forecasting

• A forecast is a prediction of what will occur in the future.
• Short-range forecasts are daily operations.
• Medium-range forecasts are usually from a month up to a year
• Long-range forecasts are more strategic and for over a year
• A variety of forecasting methods exist, and their applicability is dependent on the time frame of the forecast (i.e., how far in the future we are forecasting), the existence of patterns in the forecast (i.e., seasonal trends, peak periods), and the number of variables to which the forecast is related.
• the farther into the future one seeks to predict, the more difficult forecasting becomes
• Long-range forecasts are related to management’s attempt to plan new products for changing markets, build new facilities, or secure long-term financing.
• The line of demarcation between medium- and long-range forecasts is often quite arbitrary and not always distinct.
• A trend is a gradual, long-term, up-or-down movement of demand.
• Random variations are unpredictable movements in demand that follow no pattern
• A cycle is an up-and-down repetitive movement in demand
• Trends are the easiest patterns of demand behavior to detect and are often the starting point for developing a forecast.
• Trends are the easiest patterns of demand behavior to detect and are often the starting point for developing a forecast.
• A seasonal pattern is an up-and-down, repetitive movement within a trend occurring periodically.
• Types of forecasting methods are time series, regression, and qualitative.
• There are instances in which demand behavior exhibits no pattern. These are referred to as irregular movements, or variations.
• Time series forecasts are statistical techniques that use historical data
• Regression develops a mathematical relationship between the forecasted item and factors that cause it to behave the way it does
• Qualitative methods use judgment, expertise, and opinion to make forecasts
• Qualitative methods use management judgment, expertise, and opinion to make forecasts. Often called “the jury of executive opinion,” they are the most common type of forecasting method for the long-term strategic planning proces
• top managers are the key group involved in the development of forecasts for strategic plans
• The sales force is a direct point of contact with the consumer.
• Consumer, or market, research is an organized approach that uses surveys and other research techniques to determine what products and services customers want and will purchase, and to identify new markets and sources of customers.
• Delphi method is a procedure for acquiring informed judgments and opinions from knowledgeable individuals, using a series of questionnaires to develop a consensus forecast about what will occur in the future
• Time series methods assume that what has occurred in the past will continue to occur in the future. As the name time series suggests, these methods relate the forecast to only one factor—time.
• Time series methods tend to be most useful for short-range forecasting, although they can be used for longer-range forecasting.
• The moving average method is good for stable demand with no pronounced behavioral patterns.
• moving average formula
• Longer-period moving averages react more slowly to recent demand changes than do shorter-period moving averages.
• The major disadvantage of the moving average method is that it does not react well to variations that occur for a reason, such as trends and seasonal effects
• In a weighted moving average, weights are assigned to the most recent data.
• If the most recent months are weighted too heavily, the forecast might overreact to a random fluctuation in orders; if they are weighted too lightly, the forecast might under react to an actual change in the pattern of orders.
• Exponential smoothing is an averaging method that reacts more strongly to recent changes in demand than to more distant past data
• The smoothing constant, is between zero and one. It reflects the weight given to the most recent demand data
• The closer is to one, the greater the reaction to the most recent demand.
• the higher is, the more sensitive the forecast will be to changes in recent demand.
• when demand is relatively stable, without any trend, using a small value for is more appropriate to simply smooth out the forecast
• Adjusted exponential smoothing is the exponential smoothing forecast with an adjustment for a trend added to it
• The closer is to one, the stronger a trend is reflected
• adjusted forecast is consistently higher than the exponentially smoothed forecast and is thus more reflective of the generally increasing trend of the actual data. However, in general, the pattern, or degree of smoothing, is very similar for both forecasts.