CHAPTER 5

• Forecasts - are a basic input in the decision processes of operations management because they provide information on future demand.
• The importance of forecasting to operations management cannot be overstated.
• The primary goal of operations management is to match supply to demand.
• 2 aspects of forecast are important and they are

  expexted level of demand

  degree of accuracy
• degree of accuracy - that can be assigned to a forecast
• expected level of demand - can be a function of some structural variation, such as a trend or seasonal variation.
• Forecast accuracy - is a function of the ability of forecasters to correctly model demand, random variation, and sometimes unforeseen events.
• Forecasts - are the basis for budgeting, planning capacity, sales, production and inventory, personnel, purchasing, and more.
• Forecasts - affect decisions and activities throughout an organization, in accounting, finance, human resources, marketing, and management information systems (MIS), as well as in operations and other parts of an organization.
• Accounting - New product/process cost estimates, profit projections, cash management.
• Finance - Equipment/equipment replacement needs timing and amount of funding / borrowing needs.
• Human resources - Hiring activities, including recruitment, interviewing, and training; layoff planning, including outplacement counselling.
• Marketing - Pricing and promotion, e-business strategies, global competition strategies. MIS. New/revised information systems, Internet services.
• Operations - Schedules, capacity planning, work assignments and workloads, inventory planning, make-or-buy decisions, outsourcing, project management
• Product/service design - Revision of current features, design of new products or services
• Forecasting - is also an important component of yield management, which relates to the percentage of capacity being used.
• Accurate forecasts - can help managers plan tactics (e.g., offer discounts, don’t offer discounts) to match capacity with demand, thereby achieving high yield levels.
• two uses for forecasts

  planning the system

  planning the use of the system
• Planning the system - generally involves long-range plans about the types of products and services to offer, what facilities and equipment to have, where to locate, and so on.
• Planning the use of the system - refers to short-range and intermediate-range planning, which involve tasks such as planning inventory and workforce levels, planning purchasing and production, budgeting, and scheduling.
• Business forecasting - pertains to more than predicting demand.
• Forecasts - are also used to predict profits, revenues, costs, productivity changes, prices and availability of energy and raw materials, interest rates, movements of key economic indicators (e.g., gross domestic product, inflation, government borrowing), and prices of stocks and bonds.
• Features Common to All Forecasts - A wide variety of forecasting techniques are in use.
• Features Common to All Forecasts

  A) past

  B) future

  C) not perfect

  D) allowances

  E) decreases

  F) short-range forecast

  G) longer-range forecast

  H) shorter

  
• Forecasting is the key to planning.
• Planning - decides the future course of action which is expected to take place in certain circumstances and conditions.
• Forecasting - provides the knowledge of planning premises within which the managers can analyse their strengths and weaknesses and can take appropriate actions in advance before actually they are put out of market.
• Forecasting - provides the knowledge about the nature of future conditions
• Forecasting indirectly provides the way for effective co-ordination and control.
• Information - is collected from various internal and external sources
• Success in Organisation - All business enterprises are characterised by risk and have to work within the ups and downs of the industry.
• risk - depends on the future happenings and forecasting provides help to overcome the problem of uncertainties.
• forecasting - cannot check the future happenings, it provides clues about those and indicates when the alternative actions should be taken.
• The forecast should be timely - Usually, a certain amount of time is needed to respond to the information contained in a forecast. For example, capacity cannot be expanded overnight, nor can inventory levels be changed immediately. Hence, the forecasting horizon must cover the time necessary to implement possible changes.
• The forecast should be accurate - and the degree of accuracy should be stated. This will enable users to plan for possible errors and will provide a basis for comparing alternative forecasts.
• The forecast should be reliable - it should work consistently. A technique that sometimes provides a good forecast and sometimes a poor one will leave users with the uneasy feeling that they may get burned every time a new forecast is issued.
• The forecast should be expressed in meaningful units - Financial planners need to know how many dollars will be needed, production planners need to know how many units will be needed, and schedulers need to know what machines and skills will be required. The choice of units depends on user needs.
• The forecast should be in writing - Although this will not guarantee that all concerned are using the same information, it will at least increase the likelihood of it. In addition, a written forecast will permit an objective basis for evaluating the forecast once actual results are in.
• The forecasting technique should be simple to understand and use -Users often lack confidence in forecasts based on sophisticated techniques; they do not understand either the circumstances in which the techniques are appropriate or the limitations of the techniques. Misuse of techniques is an obvious consequence. Not surprisingly, fairly simple forecasting techniques enjoy widespread popularity because users are more comfortable working with them.
• The forecast should be cost-effective - The benefits should outweigh the costs.