Lecture Fundamentals of operations management (4/e): Chapter 12 - Davis, Aquilano, Chase

Chapter 9 Forecasting, after studying this chapter you will be able to: Introduce the basic concepts of forecasting and its importance within an organization, identify several of the more common forecasting methods and how they can improve the performance of both manufacturing and service operations, provide a framework for understanding how forecasts are developed,…

DAVIS F   O   U   R   T   H       E   D   I   T   I   O   N AQUILANO CHASE chapter Forecasting PowerPoint Presentation by Charlie Cook © The McGraw-Hill Companies, Inc., 2003 Chapter Objectives Chapter Objectives • Introduce the basic concepts of forecasting and its importance within an organization • Identify several of the more common forecasting methods and how they can improve the performance of both manufacturing and service operations • Provide a framework for understanding how forecasts are developed • Demonstrate that errors exist in all forecasts and show how to measure and assess these errors • Discuss some of the software programs that are © The McGraw­Hill  available for developing forecasting models Fundamentals of Operations  Companies, Inc., 2003 Management 4e  9–2 Managerial Issues Managerial Issues • Recognizing the increased importance of forecasting in both manufacturing and services • How to go about implementing forecasting at all levels in the organization • Understanding how managers can use the various forecasting methods to decide when to add manufacturing capacity and where to locate retail service outlets for maximum sales Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 9–3 Types of Forecasting Types of Forecasting • Qualitative Techniques –Nonquantitative forecasting techniques based on expert opinions and intuition Typically used when there are no data available • Time Series Analysis –Analyzing data by time periods to determine if trends or patterns occur • Causal Relationship Forecasting –Relating demand to an underlying factor other than time © The McGraw­Hill  Fundamentals of Operations  Companies, Inc., 2003 Management 4e  9–4 Comparing the Costs and Benefits Comparing the Costs and Benefits of Forecasting of Forecasting Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.1 9–5 Forecasting Techniques and Common Models Forecasting Techniques and Common Models Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.2a 9–6 Forecasting Techniques and Common Models Forecasting Techniques and Common Models Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.2b 9–7 Comparison of Forecasting Techniques Comparison of Forecasting Techniques Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.3 9–8 Components of Demand Components of Demand • Average Demand for the Period • Trends • Seasonal Influence • Cyclical Elements • Random Variation Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 9–9 Historical Monthly Product Demand Consisting of a Growth  Historical Monthly Product Demand Consisting of a Growth  Trend, Cyclical Factor, and Seasonal Demand Trend, Cyclical Factor, and Seasonal Demand Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.4 9–10 The Percentage of Points Included within the  The Percentage of Points Included within the  Control Limits for a Range of 0 to 4 MADs Control Limits for a Range of 0 to 4 MADs Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.12 9–28 Forecasting Errors in  Forecasting Errors in  Time Series Analysis (cont’d) Time Series Analysis (cont’d) • Mean Absolute Percentage Error (MAPE) –Used to determine the forecasting errors as a percentage of the actual demand At F t Ft n MAPE t n At = Actual demand 100 © The McGraw­Hill  Fundamentals of Operations  Ft = Forecast demand Companies, Inc., 2003 Management 4e n = number of periods in forecast9–29 Linear Regression Analysis Linear Regression Analysis • Linear Regression Analysis –A forecasting technique that assumes that the relationship between the dependent and independent variables is a straight line Y a bX Y = Dependent variable to be solved for a = Y intercept b = Slope of the XY relationship © The McGraw­Hill  X = Independent variable (e.g., units of time) Fundamentals of Operations  Companies, Inc., 2003 Management 4e  9–30 Least Squares Regression Line Least Squares Regression Line Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.13 9–31 Least  Least  Squares  Squares  Regression  Regression  Analysis Analysis Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.14A 9–32 Linear Regression Analysis (cont’d) Linear Regression Analysis (cont’d) • Standard Error of the Estimate –A measure of the dispersion of data about a regression line –How well (or closely) the regression line fits the data n SYX i Fundamentals of Operations  Management 4e  yi yˆ i n 2 © The McGraw­Hill  Companies, Inc., 2003 9–33 Standard Error of the Estimate in a Spreadsheet Standard Error of the Estimate in a Spreadsheet Fundamentals of Operations  Management4e âTheMcGrawưHill Companies,Inc.,2003 Exhibit 9.14B 934 CausalRelationshipForecasting CausalRelationshipForecasting ã Leading Indicator –An event whose occurrence causes, presages or influences the occurrence of another subsequent event • Warning strips on the highway • Prerequisites to a college course • An engagement ring Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 9–35 Causal Relationship: Sales to Housing Starts Causal Relationship: Sales to Housing Starts Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.15 9–36 Causal Relationship Forecasting Causal Relationship Forecasting • Reliability of Data –Coefficient of determination • The proportion of variability in demand that can be attributed to an independent variable r yi Y Fundamentals of Operations  Management 4e  yi y i ˆy i Y 2 © The McGraw­Hill  Companies, Inc., 2003 9–37 The Relationship between  The Relationship between Y, Y,  yyi,i,  ŷŷi, in  i, in  22 Determining  r Determining r Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.16 9–38 Causal Relationship Forecasting (cont’d) Causal Relationship Forecasting (cont’d) • Reliability of Data –Mean squared error—A measure of the variability in the data about a regression line MSE Fundamentals of Operations  Management 4e  yi yˆ i n âTheMcGrawưHill Companies,Inc.,2003 939 CausalRelationshipForecasting(contd) CausalRelationshipForecasting(contd) ã Multiple Regression Analysis –Forecasting using more than one independent variable; measuring the combined effects of several independent variables on the dependent variable Y a bx by bz Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 9–40 Causal Relationship Forecasting (cont’d) Causal Relationship Forecasting (cont’d) • Neural Networks –A forecasting technique simulating human learning that develops complex relationships between the model inputs and outputs FundamentalsofOperations Management4e âTheMcGrawưHill Companies,Inc.,2003 941 TheApplicationofForecastingto TheApplicationofForecastingto ServiceOperations ServiceOperations ã Real-time data acquisition makes information immediately available to decision makers –Point-of-Sale (POS) equipment –Yield management—attempts to maximize the revenues of a firm Fundamentals of Operations  Management 4e  © The McGraw­Hill  Companies, Inc., 2003 9–42 ... Trend, Cyclical Factor, and Seasonal Demand Fundamentals? ?of? ?Operations? ? Management? ?4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.4 9–10 Common Types? ?of? ?Trends Common Types? ?of? ?Trends Fundamentals? ?of? ?Operations? ? Management? ?4e ... © The McGraw­Hill  Fundamentals? ?of? ?Operations? ? Companies, Inc., 2003 Management? ?4e  9–4 Comparing the Costs and Benefits Comparing the Costs and Benefits of? ?Forecasting of? ?Forecasting Fundamentals? ?of? ?Operations? ?... Forecasting Techniques and Common Models Fundamentals? ?of? ?Operations? ? Management? ?4e  © The McGraw­Hill  Companies, Inc., 2003 Exhibit 9.2b 9–7 Comparison? ?of? ?Forecasting Techniques Comparison? ?of? ?Forecasting Techniques Fundamentals? ?of? ?Operations? ?