Week 3

Question 1

What is the first and second step of planning

Answer 1

1. Forecasting through data analysis and judgment
   - Organizations must have a formal forecasting process to develop an agreed-upon set of numbers that becomes the driver for demand planning.
2. Demand planning
   - which is the process of combining statistical forecasting techniques and/or judgment to construct demand estimates for products or services.

Question 2

What is the definition of demand

Answer 2

The need for a particular product or component.

Question 3

What are the two basic types of demand?

Answer 3

1. Independent Demand - is demand for an item that is unrelated to the demand for other items, such as a finished product, a spare part. The demand for the items is forecasted
2. Dependent Demand is demand for an item that is directly related to other items or finished products, such as a component or material used in making a finished product. Demand for these items is calculated.

Question 4

What is forecasting?

Answer 4

In the simplest terms, forecasting is the attempt to predict future outcomes based on past events and management insight.

Question 5

Which business function estimates future demand?

Answer 5

Forecasting

Question 6

What does Finance and Accounting rely forecasts for?

Answer 6

Finance and accounting use forecasts as the basis for budgeting and cost control

Question 7

What does Marketing rely forecasts for?

Answer 7

Marketing relies on forecasts to make key decisions such as new product planning and personnel compensation

Question 8

What does Production rely forecasts for?

Answer 8

Production uses forecasts to select suppliers, determine capacity requirements, and to drive decisions about purchasing, staffing, requirements, and to drive decisions about purchasing, staffing, and inventory

Question 9

Give the time frames for short term, medium term, and long term?

Answer 9

Forecasting less than three months
Forecasting three months to two years
Forecasting greater than two years

Question 10

What are the uses for short term, medium term, and long term?

Answer 10

Used mainly for tactical decisions
Used to develop a strategy over the next six to eighteen months
Used to detect general trends and identify major turning points

Question 11

What are the two important considerations about forecasts?

Answer 11

1. Statistically speaking, the forecast will be inaccurate, and although it may be inaccurate, it is still useful.
2. The forecast is the basis for most “downstream” supply chain planning decisions,so it is critical to be as accurate as possible.

Question 12

What is the goal of forecasting and demand planning?

Answer 12

The goal of the forecasting and demand planning process is to minimize forecasting error.
- although might be wrong it is good to try to be consistently accurate.

Question 13

Which situation would be more accurate: A forecasts for 1 year of 8 months?

Answer 13

A forecasts of 8 years because the farther out you go into the future, the greater the deviation will likely be.

Question 14

Which process demands a holistic process?

Answer 14

Demand planning

Question 15

What are the two forecasting techniques?

Answer 15

1. Qualitative (Uses opinion and intuition)

2. Quantitative (Uses mathematical models and historical data)

Question 16

When is qualitative used and give an example?

Answer 16

Used when data is:

1. Limited
2. Unavailiable
3. Not currently relevant

Example: New product, new market segment.

Question 17

Qualtitative is best used for?

Answer 17

1. Long-range forecasts and new-products

Question 18

What are the 5 models for qualitative?

Answer 18

1. Personal Insight
2. Jury of Executive Opinion
3. Delphi Method
4. Historical Analogy
5. Customer Survey

Question 19

Define Personal Insight and its strengths and weaknesses.

Answer 19

Personal Insight- The forecast is based on the insight of the most experienced, most knowledgeable, or most senior person available.

Strengths:

1) Fast and cheapest forecasting model
2) Can provide a good forecast

Weaknesses:

1) It relies on one person’s judgement and opinions, but also on their prejudices and ignorance.
2) Major weakness is unreliability; someone who is familiar with the situation often provides a worse forecast than someone who knows nothing.

Question 20

Define Jury of Executive Opinion and its strengths and weaknesses. Also what kind of meeting is conducted.

Answer 20

People who know the most about the product and the marketplace would likely form a jury (i.e., management panel) to discuss and determine the forecast.
- Generally conducts a series of forecasting meetings

Advantages:

1) Decisions are enriched by the experience of competent experts.
2) Companies don’t have to spend time and resources collecting data by survey.

Disadvantages:

1) Experts may introduce some bias
2) Experts may become biased by their colleagues or a strongly opinionated leader.

Question 21

Define Delphi Method and its strengths and weaknesses.

Answer 21

Delphi Method: Basically the same as the Jury of Executive Opinion except that the input of each of the participants is collected separately so that people are not influenced by one another.

Advantages:

1) Decisions are enriched by the experience of competent experts.
2) Decisions are not likely a product of groupthink.
3) Very useful for new products

Disadvatnages:

1) Experts may introduce some bias.
2) Companies must spend time & resources collecting data by survey.
3) If external experts are used there is a risk of loss of confidential information.
4) * The Delphi Method can be __time consuming_ and is therefore best for long-term forecasts. *

Question 22

Define Historical Analogy and its strengths and weaknesses.

Answer 22

A judgmental forecasting technique based on identifying a sales history that is comparable to a present situation, such as the sales history of a similar product.
- An approach to sales forecasting in which the past sales results of a similar product are used to predict the likely sales of a similar new product.

Advantages:

1) Potential to provide a significant amount of information that can be used, at least initially, to create a forecast for a new product.
2) Can be a relatively inexpensive way to create a forecast.

Disadvantages:

1) There simply may not be a historical comparison available.
2) No two historical situations are exactly identical in all respects, so it may prove to be ineffective.

Question 23

Define Customer Survey and its strengths and weaknesses.

Answer 23

Customers are directlyapproached and asked to give their opinions about the particular product.
-Customer surveys can be done in person (e.g., one-on-one, focus group), over the phone, by mail, email, or online.

Advantages:

1) It is a direct method of assessing information from the primary sources.
2) Simple to administer and comprehend.
3) It does not introduce any bias or value judgment particularly in the census method if the questions are constructed carefully.

Disadvantages:

1) Poorly formed questions may lead to unreliable information.
2) Customers do not always answer the questionnaire.
3) It is time consuming and costly to survey a large population.

Question 24

Which tecnique is recommended to forecast?

Answer 24

Usually a combination of qualitative and quantitative

Question 25

Time series assumes?

Answer 25

That the future is an extention of the past

Question 26

Define Tiume series?

Answer 26

Historical data that is used to predict the past

Question 27

What does cause and effect assume?

Answer 27

Assumes one or more factors (independent variabless) predict future demand.

Question 28

When creating a quantitative forecast, data should be evaluated to detect for the following variations:

Answer 28

1) Trend Variations 2) Random Variations 3) Seasonal Variations 4) Cyclical Variations

Question 29

What is a trend variation? And what are the 4 most common?

Answer 29

A movement of a variable over time. 1) Linear 2) Exponential 3) S-curve 4) Asymptotic

Question 30

What is randoe variation considered?

Answer 30

Considered abnormal demand are is sometimes removed from the data set.

Question 31

What is seasonal variations?

Answer 31

Are repeating patterns of demand | - Patterns on deman within one year

Question 32

What is cyclical variations?

Answer 32

Are wavelike pattern that last longer than 1 year, and can extend over multiple years. - Not easily predicted. Example: China Growth, GDP, Bull markets, Bear markets

Question 33

So what is the purpose of a time-series model?

Answer 33

Collect and study the past data of a given time series in order to generate probable future values for the series. - In other words, forecasts for future demand rely on understanding past demand. - *Accordingly, time series forecasting can be characterized as the act of predicting the future by understanding the past*

Question 34

What are the 5 models of time series and the definition for each?

Answer 34

Naive Forecast- Technique in which the last period's actuals are used as this period's forecast without adjustment Moving Average- A mathematical result that is calculated by averaging a number of past data points Weighting Moving Average- Technique that puts more weight on recent data and less on past data through the use of a weighting factor. Exponential Smoothing- Exponential smoothing weights past observations with exponentially decreasing weights to forecast values Linear trend forecast- A simplistic forecasting technique that imposes a line of best fit to time series historical data