30 Questions
What is the primary goal of market research in demand forecasting?
To predict future demands of a product
What is the basis of the sales force composite method of demand forecasting?
Subjective opinions of salespeople
What is the primary advantage of the jury of executive opinion method?
It is fast and simple
What is the basis of the projection method of demand forecasting?
Historical data
What is a time series in the context of demand forecasting?
A chronological sequence of data
What is the term for the long-term tendency of a series to increase or decrease?
Secular trend
What is the method of estimating trends that involves selecting representative points and drawing a line?
Method of Inspection
What is the primary advantage of statistical methods of demand forecasting?
They are highly accurate
What are the three types of demand considered in statistical forecasting?
Level, Upward, and Cyclic
What is the first step in the general approach to statistical forecasting?
Make a plot of demand versus time
What is the primary objective of evaluating the expected error in the forecasting process?
To quantify the uncertainty associated with the forecast
Which assumption is made while using a constant forecaster?
The cause system was unchanged during the period studied
What is the primary advantage of using a moving average forecaster?
It eliminates personal prejudice and bias
What is the purpose of using a control chart in forecasting?
To detect any anomalies in the forecasting process
What is the primary disadvantage of using a moving average forecaster?
It tends to lag behind the trend
What is the purpose of exponential smoothing in forecasting?
To adjust the forecast based on new observations
What is the condition for a control chart to indicate a stable cause system?
Any of the above conditions are satisfied
What action should be taken when an out-of-control condition is observed in the forecasting process?
Revise the forecaster including new cause system
What is the primary advantage of using a constant forecaster?
It is generally adequate and appropriate for level demand with random variation
What is the purpose of analyzing the demand data for the periods studied?
To ensure the demand data are truly representative of the demand
What is the primary purpose of a forecast in production planning?
To estimate the level of demand for a product
What is the minimum time period a forecast should cover?
The time required to make and implement a decision
What is the main purpose of facility forecasting?
To determine the necessity for and the size of plant expansion
What is the challenge of forecasting for a new product?
There is no past data available to predict the future
What is the purpose of the direct survey method in forecasting?
To predict the future by asking customers what they intend to buy
What is the indirect survey method used for?
To predict the attitude and behavior of customers through salesmen
What is the purpose of comparing with an established product in forecasting?
To predict the sales of the new product
What is the related information method used for?
To predict the sales of the product based on an index
What is the purpose of limited market trials in forecasting?
To test the product acceptance in the market
What is the main difference between forecasting for a new product and an established product?
The availability of past data
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?
This quiz covers the concept of production forecasting, which is an estimate of future demand for several products over a specific period. It also explores the applications and purposes of forecasting in business decisions.
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