FACTORS AFFECTING PRODUCTIVITY

 Standardizing- reduce variability

 Quality differences- distort productivity measurements
 Comparisons are made over time, comparing productivity now with one
30 years ago

Use of the Internet- can lower cost in transaction and increase productivity

Scrap rates- inefficient use of resources

New Workers- lower productivity than seasoned workers.

Layoffs-productivity may increase after a layoff, because workload remains the same but fewer workers
do the work but may experience burnout.

Labor turnover- negative effect on productivity- replacements need time to get up to speed

Design of the Workplace

Incentive plans that reward productivity increases

Outsourcing

 Higher productivity in another company is a key reason organizations outsource work

 Improving productivity may reduce the need for outsourcing

Improving Productivity

 Develop productivity measures

 Determine critical (bottleneck) operations

 Develop methods for productivity improvements

 Establish reasonable goals

 Get management support

 Measure and publicize improvements

 Don’t confuse productivity with efficiency

CHAP 3 FORECASTING

Forecast- is an estimate about the future value of a variable such as demand

-better estimate, more informed decisions can be

-basic input in the decision processes of operation management as they provide future
information on future demand

-essential for determining how much supply will be needed to meet demand

-basis for budgeting, planning capacity, sales, production and inventory, personnel, purchasing
and more

EX: staffing and equipment decisions, budgets must be prepared, purchasing needs and supply chain
partner

PRIMARY GOAL OF OM- Match supply to demand

ANTICIPATED DEMAND FROM 2 POSSIBLE SOURCE

1. Actual Customer Order

2. Forecast

2 ASPECT OF FORECAST

1. Level of demand
2. Degree of accuracy that can be assigned to a forecast
a. Potential size of forecast error

EXPECTED LEVEL OF DEMAND

-Structural Variation

-Seasonal Variation

Forecast accuracy is a function of the ability of forecasters’ to correctly model demand, random
variation, and sometimes unforeseen events.

FORECAST TIME HORIZON

Short-time forecast- pertain to ongoing operations

Long range- important strategic planning tool

- Pertains new products or services, new equipment, new facilities or something else that
will require a long lead time to develop, construct or implement
 -

USES OF FORECAST IN BUSINESS ORGANIZATION

Features

A cross-functional team is a group of people with different functional expertise working toward a

common goal. It may include people from finance, marketing, operations, and human resources
departments. ... Decision making within a team may depend on consensus, but often is led by a
manager/coach/team leader.

If demand exceed forecast, operation and supply chain may not be able to meet demand results to
dissatisfaction

2 USES FOR FORECAST

1. Plan the system- long range plans about the types of products and services offer.
2. Plan the use of the system- short range and intermediate range planning, which involve tasks
such as planning inventory and workforce levels, planning purchasing and production, budgeting
and scheduling

FEATURES COMMON TO ALL FORECASTS

1. Forecasting techniques generally assume that the same underlying causal system that
existed in the past will continue to exist future.
Ex: changes in prices of competing products have major impact on demand. Manager must
be alert
ELEMENTS OF A GOOD FORECAST

1. Timely
2. Accurate
3. Reliable
4. Meaningful Units
5. In writing
6. Simple to understand and Use
7. Cost effective

FORECASTING SUPPLY CHAIN

-Inaccurate forecast can lead to shortages and excesses throughout the supply chain.
-can result in temporary increases and decreases in orders to the supply chain, can be
misinterpreted by the supply chain
SOLUTION:
-Develop the best possible forecast
-collaborative planning and forecasting with supply chain partners
-information sharing among partners and allowing supply chain partners to have real-time
access to sales and inventory information.

STEPS IN FORECASTING PROCESS

FORECAST ACCURACY

-Accuracy and control of forecast is a vital aspect of forecasting

-want to minimize forecast errors
-random variation is always present- residual error

FORECAST ERROR
-difference between the value that occurs and the value that was predicted
ERROR=ACTUAL-FORECAST

MAD- Mean Absolute Deviation- average absolute error

MSE- Mean Squared Error- average of squared errors

MAPE- Mean Absolute Percent Error

EXAMPLE
Manager could compare the results to determine one which yields the lowest MAD, MSE, MAPE for a
given set data

Must settle on the relative importance of historical performance versus responsiveness.

MAD is the easiest to compute.

APPROACHES TO FORECASTING

2 General Approaches

1. Qualitative- subjective
2. Quantitative- projection of historical data or development of associative models

VARIETY OF FORECASTING TECHNIQUES

1. Judgmental Forecasts- analysis of subjective inputs such as customer surveys

2. Time Series Forecasts- attempt to project past experience into the future, uses historical data
with assumption that future will be like the past.
3. Associative Models- consist of one or more explanatory variables can be used to predict demand

QUALITATIVE FORECAST

Executive Opinions

Salesforce Opinions

Consumer Surveys

Delphi Method: iterative process which managers and staff complete a series of questionnaires

Technological forecasting- changes in technology and impact on organization

FORECASTS BASED ON TIME-SERIES DATA

TIME SERIES- a time ordered sequence of observations taken at a regular intervals (hourly, daily, weekly,
monthly)

Measurement of demand, earning, profits, shipments, accidents, output

Plotting the data

 One more pattern appears: trends, seasonal variations, cycles

Naïve Methods

-uses single previous value of a time series as the basis of forecast

-used with a stable series, seasonal variations or trend

Stable series- last data point becomes the forecast for next period

If demand for a product last week was 20 cases- forecast for this week is 20 cases

Seasonal- equal to the value of the series last season

Example: turkey during thanksgiving is equal to demand last thanksgiving.

TECHNIQUES FOR AVERAGING

1. Moving Average- uses a number of the most recent actual data values in generating a
forecast
The more periods in a moving average, the greater the forecast will lag changes in the
data
 2. Weighted moving average
 the most recent value might be assigned a weight of .40, the next most recent
value a weight of .30, the next after that a weight of .20, and the next after
that a weight of .10. Note that the weights must sum to 1.00, and that the
heaviest weights are assigned to the most recent values.
 used, only the four most recent demands are used to prepare the forecast.

Ft = wt−n(At−n) + ... + wt−2(At−2) + wt−1(At−1) + ... + wt−n(At−n) where

wt–1 = Weight for period t − 1, etc.

At–1 = Actual value for period t − 1, etc.

3. Exponential Smoothing
 sophisticated weighted averaging method that is still relatively easy to use and
understand.

Next forecast = Previous forecast + α(Actual – Previous forecast)

where (Actual – Previous forecast) represents the forecast error and α is a percentage of
the error. More concisely,

Ft = Ft−1 + α( At−1 − Ft−1)

where
Ft
= Forecast for period t
Ft–1 = Forecast for the previous period (i.e., period t − 1)
α = Smoothing constant (percentage)
At–1 = Actual demand or sales for the previous period
Other Forecasting Methods

Focus Forecasting- “best recent performance” basis.

- developed by Bernard T. Smith

- use of several forecasting methods
- all being applied to the last few months of historical data after any irregular variations
have been removed.

Diffusion Models

- predictions are based on rates of prod uct adoption and usage spread from other
established products, using mathematical diffusion models.
- historical data are not generally available on which to base forecasts.

Techniques for Trend

For example, consider the trend equation

Ft= 45 + 5t. The value of Ft when t = 0 is 45, and the slope of the line is 5, which means that, on the
average, the value of Ft will increase by five units for each time period. If t = 10, the forecast, Ft is 45 +
5(10) = 95 units. The equation can be plotted by finding two points on the line. One can be found by
substituting some value of t into the equation (e.g., t = 10) and then solving for Ft The other point is a
(i.e., Ftat t = 0). Plotting those two points and drawing a line through them yields a graph of the linear
trend line.
Techniques for Seasonality

- time-series data are regularly repeating upward or downward movements in series values
that can be tied to recurring events.
- Familiar examples of seasonality are weather variations (e.g., sales of
- winter and summer sports equipment) and vacations or holidays (e.g., airline travel,
greeting card sales, visitors at tourist and resort centers).
SUMMARY CHAP 3
1. Demand forecasts are essential inputs for many business decisions; they help managers
decide how much supply or capacity will be needed to match expected demand, both within
the organization and in the supply chain.

2. Because of random variations in demand, it is likely that the forecast will not be perfect, so
managers need to be prepared to deal with forecast errors.

3. Other, nonrandom factors might also be present, so it is necessary to monitor forecast errors
to check for nonrandom patterns in forecast errors.

4. It is important to choose a forecasting technique that is cost-effective and one that minimizes
forecast error.
SAMPLE PROBLEMS