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Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions

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Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions. Since the future is unknown, it is expected that some errors between a forecast and actual demand will exist, so the goal of a good forecasting technique would be to minimize the difference between the forecast and the actual demand. Address the following requirements: • • Articulate the difference in short and long-term forecasts, forecasting techniques, and the benefits and challenges of each technique. Create a forecast for a situation with which you are familiar (personal or professional) explaining the situation and why you chose the method of forecasting that you did. Embed course material concepts, principles, and theories, which require supporting citations along with at least two scholarly, peer-reviewed references in supporting your answer. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Forecasting Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-1 You should be able to: LO 3.1 List features common to all forecasts LO 3.2 Explain why forecasts are generally wrong LO 3.3 List elements of a good forecast LO 3.4 Outline the steps in the forecasting process LO 3.5 Summarize forecast errors Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-2 ? Forecast – a statement about the future value of a variable of interest ? We make forecasts about such things as weather, demand, and resource availability ? Forecasts are important to making informed decisions Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-3 ? Expected level of demand ? The level of demand may be a function of some structural variation such as trend or seasonal variation ? Accuracy ? Related to the potential size of forecast error Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-4 ? Plan the system ? Generally involves long-range plans related to: ? Types of products and services to offer ? Facility and equipment levels ? Facility location ? Plan the use of the system ? Generally involves short- and medium-range plans related to: ? Inventory management ? Workforce levels ? Purchasing ? Production ? Budgeting ? Scheduling Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-5 1. 2. 3. 4. LO 3.1 Techniques assume some underlying causal system that existed in the past will persist into the future Forecasts are not perfect Forecasts for groups of items are more accurate than those for individual items Forecast accuracy decreases as the forecasting horizon increases Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-6 ? Forecasts are not perfect: ? Because random variation is always present, there will always be some residual error, even if all other factors have been accounted for. LO 3.2 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-7 The forecast ? Should be timely ? Should be accurate ? Should be reliable ? Should be expressed in meaningful units ? Should be in writing ? Technique should be simple to understand and use ? Should be cost-effective LO 3.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-8 1. 2. 3. 4. 5. 6. LO 3.4 Determine the purpose of the forecast Establish a time horizon Obtain, clean, and analyze appropriate data Select a forecasting technique Make the forecast Monitor the forecast errors Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-9 ? Allowances should be made for forecast errors ? It is important to provide an indication of the extent to which the forecast might deviate from the value of the variable that actually occurs ? Forecast errors should be monitored ? Error = Actual – Forecast ? If errors fall beyond acceptable bounds, corrective action may be necessary LO 3.5 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-10