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Heizer Om10 ch04RRr
Heizer Om10 ch04RRr
Forecasting
PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e
4-1
What is Forecasting?
Process of predicting a future event
Underlying basis of all business decisions
Production Inventory Personnel Facilities
2011 Pearson Education, Inc. publishing as Prentice Hall 4-2
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Medium-range forecast
3 months to 3 years Sales and production planning, budgeting
Long-range forecast
3+ years New product planning, facility location, research and development
2011 Pearson Education, Inc. publishing as Prentice Hall 4-3
Types of Forecasts
Economic forecasts
Address business cycle inflation rate, money supply, housing starts, etc.
Technological forecasts
Predict rate of technological progress Impacts development of new products
Demand forecasts
Predict sales of existing products and services
2011 Pearson Education, Inc. publishing as Prentice Hall 4-4
Forecasting Approaches
Qualitative Methods
Used when situation is vague and little data exist
New products New technology
Forecasting Approaches
Quantitative Methods Used when situation is stable and historical data exist
Existing products
Current technology
5. Linear regression
2011 Pearson Education, Inc. publishing as Prentice Hall
associative model
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Seasonal
Random
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Components of Demand
Trend component Demand for product or service Seasonal peaks
Actual demand line Average demand over 4 years Random variation | 1 | 2 Time (years) | 3 | 4 Figure 4.1
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Trend Component
Persistent, overall upward or downward pattern Changes due to population, technology, age, culture, etc. Typically several years duration
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Seasonal Component
Regular pattern of up and down fluctuations
Cyclical Component
Repeating up and down movements Affected by business cycle, political, and economic factors
10
15
20
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Random Component
Erratic, unsystematic, residual fluctuations Due to random variation or unforeseen events Short duration and nonrepeating
M
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F
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Exponential Smoothing
Form of weighted moving average
Weights decline exponentially Most recent data weighted most
Exponential Smoothing
New forecast = Last periods forecast + (Last periods actual demand Last periods forecast)
Ft = Ft 1 + (At 1 - Ft 1)
where Ft = new forecast Ft 1 = previous forecast = smoothing (or weighting) constant (0 1)
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n
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100|Actuali - Forecasti|/Actuali
MAPE =
i=1
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Trend Projections
Fitting a trend line to historical data points to project into the medium to long-range
The multiplicative seasonal model can adjust trend data for seasonal variations in demand
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Associative Forecasting
Used when changes in one or more independent variables can be used to predict the changes in the dependent variable Most common technique is linear regression analysis We apply this technique just as we did in the time series example
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Associative Forecasting
Forecasting an outcome based on predictor variables using the least squares technique
^ = a + bx y
^ where y = computed value of the variable to be predicted (dependent variable) a = y-axis intercept b = slope of the regression line x = the independent variable though to predict the value of the dependent variable
2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 23
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| 2
| | | | 3 4 5 6 Area payroll
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Payroll, x
1 3 4 2 1 7 x = 18
x2
1 9 16 4 1 49 x2 = 80
xy
2.0 9.0 10.0 4.0 2.0 24.5 xy = 51.5
x = x/6 = 18/6 = 3
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| 2
| | | | 3 4 5 6 Area payroll
| 7
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where y = y-value of each data point yc = computed value of the dependent variable, from the regression equation n = number of data points
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Correlation
How strong is the linear relationship between the variables?
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Correlation Coefficient
r= nSxy - SxSy
[nSx2 - (Sx)2][nSy2 - (Sy)2]
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Correlation Coefficient
2 - (Sx)2][nSy2 - (Sy)2] [ n S x (a) Perfect positive x
correlation: r = +1
r=
nSxy - SxSy
(b) Positive correlation: 0<r<1
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Correlation
Coefficient of Determination, r2, measures the percent of change in y predicted by the change in x
Values range from 0 to 1
Easy to interpret
r = .901
r2 = .81
2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 32