Professional Documents
Culture Documents
Session 20
DELL forecasting for component purchase, INTEL forecasts also Coca Cola (regular forecast, incorporating promotions to update FC) Milk, mineral water, paper towels (easy forecasting) Fashion goods, technical products (difficult forecasting) Production: scheduling, inventory, aggregate planning Marketing: sales force allocation, promotions, new product introduction Finance: plant/equipment investment, budgetary planning Personnel: workforce planning, hiring, layoffs
Characteristics of Forecasting
Inaccurate:
Value of forecast Measure of forecast error Long term are less accurate (larger standard deviation of error) Short term are more accurate (7-Eleven quick replenishment) GDP for the US is easier to estimate than a companys yearly profit A products revenue is more difficult to forecast
Forecast horizon:
Components
Past
demand Lead time of product replenishment Planned advertising or marketing efforts State of the economy Planned price discounts Actions that competitors have taken
Forecasting Methods
Qualitative
primarily subjective, rely on human judgment Used where little historic data, new industries, new market insights Based on historic demand only assuming it is a good indicator of the future Used where demand is stable year on year Based on correlation of demand with factors of the environment. E.g. Demand strongly correlates with product pricing. Imitate consumer choices that give rise to demand Can combine time series and causal methods
Time Series
Causal
Simulation
Systematic component: Expected value of demand Random component: Part of forecast that deviates from the systematic component Forecast error: difference between forecast and actual demand
to define ideal levels of capacity, production, subcontracting, inventory, stock-outs and even pricing Satisfy demand while maximizing profits Aggregate decisions rather than SKU level decisions
Best
Specify
horizon:
Production rate, machine capacity level, inventory on hand, backlog, workforce, overtime, subcontracting
number of workers and supplier purchase levels how much warehouse space and working capital is needed what customer service levels will be human resource planning
quantity
held
quantity
poor aggregate plan can result in lost sales, lost profits, excess inventory, or excess capacity
capacity increase/decrease
Managing Demand:
Short-term