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Bozarth ch09
Bozarth ch09
Bozarth ch09
Why Forecast?
Assess long-term capacity needs
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 2
Forecast Characteristics
Almost always wrong by some amount More accurate for groups or families More accurate for shorter time periods No substitute for calculated demand.
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 3
Forecasting Approaches
Qualitative Methods
Used when situation is vague and little data exists
New products New technology
Quantitative Methods
Used when situation is stable and historical data exists
Existing products Current technology
Heavy use of mathematical techniques ******************************* E.g., forecasting sales of a mature product
Chapter 9, Slide 4
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Q2 Forecasting
Quantitative, then qualitative factors to filter the answer
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Qualitative Forecasting
Executive opinions
Outside opinions
Delphi method
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 6
Demand Forecasting
Basic time series models
Linear regression
For time series or causal modeling
Chapter 9, Slide 7
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 8
. . . randomness
Time
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 9
Time
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 10
May
May
May
May
Chapter 9, Slide 11
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Ft 1
i 1
Dt 1i
n
(14 + 8 + 10) / 3 10.67
Chapter 9, Slide 13
= =
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Wt 1i
Forecast for Period 8 = [(0.5 14) + (0.3 8) + (0.2 10)] / (0.5 + 0.3 + 0.1) = 11.4
What are the advantages? What do the weights add up to? Could we use different weights? Compare with a simple 3-period moving average.
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 14
7
8 9
14
12
9
11 13
8.8
11.4 11.8
Chapter 9, Slide 15
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Volume
10 5 0 1 2 3 4 5 Period 6 7 8 9
Chapter 9, Slide 16
Exponential Smoothing I
Sophisticated weight averaging model Needs only three numbers: Ft Dt
= Forecast for the current period t = Actual demand for the current period t = Weight between 0 and 1
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 17
Exponential Smoothing II
Formula
Chapter 9, Slide 18
2
3 4 5
15
11 9 10
11.30
12.41 11.99 11.09
6
7 8 9
8
14 12
10.76
9.93 11.15 11.41
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 19
Resulting Graph
16 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 8 9 Period
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Demand
Demand Forecast
Chapter 9, Slide 20
Trends
What do you think will happen to a moving average or exponential smoothing model when there is a trend in the data?
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Actual Demand
11 12 13 14 15 16 17
Since the model is based on historical demand, it always lags the obvious upward trend
Chapter 9, Slide 22
8
9
18
14.94
15.86
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 23
y = a + b(x)
x
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 24
Definitions
Y = a + b(X) Y = predicted variable (i.e., demand)
X = predictor variable
X can be the time period or some other type of variable (examples?)
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 25
( x i )( y i
i 1 i 1
i 1
i 1
xi
n n 2 ( xi )
i 1
a y bx
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 26
Example:
Regression Used for Time Series
Period (X) 1 2 3 4
X2 1 4 9 16
5
15
490
1520
25
55
2450
5540
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Demand Regression
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 28
Example:
Simplified Regression I
If we redefine the X values so that their sum adds up to zero, regression becomes much simpler
a now equals the average of the y values b simplifies to the sum of the xy products divided by the sum of the x2 values
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 29
1520
10
980
Chapter 9, Slide 30
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Period
1 2 3 4 5 6 7 8
Demand
80 240 300 440 400 720 700 880
Chapter 9, Slide 31
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Period
Winter 02
Spring Summer Fall
Regression Forecast
90
198.6 307.1 415.7
Forecast Error
-10
41.4 -7.1 24.3
1
2 3 4
Winter 03
Spring Summer Fall
5
6 7 8
400
720 700 880
524.3
632.9 741.4 850
-124.3
87.2 -41.4 30
Chapter 9, Slide 32
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 33
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 34
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 35
Period
Actual Demand
Regression Forecast
Demand/ Forecast
Seasonal Index
Forecast Error
Winter 02
Spring Summer Fall Winter 03 Spring Summer Fall
1
2 3 4 5 6 7 8
80
240 300 440 400 720 700 880
90
198.6 307.1 415.7 524.3 632.9 741.4 850
0.89
1.21 0.98 1.06 0.76 1.14 0.94 1.04
0.83
1.17 0.96 1.05 0.83 1.17 0.96 1.05
74.33
232.97 294.98 435.19 433.02 742.42 712.13 889.84
5.67
7.03 5.02 4.81 -33.02 -22.42 -12.13 -9.84
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 36
Would You Expect the Forecast Model to Perform This Well With Future Data?
1000 800 600 400 200 0 1 2 3 4 5 6 7 8 Demand forecast
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 37
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 38
y = a + b1 x + b2 z
x z
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 39
Causal Models
Time series assume that demand is a function of time. This is not always true. 1. Pounds of BBQ eaten at party. 2. Dollars spent on drought relief. 3. Lumber sales. Linear regression can be used in these situations as well.
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 40
Chapter 9, Slide 41
Et = Dt Ft
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 42
MFE
i 1
Ei ) n
Chapter 9, Slide 43
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
MAD
i 1
Ei n
Chapter 9, Slide 44
Example
Period Demand Forecast 3 4 5 6 7 8 11 9 10 8 14 12 13.5 13 10 9.5 9 11 Error -2.5 -4.0 0 -1.5 5.0 1.0 Absolute Error 2.5 4.0 0.0 1.5 5.0 1.0
Chapter 9, Slide 45
Low MFE and MAD: The forecast errors are small and unbiased
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 46
An Analogy (continued)
Low MFE, but high MAD: On average, the arrows hit the bulls eye (so much for averages!)
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 47
An Analogy (concluded)
High MFE and MAD: The forecasts are inaccurate and biased
2006 Pearson Prentice Hall Introduction to Operations and Supply Chain Management Bozarth & Handfield
Chapter 9, Slide 48