation of the jury of executive opinion method?
It is not scientific
What is the purpose of time series analysis in forecasting?
To project future sales based on past data
What is the term for the long-term trend in a time series?
Secular trend
Which method of estimating trends involves drawing a line through plotted points on a graph?
Method of Inspection
What is the primary assumption of statistical methods of forecasting?
That there is a relationship between past and future demand
What is the primary advantage of using statistical methods of forecasting?
They are the most accurate method of forecasting
What is the first step in statistical forecasting?
Make a plot of demand versus time
What is the purpose of modifying the prediction from past data in statistical forecasting?
To account for events that will happen in the future
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 production forecasting, estimating demand for products over a period of time, and its applications in business decision making. Understand the importance of forecasting in sales and marketing.
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