Learning Objectives

At the end of the chapter, the student is expected to:

1. Define and explain the demand management and forecasting system
Operations Management and 2. Differentiate forecasting approaches and techniques

Total Quality Management 3. Perform and apply steps of forecasting system

4. Solve and compute forecast demand using qualitative and quantitative techniques
Prepare forecast demand for operations decisions making purposes

Forecasting

1 2

What is Demand Management? Demand Management Process

 Demand Management is gauging the demand for a  Demand management is the supply chain
product or service in the future and planning the management process that balances the customers'
manufacturing so there wouldn’t be supply and requirements with the capabilities of the supply chain
demand gaps.

3 4

demand management techniques components of Demand Management

 The three, master production scheduling (MPS)  Forecasting
environments of :  Supply Planning
 make-to-stock (MTS)  Demand Analysis
 assemble-to-order (ATO)
 Sales and Operations Planning
 make-to-order (MTO)

5 6

MGT 1- Principles of Management 1

 Affirm or Negate What is Forecasting?
 Forecasting is the process of making predictions of
“Never forecast what you can calculate.” the future based on past and present data and most
commonly by analysis of trends
 Forecasting is the process of estimating the relevant
events of future, based on the analysis of their past
and present behavior

7 8

two sets of factors assessing forecast Approaches to Forecasting

 External forces (outside)  Top-down Approach
 Bottom-up Approach
 Internal forces

9 10

Measures to Increase the

Benefits of Forecasting effectiveness of Forecasting
 Future-oriented  Forecasting methods should be simple
 Identification of Critical Areas  Compare forecasts with the situation of “no change”
 Reduces Risk  Long range forecasts should not depend upon a single
 Coordination forecasting method
 Effective Management  Forecasts should not be made for very long periods
 Development of Executives  Managerial skill should be improved to make reliable
forecasts for planning decisions
 Forecasts should be based on facts and figures and not
personal biases of the forecaster

11 12

MGT 1- Principles of Management 2

 Process of Forecasting Steps in Forecasting
 Determine the objective for which forecast is  Developing the basis
required  Estimation of Future Operations
 Select the appropriate forecast method  Regulation of Forecasts
 Compare the actual results  Review of Forecasting Process
 Review and revise the forecasts

13 14

Techniques in Forecasting Methods in Qualitative Forecasting

 Quantitative Forecasting (Objective)  Executive Committee Consensus
 Qualitative Forecasting (Subjective)  Panel Approach
 Delphi Method
 Scenario Planning
 Sales Force Composite
 Customer Surveys

15 16

Methods in Quantitative Forecasting Forecast Accuracy

 Time Series Analysis  Forecast bias – persistent tendency for forecast to be greater
 Forecasting Unassigned Variation or less than the actual values of a time series.
 Forecast error – difference between the actual value and the
 Moving-Average Forecasting
value that was predicted for a given period.
 Exponentially smoothed forecasting
 Causal Models  Bias
 Other Forecasting Methods  Mean Absolute Deviation (MAD)
 Straight Line Method  Mean Absolute Percentage Error (MAPE)
 Simple Linear Regression  Mean Squared Error

17 18

MGT 1- Principles of Management 3

 Time Series Analysis Moving Average
Simple time series The moving-average
plot a variable over approach to forecasting
time then, by takes the previous n
removing underlying periods’ actual demand
variations with figures, calculates the
assignable causes, use average demand over
extrapolation the n periods, and uses
techniques to predict this average as a
future behavior forecast for the next
period’s demand

19 20

Exponential Smoothing Causal Models

The exponential- Causal models often
smoothing approach employ complex
forecasts demand in techniques to
the next period by understand the strength
taking into account the of relationships
actual demand in the between the network of
current period and the variables and the
forecast which was impact they have on
previously made for each other
the current period

21 22

Straight Line Method Linear Regression

The straight-line method is one of the simplest Regression analysis is a widely used tool for
analyzing the relationship between variables for
and easy-to-follow forecasting methods. A prediction purposes
financial analyst uses historical figures and trends
to predict future revenue growth.

23 24

MGT 1- Principles of Management 4

 Linear Regression Forecast Error
Forecast bias – persistent tendency for forecast to be
greater or less than the actual values of a time series.
Forecast error – difference between the actual value and the
value that was predicted for a given period.

25 26

Bias Mean Absolute Deviation

Indicates on an average basis, whether the forecast is too high indicates on an average basis, how many units the
(negative bias indicates over forecast) or too low (positive bias forecast is off from the actual data
indicates under forecast). The Running Sum of Forecast Errors
(RSFE) provides a measure of forecast bias

27 28

Mean Absolute Percentage Error Mean Square Error

indicates on an average basis, how many percent the a forecast error measure that penalizes large errors
forecast is off from the actual data proportionately more than small errors

29 30

MGT 1- Principles of Management 5