Operations management heizer 6e ch04

Operations
Management
Chapter 4 Forecasting
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006
Prentice
Hall, Inc. Hall, Inc.
©
2006
Prentice

4–1


Outline
 Global Company Profile:
Tupperware Corporation
 What Is Forecasting?
 Forecasting Time Horizons
 The Influence of Product Life Cycle

 Types Of Forecasts

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4–2

Outline – Continued
 The Strategic Importance Of
Forecasting
 Human Resources
 Capacity
 Supply-Chain Management

 Seven Steps In The Forecasting
System

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Outline – Continued
 Forecasting Approaches
 Overview of Qualitative Methods
 Overview of Quantitative Methods

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Outline – Continued
 Time-series Forecasting
Decomposition of a Time Series
Naïve Approach
Moving Averages

Exponential Smoothing
Exponential Smoothing with Trend
Adjustment
 Trend Projections
 Seasonal Variations in Data
 Cyclical Variations in Data






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Outline – Continued
 Associative Forecasting Methods:
Regression And Correlation
Analysis
 Using Regression Analysis to
Forecast
 Standard Error of the Estimate
 Correlation Coefficients for
Regression Lines
 Multiple-Regression Analysis
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Outline – Continued
 Monitoring And Controlling
Forecasts
 Adaptive Smoothing
 Focus Forecasting

 Forecasting In The Service Sector

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Learning Objectives
When you complete this chapter, you
should be able to :
Identify or Define:
 Forecasting
 Types of forecasts
 Time horizons
 Approaches to forecasts

© 2006 Prentice Hall, Inc.

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Learning Objectives

When you complete this chapter, you
should be able to :
Describe or Explain:
 Moving averages
 Exponential smoothing
 Trend projections
 Regression and correlation analysis
 Measures of forecast accuracy
© 2006 Prentice Hall, Inc.

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Forecasting at Tupperware
 Each of 50 profit centers around the
world is responsible for
computerized monthly, quarterly,
and 12-month sales projections
 These projections are aggregated by
region, then globally, at
Tupperware’s World Headquarters
 Tupperware uses all techniques
discussed in text
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Tupperware’s
Process

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Three Key Factors for
Tupperware
 The number of registered
“consultants” or sales
representatives
 The percentage of currently “active”
dealers (this number changes each
week and month)
 Sales per active dealer, on a weekly
basis
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Forecast by Consensus
 Although inputs come from sales,
marketing, finance, and production,
final forecasts are the consensus of
all participating managers
 The final step is Tupperware’s
version of the “jury of executive
opinion”

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What is Forecasting?
 Process of
predicting a future
event
 Underlying basis of
all business
decisions

??

 Production
 Inventory
 Personnel
 Facilities
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Forecasting Time Horizons
 Short-range forecast
 Up to 1 year, generally less than 3 months
 Purchasing, job scheduling, workforce levels,
job assignments, production levels

 Medium-range forecast
 3 months to 3 years
 Sales and production planning, budgeting

 Long-range forecast
 3+ years
 New product planning, facility location,
research and development
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Distinguishing Differences
 Medium/long range forecasts deal with
more comprehensive issues and support
management decisions regarding
planning and products, plants and
processes
 Short-term forecasting usually employs
different methodologies than longer-term
forecasting
 Short-term forecasts tend to be more
accurate than longer-term forecasts
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Influence of Product Life

Cycle
Introduction – Growth – Maturity – Decline
 Introduction and growth require longer
forecasts than maturity and decline
 As product passes through life cycle,
forecasts are useful in projecting
 Staffing levels
 Inventory levels
 Factory capacity
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Product Life Cycle
Company Strategy/Issues

Introduction

Growth

Maturity

Best period to
increase market
share

Practical to change
price or quality
image

Poor time to
change image,
price, or quality

R&D engineering is
critical

Strengthen niche

Competitive costs
become critical
Defend market
position

CD-ROM
Internet
Sales

Decline
Cost control
critical

Fax machines

Drive-through
restaurants

Color printers

Flat-screen
monitors

DVD

3 1/2”
Floppy
disks
Figure 2.5

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OM Strategy/Issues

Product Life Cycle
Introduction

Growth

Maturity

Decline

Product design
and
development
critical

Frequent
product and
process design
changes
Short production
runs
High production
costs
Limited models

Forecasting
critical
Product and
process
reliability
Competitive
product
improvements
and options
Increase capacity

Standardization
Less rapid
product changes
– more minor
changes
Optimum
capacity
Increasing
stability of

process
Long production
runs
Product
improvement and
cost cutting

Little product
differentiation
Cost
minimization
Overcapacity
in the
industry
Prune line to
eliminate
items not
returning
good margin
Reduce
capacity

Attention to
quality

Shift toward
product focus
Enhance
distribution

Figure 2.5
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Types of Forecasts
 Economic forecasts
 Address business cycle – inflation rate,
money supply, housing starts, etc.

 Technological forecasts
 Predict rate of technological progress
 Impacts development of new products

 Demand forecasts
 Predict sales of existing product

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Strategic Importance of
Forecasting
 Human Resources – Hiring, training,
laying off workers
 Capacity – Capacity shortages can
result in undependable delivery, loss
of customers, loss of market share

 Supply-Chain Management – Good
supplier relations and price advance

© 2006 Prentice Hall, Inc.

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Seven Steps in Forecasting
 Determine the use of the forecast
 Select the items to be forecasted
 Determine the time horizon of the
forecast
 Select the forecasting model(s)
 Gather the data
 Make the forecast
 Validate and implement results
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The Realities!
 Forecasts are seldom perfect
 Most techniques assume an
underlying stability in the system
 Product family and aggregated
forecasts are more accurate than
individual product forecasts

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Forecasting Approaches
Qualitative Methods
 Used when situation is vague
and little data exist
 New products
 New technology

 Involves intuition, experience
 e.g., forecasting sales on Internet
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Forecasting Approaches
Quantitative Methods
 Used when situation is ‘stable’ and
historical data exist
 Existing products
 Current technology

 Involves mathematical techniques
 e.g., forecasting sales of color
televisions
© 2006 Prentice Hall, Inc.

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