PRODUCTION AND OPERATIONS MANAGEMENT

FORECASTING
Submitted To : Mr. Saurabh Chaturvedi 18-11-2013

NEETEK KUMAR

PRASHANT TYAGI

B.FTECH

SEM 5

FORECASTING

A Forecast is an estimate of a future event achieved by systematically combining and casting forward in a predetermined way data about the past. A way of addressing complex and uncertain environment surrounding business decision-making. A vital pre-requisite for the planning process in organizations. A tool for predicting events related to operations planning & control.

NEED FOR FORECASTING

Understanding Dynamic & Complex environment Managing Short-term fluctuations in production Better Materials Management Rationalized man-power decisions Providing a basis for
Strategic decisions Planning & scheduling

FORECASTING SUBSYSTEM

Forecasts are necessary for planning , scheduling and controlling the system to facilitate effective and eficient output of goods and services. 1. Planning the system : managers need to forecast agregate demands so that they can design or redesign processes necessary to meet the demand The Degree of automation. 2. Scheduling the system : 3. Controlling the system : managers need forecasts of demands to make descisons about controlling the inventory , production , labor and overall costs.

TIME HORIZON
Criterion Typical Duration Nature of decisions Key considerations Nature of data Degree of uncertainty Some examples Short-term
1 3 months Purely Tactical Random (shortterm) effects Mostly quantitative Low Revising quarterly production plans Rescheduling supply of raw material

Medium-term
12 18 months Tactical as well as Strategic Seasonal and Cyclical effects Subjective & Quantitative Significant Annual Production Planning Capacity Augmentation

Long-term
More than 2 Years Purely Strategic Long-term trends Business Cycles Largely subjective High New Product Introduction Facilities Location decisions New business development

METHODS OF FORECASTING

Qualitative use management judgment, expertise, and opinion to predict future demand

Time series statistical techniques that use historical demand data to predict future demand
Causal/Regression methods attempt to develop a mathematical relationship between demand and factors that cause its behavior

DELPHI TECHNIQUE

The Delphi method is a structured communication technique, originally developed as a systematic, interactive forecasting method which relies on a panel of experts.

The experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts forecasts from the previous round as well as the reasons they provided for their judgments.

STEPS
l. Choose the experts to participate representing a variety of knowledgeable people in different areas. 2. Through a questionnaire (or E-mail), obtain forecasts (and any premises or qualifications for the forecasts) from all participants. 3. Summarize the results and redistribute them to the participants along with appropriate new questions. 4. Summarize again, refining forecasts and conditions, and again develop new questions. 5. Repeat Step 4 as necessary and distribute the final results to all participants.

KEY CHARACHTERISTICS 1. Anonymity of the participants 2. Structuring the information flow 3. Regular feedback 4. Role of the facilitator

ADVANTAGES
An organized method for collecting views and information pertaining to specific area.
A method that allows dialouge between geographically separated experts while serving an effective means for learning. Gathering a group of experts to forecast events and assess complex issues. Collective human intelligence.

SIMPLE MOVING AVERAGES

A simple moving average combines the demand data from several of the most recent periods , their average being the forecast for the next period. Once the number of past periods to be used in the calculations has been selected , it is held constant. MA = Sum of demands for periods / chosen number of periods

Dt 1 Dt 2 Dt 3 . . . Dt n Ft n

WEIGHTED MOVING AVERAGE

This model demands uneven weighting of demand.

Dt 1Wt 1 Dt 2Wt 2 Dt 3Wt 3 . . . Dt nWt n Ft Wt 1 Wt 2 Wt 3 . . . Wt n

REGRESSION TIME SERIES

COMPONENTS

Trend

Long term secular movement in the pattern

Seasonality Cyclical

Fixed cycles in which the time series data often move from period to period Business cycles that repeat over a much longer period of say 10 20 years

Random

Uncontrollable events happening in the short term that could influence the demand

Trend 900 800 700 600 500 400 300 200 100 0

Actual Demand

11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

43

45

Month

47

Demand

Random movement Time (a) Trend Time (b) Cycle

Demand

Time (c) Seasonal pattern

Demand Time (d) Trend with seasonal pattern

Demand

THANK YOU