Previous Lecture

Productivity
Product / Process Innovation
Mortality of New Product Ideas
Screening
Business Analysis
Development
Testing
Successful Product Commercialization
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 Previous Lecture

Stages of New Product / Process Innovation

Product
From – Performance Maximization
To – Cost Minimization
Process
From – Uncoordinated Process Flow
To – Automated Process Flow

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 Previous Lecture

Stages of New Product / Process Innovation

Stage I Stimulated by
Product – Need
Process – Output Rate
Stage II Stimulated by
Product – Technology
Process – Technology
Stage III Stimulated by
Product – Cost
Process – Cost 3
 Demand/Sales/Planning/Forecasting

Demand – Healthy demand can be

foreseen
Sales – However sales may be less than
the demand
Forecasting – Deal with what will happen in
future
Planning – Deal with what should happen
in future
Good planner use forecasting
as an input 4
 Why Forecasting is Important

Use in decision making process as follows

Marketing – forecast production, promotion, etc.
Finance – financial planning for operation
Production – uses for resource allocation
Maintenance – uses for resource allocation
HR – manpower requirement in quantity/quality
Inventory – uses to control stocks
Purchasing – in preparing procurement plan

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Commonly Used Forecasting Methods

Qualitative
Time Series
Casual

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 Qualitative Forecasting Methods

* Depend on managerial judgement

* Very subjective
* Ideal when there is no past data or available
data are not reliable predictors
* Commonly used methods
Delphi techniques
Market surveys
Life cycle analogy
Informed judgement
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Qualitative Forecasting – Delphi Methods

* panel of expert / managers are involving

* information treated anonymous to eliminate
influence
bandwagon effect
* panel provide their written responses to the
prepared questionnaire
* responses analyze statistically and give them
to reconsider
* process repeat until reach to a sufficient
convergence 8
Qualitative Forecasting Lifecycle Analogy

Different approaches during the different stage

of the product lifecycle
introduction stage – producing for stocks
growth stage – increasing trend in sales
necessary to judge the
increasing trend
how long growth will continue
mature stage – how long the maturity will last
necessary changes to product
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 Quantitative Forecasting Methods

Two Commonly Used Methods are

Time series
Casual method

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 Time Series

“the values of the variables are functions of the time

periods”
* stream of data represents the past
* each event (observation of demand) is time
tagged (when occurred) in the series of
data.
* consists of data recorded at different time
periods such as weekly or daily for the variable
* predict the next future value or set of values
* external causes are not considered
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* pattern is considered to be time-dependent.
 Time Series

Variation in Time series

(Cycle/Seasonal/Trend/Level/random)
*Time series with random variations.
*Time series with random variations and increasing
trend.
*Time series with random variations and decreasing
trend
*Time series with random variations and seasonal
variations
*Time series with random variations, seasonal
variations, and increasing trend. 12
 Forecasting Methods in Time Series

Following Methods can be Considered

* Moving average
* Weighted moving average
* Exponential smoothing
* Seasonal forecasting
* Trend analysis

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Forecasting Methods – Moving Average
Pd Demand 3 Pd moving Average 3Pd Forecast Error
1 10 Dem - Fore
2 18
3 29 19.0
4 15 20.7 19.0 15.0 – 19.0
5 30 24.7 20.7 30.0 – 20.7
6 12 19.0 24.7
7 16 19.3 19.0
8 8 12.0 19.3
9 22 15.3 12.0
10 14 14.7 15.3
11 15 17.0 14.7
12 27 18.7 17.0
13 30 24.0 18.7 14

14 23 26.7 24.0
 Forecasting – Seasonal Demand

Steps
find average demand
find index
average seasonal index for each quarter
calculate average quarterly demand for next year

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 Forecasting Methods – Casual

Regression Analysis
Cause and Effect between variables (demand over
a period) assuming
variables are casually connected and
having linear relationship
Ex.
y – monthly sales of a product
x – monthly advertising budget
y can be forecasted (dependent variable)
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