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1

forecasting

process of predicting a future event

2

short range forecast

- up to 1 year, generally less than 3 months
- purchasing, job scheduling, workforce levels
- tend to be most accurate

3

medium range forecast

- 3 months to 3 years
- sales and production planning, budgeting

4

long range forecast


- 3+ years
- new product planning, facility location, research and development

- introduction and growth (product life cycle) require longer forecasts than maturity and decline

5

types of forecasts (3)

economic, technological, demand

6

economic forecasts

money supply, inflation rate..

7

technological forecasts

predict rate of technological progress, impacts development of new products

8

demand forecasts

predict sales of existing products and services

9

7 steps in forecasting

1. determine the use of the forecast
2. select the items to be forecasted
3. deterring the time horizon of the forecast
4. select the forecasting models
5. gather the data
6. make the forecast
7. validate and implement results

10

qualitative methods (4)

1. Jury of executive opinion
2. delphi method
3. sales force composite
4. market survey

11

jury of executive opinion

group of high level experts

12

delphi method

using a group (decision makers, staff and respondents) that allows experts to make forecasts

13

sales force composite

salespersons estimates of expected sales

14

market survey

asking the customer

15

quantitative methods (3)

time series, naive approach, moving average method

16

time series

uses a series of past data points to make a forecast components:
trend: changes due to population, technology
cyclical: business cycle, political, economical
seasonal: weather, customs
random: natural disasters

17

naive approach

assumes demand in next period is the same as demand in the most recent period

18

moving average method

used if little or no trend, provides overall impression of data over time

moving average = (sum of demand in previous n periods) / n

19

weighted moving average

weights based on experience and intuition

weighted moving average = [(sum of weight for period n) x (demand in period n)] / sum of weights

20

season index formula


season index = expected annual demand / 12 x index