4 - 1 course title: production and operations management course code: mgt 362 course book:...
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Course Title: Production and Operations Management
Course Code: MGT 362
Course Book: Operations Management 10th Edition. By Jay Heizer & Barry Render
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Chapter 4: ForecastingChapter 4: Forecasting
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Outline
Global Company Profile: Disney World
What Is Forecasting?
Forecasting Time Horizons
The Influence of Product Life Cycle
Types Of Forecasts
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Outline – Continued
The Strategic Importance of Forecasting
Human Resources
Capacity
Supply Chain Management
Seven Steps in the Forecasting System
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Outline – Continued
Forecasting Approaches
Overview of Qualitative Methods
Overview of Quantitative Methods
Time-Series Forecasting
Decomposition of a Time Series
Naive Approach
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Outline – Continued
Time-Series Forecasting (cont.)
Moving Averages
Exponential Smoothing
Exponential Smoothing with Trend Adjustment
Trend Projections
Seasonal Variations in Data
Cyclical Variations in Data
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Outline – Continued
Associative Forecasting Methods: Regression and Correlation Analysis
Using Regression Analysis for Forecasting
Standard Error of the Estimate
Correlation Coefficients for Regression Lines
Multiple-Regression Analysis
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Outline – Continued
Monitoring and Controlling Forecasts
Adaptive Smoothing
Focus Forecasting
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Forecasting at Disney World
Global portfolio includes parks in Hong Kong, Paris, Tokyo, Orlando, and Anaheim
Revenues are derived from people – how many visitors and how they spend their money
Daily management report contains only the forecast and actual attendance at each park
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Forecasting at Disney World
Disney generates daily, weekly, monthly, annual, and 5-year forecasts
Forecast used by labor management, maintenance, operations, finance, and park scheduling
Forecast used to adjust opening times, rides, shows, staffing levels, and guests admitted
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Forecasting at Disney World
20% of customers come from outside the USA
Economic model includes gross domestic product, cross-exchange rates, arrivals into the USA
A staff of 35 analysts and 70 field people survey 1 million park guests, employees, and travel professionals each year
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Forecasting at Disney World
Inputs to the forecasting model include airline specials, Federal Reserve policies, Wall Street trends, vacation/holiday schedules for 3,000 school districts around the world
Average forecast error for the 5-year forecast is 5%
Average forecast error for annual forecasts is between 0% and 3%
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What is Forecasting?
Process of predicting a future event
Underlying basis of all business decisions
Production
Inventory
Personnel
Facilities
??
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Short-range forecast Up to 1 year, generally less than 3 months
Purchasing, job scheduling, workforce levels, job assignments, production levels
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
Forecasting Time Horizons
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Distinguishing Differences
Medium/long rangeMedium/long range forecasts deal with more comprehensive issues and support management decisions regarding planning and products, plants and processes
Short-termShort-term forecasting usually employs different methodologies than longer-term forecasting
Short-termShort-term forecasts tend to be more accurate than longer-term forecasts
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Influence of Product Life Cycle
Introduction and growth require longer forecasts than maturity and decline
As product passes through life cycle, forecasts are useful in projecting
Staffing levels
Inventory levels
Factory capacity
Introduction – Growth – Maturity – DeclineIntroduction – Growth – Maturity – Decline
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Product Life Cycle
Best period to increase market share
R&D engineering is critical
Practical to change price or quality image
Strengthen niche
Poor time to change image, price, or quality
Competitive costs become criticalDefend market position
Cost control critical
Introduction Growth Maturity Decline
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Figure 2.5
Internet search engines
Sales
Drive-through restaurants
CD-ROMs
Analog TVs
iPods
Boeing 787
LCD & plasma TVs
Avatars
Xbox 360
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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
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Strategic Importance of Forecasting
Human Resources – Hiring, training, laying off workers
Capacity – Capacity shortages can result in undependable delivery, loss of customers, loss of market share
Supply Chain Management – Good supplier relations and price advantages
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Seven Steps in Forecasting
1. Determine the use of the forecast
2. Select the items to be forecasted
3. Determine the time horizon of the forecast
4. Select the forecasting model(s)
5. Gather the data
6. Make the forecast
7. Validate and implement results
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The Realities!
Forecasts are seldom perfect
Most techniques assume an underlying stability in the system
Product family and aggregated forecasts are more accurate than individual product forecasts
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Forecasting Approaches
Used when situation is vague and little data exist
New products
New technology
Involves intuition, experience
Qualitative MethodsQualitative Methods
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Forecasting Approaches
Used when situation is ‘stable’ and historical data exist
Existing products
Current technology
Involves mathematical techniques
Quantitative MethodsQuantitative Methods
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Overview of Qualitative Methods
1. Jury of executive opinion
Pool opinions of high-level experts, sometimes augment by statistical models
2. Delphi method
Panel of experts, queried iteratively
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Overview of Qualitative Methods
3. Sales force composite
Estimates from individual salespersons are reviewed for reasonableness, then aggregated
4. Consumer Market Survey
Ask the customer
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Involves small group of high-level experts and managers
Group estimates demand by working together
Combines managerial experience with statistical models
Relatively quick
‘Group-think’disadvantage
Jury of Executive Opinion (1/4)
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Sales Force Composite (2/4)
Each salesperson projects his or her sales
Combined at district and national levels
Sales reps know customers’ wants
Tends to be overly optimistic
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Delphi Method (3/4)
Iterative group process, continues until consensus is reached
3 types of participants
Decision makers
Staff
Respondents
Staff(Administering
survey)
Decision Makers(Evaluate
responses and make decisions)
Respondents(People who can make valuable
judgments)
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Consumer Market Survey (4/4)
Ask customers about purchasing plans
What consumers say, and what they actually do are often different
Sometimes difficult to answer
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Summary (1/2)
Global Company Profile: Disney World
What Is Forecasting?
Forecasting Time Horizons
The Influence of Product Life Cycle
Types Of Forecasts
The Strategic Importance of Forecasting
Human Resources
Capacity
Supply Chain Management
Seven Steps in the Forecasting System
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Summary (2/2)
Forecasting Approaches
Overview of Qualitative Methods
Overview of Quantitative Methods