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# Forecasting

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### Forecasting

1. 1. FORECASTING  Forecasting is essential for a number of planning decisions.  Long term decisions New product introduction Plant expansion
2. 2. MEDIUM TERM DECISIONS  Aggregate production planning  Man power planning  Inventory policy SHORT TERM DECISIONS: • Production planning • Scheduling of job orders
3. 3. PLANNING PROCESS  A forecast of demand is an essential input for planning. System to be managed System objective s Plan of action Constraints budget/space Resources Men/materials Demand forecast
4. 4. METHODS OF FORECASTING (A) subjective or intuitive methods -opinion polls, interviews -Delphi (B) Methods based on averaging of past data -moving averages -exponential smoothing
5. 5. (C) Regression models on historical data -trend extrapolation (D) Causal or economic models (E) time- series analysis using stochastic models - Box Jenkins Models
6. 6. FORECASTING  Objective  Scientific  Free from ‘bias’  Reproducible  Error analysis possible PREDICTION  Subjective  Intuitive  Individual bias  Non reproducible  Error analysis limited
7. 7. NORMAL PATTERNS OF DEMAND  Constant  Linear trend  Cyclic  Seasonal pattern with growth
8. 8. ABNORMAL DEMAND PATTERNS Transient impulse sudden rise sudden fall
9. 9. OPINION POLLS  Personal interviews Eg: aggregation of opinion of sales representatives to obtain sales forecast of a region.  Knowledge base (experience)  Subjective bias  Questionnaire method  Questionnaire design  Choice of respondents  Obtaining respondents  Analysis and presentation of results (forecasting)  Telephonic conversation  Fast  DELPHI
10. 10. DELPHI  A structured method of obtaining responses from experts  Utilizes the vast knowledge base of experts  Eliminates subjective bias and ‘influencing’ the members through anonymity  Iterative in character with statistical summary at end of each round (generally 3 rounds)  Consensus (or divergent view points) usually emerge at the end of the exercise.
11. 11. DELPHI Coordinator mean median standard deviatiom 1990 1995 2000 2005 2010 year Exp ert 1 Exp ert 2 Exp ert n
12. 12. DELPHI  ROUND 1  ROUND 2  ROUND 3
13. 13. DELPHI-moving to divergent points  Round 1  Round 2  Round 3