THE DECISION PROCESSES OF OPERATIONS MANAGEMENT BECAUSE THEY PROVIDE INFORMATION ON FUTURE DEMAND. • ANTICIPATED DEMAND IS DERIVED FROM TWO POSSIBLE SOURCES.
1.ACTUAL CUSTOMER ORDERS
2.FORECASTS TWO ASPECTS OF FORECASTS
1.Expected level of demand – can be
function a function of some structural variation, such as trend or seasonal variation. 2.Forecast accuracy – is a function of the ability of forecasters to correctly model demand, random variation, and sometimes unforeseen events. • A TIME HORIZON, ALSO KNOWN AS A PLANNING HORIZON, IS A FIXED POINT OF TIME IN THE FUTURE AT WHICH POINT CERTAIN PROCESSES WILL BE EVALUATED OR ASSUMED TO END • SHORT-TERM FORECASTS PERTAIN TO ONGOING OPERATIONS. • LONG-TERM FORECASTS PERTAIN TO NEW PRODUCTS OR SERVICES, NEW EQUIPMENT, NEW FACILITIES, OR SOMETHING ELSE THAT WILL REQUIRE A SOMEWHAT LONG LEAD TIME TO DEVELOP, CONSTRUCT, OR OTHER OTHERWISE IMPLEMENT. TWO USES FOR FORECASTS
1. PLANNING THE SYSTEM – GENERALLY INVOLVES
LONG-RANGE PLANS ABOUT THE TYPES OF PRODUCTS AND SERVICES TO OFFER, WHAT FACILITIES AND EQUIPMENT TO HAVE, WHERE TO LOCATE AND SO ON. 2. PLANNING THE USE OF THE SYSTEM – REFERS TO SHORT-RANGE AND INTERMEDIATE-RANGE PLANNING, WHICH INVOLVES TASKS SUCH AS PLANNING INVENTORY AND WORKFORCE LEVELS, PLANNING PURCHASING AND PRODUCTION, BUDGETING, AND SCHEDULING. ELEMENTS OF A GOOD FORECAST TIMELY - THE HORIZON MUST COVER THE TIME NECESSARY TO IMPLEMENT CHANGES SO THAT ITS RESULTS CAN BE USED. ACCURATE - THE DEGREE OF ACCURACY SHOULD BE STATED, ENABLING USERS TO PLAN FOR POSSIBLE ERRORS AND PROVIDING A BASIS FOR COMPARING ALTERNATIVE FORECASTS. RELIABLE METHODS - METHOD/SOFTWARE SHOULD WORK CONSISTENTLY ELEMENTS OF A GOOD FORECAST MEANINGFUL UNITS - CHOICES OF UNITS SHOULD BE DEPENDENT ON USER NEEDS RESULTS IN WRITING - THE FORECASTS USERS MUST ALL BE ON THE SAME PAGE, SO ALL SHOULD BE READING FROM A WRITTEN SUMMARY OF FORECAST RESULTS (SAME INTERPRETATION) SIMPLE TECHNIQUES - THE TECHNIQUE SHOULD BE EASY TO USE, AND SIMPLE TO UNDERSTAND. IF THE TECHNIQUE IS TOO SOPHISTICATED, USERS MAY NOT HAVE FAITH IN IT. ELEMENTS OF A GOOD FORECAST
COST-EFFECTIVE - THE FORECAST'S COST OF
IMPLEMENTATION SHOULD BE JUSTIFIED / OUTWEIGHED BY ITS BENEFITS. STEPS IN THE FORECASTING PROCESS
DETERMINE THE PURPOSE OF THE FORECAST – THIS STEP WILL
PROVIDE AN INDICATION OF THE LEVEL OF DETAIL REQUIRED IN THE FORECAST, THE AMOUNT OF THE RESOURCES (PERSONNEL, COMPUTER TIME, DOLLARS) THAT CAN BE JUSTIFIED, AND LEVEL OF ACCURACY NECESSARY. ESTABLISH A TIME HORIZON – THE FORECAST MUST INDICATE A TIME INTERVAL, KEEPING IN MIND THAT ACCURACY DECREASES AS THE TIME HORIZON INCREASES. OBTAIN, CLEAN, AND ANALYZE APPROPRIATE DATA – OBTAINING THE DATA CAN INVOLVE SIGNIFICANT EFFORT. ONCE OBTAINED, THE DATA MAY NEED TO BE “CLEANED” TO GET RID OF OUTLIERS AND OBVIOUSLY INCORRECT DATA BEFORE ANALYSIS. STEPS IN THE FORECASTING PROCESS
SELECT A FORECASTING TECHNIQUE.
MAKE THE FORECAST. MONITOR THE FORECAST ERRORS – THE FORECAST ERRORS SHOULD BE MONITORED TO DETERMINE IF THE FORECAST IS PERFORMING IN A SATISFACTORY MANNER. TWO PREDOMINANT APPROACHES TO FORECASTING
1.QUALITATIVE APPROACH - A QUALITATIVE
APPROACH USES FACTORS SUCH AS EXPERIENCE, INSTINCT AND EMOTION.
2.QUANTITATIVE APPROACH - THE QUANTITATIVE
ANALYSIS RELIES HEAVILY ON MATHEMATICS, HISTORICAL DATA AND CASUAL VARIABLES. THE FOLLOWING PRESENT A VARIETY OF FORECASTING TECHNIQUES THAT ARE CLASSIFIED AS: • JUDGMENTAL FORECAST - RELY ON ANALYSIS OF SUBJECTIVE INPUTS OBTAINED FROM VARIOUS SOURCES, SUCH AS CONSUMER SURVEYS, THE SALES STAFF, MANAGERS AND EXECUTIVES, AND PANELS OF EXPERTS. • TIME-SERIES FORECASTS – SIMPLY ATTEMPT TO PROJECT PAST EXPERIENCE INTO THE FUTURE. THESE TECHNIQUES USE HISTORICAL DATA WITH THE ASSUMPTION THAT THE FUTURE WILL BE LIKE THE PAST. • ASSOCIATIVE MODELS – USE EQUATIONS THAT CONSISTS OF ONE MORE EXPLANATORY VARIABLES THAT CAN BE USED TO PREDICT DEMAND. FORECAST BASED ON TIME SERIES DATA •THESE BEHAVIORS CAN BE DESCRIBED AS FOLLOWS: TREND – REFERS TO A LONG-TERM UPWARD OR DOWNWARD MOVEMENT IN THE DATA. POPULATIONS SHIFTS, CHANGING INCOMES, AND CULTURAL CHANGES OFTEN ACCOUNT FOR SUCH MOVEMENTS. SEASONALITY – REFERS TO SHORT-TERM, FAIRLY REGULAR VARIATIONS GENERALLY RELATED TO FACTORS SUCH AS THE CALENDAR OR TIME OF DAY. RESTAURANTS, SUPERMARKETS, AND THEATER EXPERIENCE WEEKLY AND EVEN DAILY “SEASONAL” VARIATIONS. FORECAST BASED ON TIME SERIES DATA •THESE BEHAVIORS CAN BE DESCRIBED AS FOLLOWS: CYCLES – ARE WAVELIKE VARIATIONS OF MORE THAN ONE YEAR’S DURATION. THESE ARE OFTEN RELATED TO A VARIETY OF ECONOMIC, POLITICAL, AND EVEN AGRICULTURAL CONDITIONS. IRREGULAR VARIATIONS – ARE DUE TO UNUSUAL CIRCUMSTANCES SUCH AS SEVERE WEATHER CONDITIONS, STRIKES, OR A MAJOR CHANGE IN A PRODUCT OR SERVICE. RANDOM VARIATIONS – ARE RESIDUAL VARIATIONS THAT REMAIN AFTER ALL OTHER BEHAVIORS HAVE BEEN ACCOUNTED FOR. FORECASTING METHODS FOCUS FORECASTING – USING THE FORECASTING METHOD THAT DEMONSTRATES THE BEST RECENT SUCCESS. THE METHOD THAT HAS THE HIGHEST ACCURACY IS THEN USED TO MAKE THE FORECAST OF THE NEXT MONTH. THIS PROCESS IS USED FOR EACH PRODUCT OR SERVICE, AND IS REPEATED MONTHLY. DIFFUSION MODELS – WHEN NEW PRODUCTS OR SERVICES ARE INTRODUCING, HISTORICAL DATA ARE NOT GENERALLY AVAILABLE ON WHICH TO BASE FORECASTS. INSTEAD, PREDICTIONS ARE BASED ON RATES OF PRODUCT ADOPTION AND USAGE SPREAD FROM ESTABLISHED PRODUCTS, USING MATHEMATICAL DIFFUSION MODELS. •