Chp. 8 Outline

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CHAP 8.

1) Forecasting- the process of predicting future events
-important bc it drives all other business decisions (forecasting drives the plan, plan is made due to forecast)
-poor forecasting can lead to loss of sales of increase costs. Leave company unprepared

forecasting is an ongoing process that is always changing as new information and data become available.

2) Planning- selecting actions in anticipation for the forecast.

1)scheduling existing resources- use resources in the most efficient way possible 2)determining future resource needs- see what resources are going to be needed 3)acquiring new resources- make advanced plans to acquire new resources

Confusion between forecasting and planning- 3) demand management (process of influencing demand)- companies have an effect in demand (i.e promotion, ads, cutting prices)

Demand management cannot occur without forecasting first. Then planning, then demand management.

-=Impact on org.

Plans at all levels of the organization, from the strategic level where long-range plans are made, to the tactical where day-to-day scheduling is made, are based on forecasting. Also, forecasting drives the decisions of every organizational function.

-=Impact on SCM

The forecast of demand is critical not only to the organization but to the entire supply chain, as it affects all the plans made by each company in the chain. When members of the supply chain make their forecasts independent of one another, they are only looking at the demand of their immediate buyer not the final customer in the chain. The consequences are a mismatch between supply and demand because each member oft he chain is working to fufill a different level of demand.

Can cause bullwhip effect

-==Principles of Forecasting-==

1) Forecasts are rarely perfect. A perfect forecast is rare as there are too many factors in the business environment that cannot be predicted with certainty. Forecasters know that it will not always be perfect and there will be error. But it’s still good to have somewhat of an idea rather than not know anything at all.

2) Forecasts are more accurate for groups than for individual items. When items are Grouped together, such as in product groups or families of items, their individual high and low values cancel each other out. The data for a group of items can be stable even when individual items in the group are unstable.

3) Forecasts are more accurate for shorter than longer time horizons. -Data does not change much in the short run. As the time increases, however, there is a much greater likelihood that changes in established patterns and relation- ships will occur. Longer time horizon= greater uncertainty.

=-Steps in the Forecasting process-=

1)decide what to forecast-
2)Analyze appropriate data- identifying patterns and present data.
-level/ horizontal- simple. Surrounds a constant mean
-trend- decreasing or increasing pattern overtime
-seasonality- regularly repeating pattern
-cycles- economic fluctuations (recessions)

3)select forecasting model- once data patterns are found now it is time to select forecasting model. 4)Generate Forecasts-
5)Monitor forecast accuracy- after events have occurred it is important to evaluate performance by looking at forecasts errors. Helps improve forecasting.

-=Factors in method selection-=

-Amount and type of available data. Different forecasting methods require different types and quantities of data.
-Degree of accuracy required. costly to develop. The costs of the forecasting -method need to justify the importance of the forecast.
-Length of forecast horizon. Some forecasting methods are better suited for short- -term forecasts, whereas others are better suited for long term. -Patterns in data. Selecting right method for pattern.

==TYPES OF FORECASTING METHODS===

** Qualitative forecasting methods (judgmental methods)- based on subjective opinions...
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