Operations Management Study Set 1
Quiz 12 :
Forecasts of product demand are a necessity for almost all aspects of operational planning. Short-range demand forecasts determine the daily resource requirements needed for production, including labour and material, as well as for developing work schedules and shipping dates and controlling inventory levels. Long-range forecasts are needed to plan new products for development and changes in existing products and to acquire the plant, equipment, personnel, resources, and supply chain necessary for future operations.
The type of forecasting method to use depends on several factors, including the time frame of the forecast (i.e., how far into the future is being forecast) and demand behaviour (which may or may not follow a pattern). Three basic types of forecasting methods are: time series methods, regression methods, and qualitative methods. Forecasting is not just identifying what demand will be in the future. It is a continuing process that requires constant monitoring and adjustment. See Figure 12.3 for steps in the forecasting process.
A time series is a collection of observations taken at regular intervals. Time series methods relate the forecast to only one factor-time. These methods assume that identifiable historical patterns or trends for demand over time will repeat themselves. They include the moving average, exponential smoothing, and linear trend line; and they are among the most popular methods for short-range forecasting among service and manufacturing companies. Many software packages, including Excel, can be used to develop forecasts using the moving average, exponential smoothing, adjusted exponential smoothing, and linear trend line techniques. Excel can also be used to develop more customized forecast models, such as seasonal forecasts, and calculate the forecast errors.