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Taylor Introms10 PPT 15
Taylor Introms10 PPT 15
Taylor Introms10 PPT 15
Chapter 15
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Chapter Topics
Forecasting Components Time Series Methods Forecast Accuracy Time Series Forecasting Using Excel Time Series Forecasting Using QM for Windows Regression Methods
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Forecasting Components
A variety of forecasting methods are available for use depending on the time frame of the forecast and the existence of patterns. Time Frames: Short-range (one to two months) Medium-range (two months to one or two years) Long-range (more than one or two years) Trend Random variations Cycles Seasonal pattern
Patterns:
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Trend - A long-term movement of the item being forecast. Random variations - movements that are not predictable and follow no pattern. Cycle - A movement, up or down, that repeats itself over a lengthy time span. Seasonal pattern - Oscillating movement in demand that occurs periodically in the short run and is repetitive.
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Figure 15.1 (a) Trend; (b) Cycle; (c) Seasonal; (d) Trend w/Season
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Times Series - Statistical techniques that use historical data to predict future behavior. Regression Methods - Regression (or causal ) methods that attempt to develop a mathematical relationship between the item being forecast and factors that cause it to behave the way it does. Qualitative Methods - Methods using judgment, expertise and opinion to make forecasts.
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Jury of executive opinion, a qualitative technique, is the most common type of forecast for long-term strategic planning.
Performed by individuals or groups within an organization, sometimes assisted by consultants and other experts, whose judgments and opinions are considered valid for the forecasting issue. Usually includes specialty functions such as marketing, engineering, purchasing, etc. in which individuals have experience and knowledge of the forecasted item.
Supporting techniques include the Delphi Method, market research, surveys, etc.
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Statistical techniques that make use of historical data collected over a long period of time. Methods assume that what has occurred in the past will continue to occur in the future. Forecasts based on only one factor - time.
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Moving average uses values from the recent past to develop forecasts. This dampens or smoothes random increases and decreases. Useful for forecasting relatively stable items that do not display any trend or seasonal pattern. Formula for: n Di MA ! i!1 n n where : n ! number of periods in the moving average D ! data in period i i
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Longer-period moving averages react more slowly to changes in demand than do shorter-period moving averages. The appropriate number of periods to use often requires trial-anderror experimentation. Moving average does not react well to changes (trends, seasonal effects, etc.) but is easy to use and inexpensive. Good for short-term forecasting.
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In a weighted moving average, weights are assigned to the most recent data.
n WMA ! W D n i!1 i i where W ! the weight for period i, between 0% and 100% i Wi ! 1.00 Example: Paper clip company weights 50% for October, 33% for September, 17% for August: 3 WMA ! W D ! (.50)(90) (.33)(110) (.17)(130) ! 103.4 orders i i 3 i!1
Exponential smoothing weights recent past data more strongly than more distant data. Two forms: simple exponential smoothing and adjusted exponential smoothing. Simple exponential smoothing: Ft + 1 = EDt + (1 - E)Ft where: Ft + 1 = the forecast for the next period Dt = actual demand in the present period Ft = the previously determined forecast for the present period E = a weighting factor (smoothing constant).
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The most commonly used values of E are between 0.10 and 0.50. Determination of E is usually judgmental and subjective and often based on trial-and -error experimentation.
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Exponential smoothing forecasts using smoothing constant of .30. Forecast for period 2 (February): F2 = E D1 + (1- E)F1 = (.30)(.37) + (.70)(.37) = 37 units
Forecast for period 3 (March): F3 = E D2 + (1- E)F2 = (.30)(.40) + (.70)(37) = 37.9 units
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The forecast that uses the higher smoothing constant (.50) reacts more strongly to changes in demand than does the forecast with the lower constant (.30). Both forecasts lag behind actual demand. Both forecasts tend to be consistently lower than actual demand. Low smoothing constants are appropriate for stable data without trend; higher constants appropriate for data with trends.
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x ! 78 ! 6.5 12
y ! 557 ! 46 .42 12
xy n x y ! 3,867 (12)(6.5)(46 .42) !1.72 b! 650 12(6.5)2 x 2 n x2 a ! y b x ! 46 .42 (1.72)(6.5) ! 35 .2 y ! 35 .2 1.72 x linear trend line for period 13, x ! 13, y ! 35 .2 1.72(13) ! 57 .56
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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S1 = D1/ D = 42.0/148.7 = 0.28 S2 = D2/ D = 29.5/148.7 = 0.20 S3 = D3/ D = 21.9/148.7 = 0.15 S4 = D4/ D = 55.3/148.7 = 0.37
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Multiply forecasted demand for entire year by seasonal factors to determine quarterly demand. Forecast for entire year (trend line for data in Table 15.7): y = 40.97 + 4.30x = 40.97 + 4.30(4) = 58.17 Seasonally adjusted forecasts: SF1 = (S1)(F5) = (.28)(58.17) = 16.28 SF2 = (S2)(F5) = (.20)(58.17) = 11.63 SF3 = (S3)(F5) = (.15)(58.17) = 8.73 SF4 = (S4)(F5) = (.37)(58.17) = 21.53
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Forecasts will always deviate from actual values. Difference between forecasts and actual values referred to as forecast error. Would like forecast error to be as small as possible. If error is large, either technique being used is the wrong one, or parameters need adjusting. Measures of forecast errors:
Mean Absolute deviation (MAD) Mean absolute percentage deviation (MAPD) Cumulative error (E bar) Average error, or bias (E)
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MAD is the average absolute difference between the forecast and actual demand. Most popular and simplest-to-use measures of forecast error. Formula: Dt Ft MAD ! n where: t ! the period number Dt ! demand in period t Ft ! the forecast for period t n ! the total number of periods
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The lower the value of MAD relative to the magnitude of the data, the more accurate the forecast. When viewed alone, MAD is difficult to assess. Must be considered in light of magnitude of the data.
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Can be used to compare accuracy of different forecasting techniques working on the same set of demand data (PM Computer Services): Exponential smoothing (E = .50): MAD = 4.04 Adjusted exponential smoothing (E = .50, F = .30): MAD = 3.81 Linear trend line: MAD = 2.29 Linear trend line has lowest MAD; increasing E from .30 to .50 improved smoothed forecast.
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A variation on MAD is the mean absolute percent deviation (MAPD). Measures absolute error as a percentage of demand rather than per period. Eliminates problem of interpreting the measure of accuracy relative to the magnitude of the demand and forecast values. Formula:
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Cumulative error is the sum of the forecast errors (E =et). A relatively large positive value indicates forecast is biased low, a large negative value indicates forecast is biased high. If preponderance of errors are positive, forecast is consistently low; and vice versa. Cumulative error for trend line is always almost zero, and is therefore not a good measure for this method. Cumulative error for PM Computer Services can be read directly from Table 15.8. E = et = 49.31 indicating forecasts are frequently below actual demand.
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Cumulative error for other forecasts: Exponential smoothing (E = .50): E = 33.21 Adjusted exponential smoothing (E = .50, F =.30): E = 21.14
Average error (bias) is the per period average of cumulative error. Average error for exponential smoothing forecast: et 49.31 E! ! ! 4.48 n 11 A large positive value of average error indicates a forecast is biased low; a large negative error indicates it is biased high.
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Results consistent for all forecasts: Larger value of alpha is preferable. Adjusted forecast is more accurate than exponential smoothing. Linear trend is more accurate than all the others.
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Exhibit 15.1
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.2
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.3
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.4
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.5
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.6
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Exhibit 15.7
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Time series techniques relate a single variable being forecast to time. Regression is a forecasting technique that measures the relationship of one variable to one or more other variables. Simplest form of regression is linear regression.
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x (wins) 4 6 6 8 6 7 5 7 49
y (attendance, 1,000s) 36.3 40.1 41.2 53.0 44.0 45.6 39.0 47.5 346.7
x2 16 36 36 64 36 49 25 49 311
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Value lies between +1 and -1. Value of zero indicates little or no relationship between variables. Values near 1.00 and -1.00 indicate strong linear relationship.
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(8)(2,167.7) (49)(346.7)
(8)(311) (49)(49)(8)(15,224.7) (346.7)2
! .948
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The Coefficient of determination is the percentage of the variation in the dependent variable that results from the independent variable. Computed by squaring the correlation coefficient, r.
r = .948, r2 = .899 This value indicates that 89.9% of the amount of variation in attendance can be attributed to the number of wins by the team, with the remaining 10.1% due to other, unexplained, factors.
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Exhibit 15.8
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.9
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Exhibit 15.10
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.11
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.12
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Exhibit 15.13
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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Wins Promotion ($) Attendance 4 29,500 36,300 6 55,700 40,100 6 71,300 41,200 8 87,000 53,000 6 75,000 44,000 7 72,000 45.600 5 55,300 39,000 7 81,600 47,500
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Exhibit 15.14
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Exhibit 15.15
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
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For data below, develop an exponential smoothing forecast using E = .40, and an adjusted exponential smoothing forecast using E = .40 and F = .20. Compare the accuracy of the forecasts using MAD and cumulative error.
Period 1 2 3 4 5 6 7 8 Units 56 61 55 70 66 65 72 75
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Develop a linear regression model Determine the strength of the linear relationship using correlation. Determine a forecast for lumber given 10 building permits in the next quarter.
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Quarter 1 2 3 4 5 6 7 8 9 10
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r!
n xy x y 2 2 x2 n y 2 y
n x
r!
(10)(1,170 .3) (92)(128 .6) 2 (10)(932) (92)(92) (10)(1,810 .48) (128 .6)
! .925
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