Lecture Introduction to operations management - Chapter 11: Forecasting

In this chapter we will discuss: A forecasting framework, qualitative forecasting methods, time-series forecasting, moving average, exponential smoothing, forecasting errors, advanced time-series forecasting, causal forecasting methods, selecting a forecasting method.

Contemporary Concepts and Cases

Chapter Eleven Forecasting

Use of Forecasting: Operations Decisions

Time Horizon

Accuracy Required

Number of Forecasts

Management Level

Forecasting Method Process

Inventory

11­4

Use of Forecasting: Marketing, Finance & HR

Time Horizon

Accuracy Required

Number of Forecasts

Management Level

Forecasting Method Long-range

‘Qualitative’ Forecasting Methods

2 1

F

Figure 11.2: Time-Series Data

Note: The more periods, the smoother the forecast.

Simple Exponential Smoothing

t

t F D F

Exponential

Smoothing-calculation Facts:

e  

=   CFE

Cumulative sum of

Forecast Errors

n

t n

=1 i

e  

=   MSE

2

Mean Square Error

n

| e

|  

=   MAD

t n

=1 i

Mean Absolute

Deviation

n

| D

e

|  

=  

t n

=1 i

100

Mean Absolute Percentage Error

MAD

e  

=  

n

=1 i

Tracking Signal

n

t n

=1 i

e  

=   ME

Mean Error

Time Series vs Causal Models

yˆ

Example of Time Series Model

Selecting a Forecasting Method

Collaborative Planning, Forecasting

End of Chapter Eleven