OM 300 Final Exam Study Guide
Chapter 4: Forecasting
Forecasting Steps- 1. Determine the use of the forecast.
2. Select the items to be forecasted.
3. Determine the time horizon of the forecast.
4. Select the forecasting models.
5. Gather the data.
6. Make the forecast.
7. Validate and implement results.
1. Qualitative Method- Used when a situation is vague and little data exist. Used for new products and new technology. Involves intuition, experience. E.G., forecasting sales on Internet. a. Jury of executive opinion: Pool opinions of high-level experts, sometimes augmented by statistical models. b. Delphi Method: Panel of experts, queried iteratively (questions you keep doing) c. Sales force composite: Estimates from individual salespersons are reviewed for reasonableness, then aggregated. d. Consumer Market Survey: Ask the customer.
2. Quantitative Method- Used when situation is “stable” and historical data exists. Used for existing products and current technology. Involves mathematical techniques. E.G., forecasting sales of color televisions. Naïve approach, moving averages, exponential smoothing, trend projection, linear regression. Time Series Forecasting- Set of evenly spaced numerical data. Obtained by observing response variable at regular time periods. Forecast based only on past values, no other variables important. Assumes that factors influencing past and present will continue influence in future. Trend Component- Persistent, overall upward or downward pattern. Changes due to population, technology, age, culture, etc. Typically several years duration. Seasonal Component- Regular pattern of up and down fluctuations. Due to weather, customs, etc. Occurs within a single unit (length). Cyclical Component- Repeating up and down movements. Affected by business cycle, political, and economic factors. Multiple years duration. Often casual or associative relationships. Naïve Approach- Assumes demand in next period is the same as demand in most recent period. Sometimes cost effective and efficient. Can be good starting point. Moving Average Method- MA is a series of arithmetic means. Used if little or no trend. Used often for smoothing. Provides overall impression of data over time. MA= (summation of) demand in previous n period/n
Weighted Moving Average- Used when some trend might be present. Older data usually less important. Weights based on experience and intuition. Weighted Moving Average= (summation of) weight for period n x demand in period n/(summation of) weights
Chp. 12: Inventory Management
Types of Inventories:
1. Raw Material- Purchased but not processed.
2. Work-in-Process- Undergone some change but not completed. A function of cycle time for a product. 3. Maintenance/Repair/Operating (MRO)- Necessary to keep machinery and processes productive. 4. Finished Goods- Completed product awaiting shipment.
Inventory Management Issues and Decisions- How inventory items can be classified, how accurate inventory records can be maintained. ABC Analysis divides inventory into three classes based on annual dollar volume. Cycle Counting- Items are counted and records updated on a periodic basis. Often used with ABC analysis to determine cycle. Holding Costs- The costs of holding or “carrying” inventory over time. Ordering Costs- The costs of placing an order and receiving goods. Setup Costs- Cost to prepare a machine or process for manufacturing an order. Control of Service Inventories: Can be a critical component of profitability. Losses may come from shrinkage or pilferage. Applicable techniques include: 1. Good personnel selection, training, and discipline. 2. Tight control on incoming shipments. 3. Effective control on all goods leaving facility. Independent Demand- The demand for item is interdependent of the demand for any other item in inventory. Dependent Inventory- The demand for item is...
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