Operation Management

Operation
Management
BUS 5101
1
Lesson-5: Forecasting
Lesson Outline:
• Forecasting and Business Forecasting

• Importance of Forecasting in Business
• Supply chain forecasting and its importance
• Quantitative methods of forecasting
• Teamwork – Breakout Room (15 minutes)
• Qualitative methods of forecasting
• Supply chain forecasting difficulties
• Forecasting Time Horizons
• Influence of Product Life Cycle
• Strategic Importance of Forecasting
• Assignment -1- Forecasting Due: Next week
• Quiz – Due today
Evaluation & Due Dates
Discussion & Collaboration 10%
Quizzes 10%
Assignments 15%
Final Term Exam 30%
Mid Term Exam 15%
Group Project / Presentation 20%
3
What is Forecasting?
• Whether for gambling, deciding how thick of a coat to wear, or
determining which career would be most interesting and
lucrative, we all make or use forecasts regularly.
• All business decisions are ultimately driven by forecasts of the

future. Thus, a poor forecast will likely lead to a poor decision.
What is Forecasting?
• Forecasting is the process of predicting a future event.
• The underlying basis of all business decisions:
1. Production: example Covid-19 impact

2. Inventory: over purchasing than predicated
3. Personnel: lack of employees to do the job as predicted
4. Facilities: lack of storage space and rentals increase
What is Business Forecasting?
• Business forecasting refers to the techniques used to

predict sales, expenditures, and profits.
• The purpose of business forecasting is to develop better

ideas to make informed predictions.
• Past data is collected and analyzed so that patterns can be

identified to make future operations decisions.
What is the Importance of Forecasting
in Business?
• Forecasting in business is very important. Some business
forecasting examples include:
1. Determining the possibility of facing existing competition.

2. Estimating the costs of recurring monthly bills.
3. Predicting future sales volumes based on past sales information
What is supply chain forecasting?
• Supply chain forecasting:
• It combines data from past supply with insights and

understandings about future demand
• This is to help you make the best decisions for your

business – whether it's stock inventory, cargo booking,
budget planning or expanding to new markets.
Why is supply chain forecasting
important?
• Supply chain forecasting can play a major role in contributing
to an efficient supply chain and a successful business:
1. Strategic planning –
• Businesses can be built or broken in plans: like an expansion to

new markets, budget planning or risk assessment in market.
• Forecasting gives you the insights to make these decisions

wisely, ensuring your suppliers can meet your demand.
important?
2. Staying on top of inventory –
• If you have a better understanding of the demand for your

products from customers, you can work closely with suppliers
to maintain your inventory levels throughout the year.
• This keeps shortages to a minimum.

• It makes your customers happy.
• It keep warehouse fees under control.
important?
3. Improved customer experience –
• Customer experience is about being able to predict

customer demand, to ensure orders are fulfilled on
time and you’re never low on stock.
• The result is a SENSE OF TRUST BETWEEN YOUR

CUSTOMERS AND YOUR BUSINESS.
Methods of forecasting –
Quantitative
• THERE ARE TWO MAJOR METHODS TO PRODUCING SUPPLY
CHAIN FORECASTING –
1. Quantitative method
2. Qualitative method
• Quantitative forecasting relies on historical data to predict the

future: sales, ordering and production requests, etc.
Quantitative
• I will then explain what is quantitative method and benefits.
1. Moving average forecasting:
• Is based on historical averages.

• It does not often take into account more recent information
• But uses data in the past years to make decisions.
• Data from three or five years ago.
Quantitative
2. Exponential smoothing:
It considers historical data but does put more

emphasis on recent data.
• This makes it hard to make precise predication.

Quantitative
3. Auto-regressive integrated moving average:
• It is known for being highly accurate

• It’s well-suited to forecasting up to 18 months or less.
Quantitative
4. Multiple Aggregation Prediction:
• It is specifically designed for seasonal products.

• It perfect for businesses producing seasonal items.
• Christmas items, valentine’s day, etc.
Teamwork – Breakout Room (15 minutes)
• Is forecasting less than 18 months or more than 18 months

the best- choose which is the best and discuss?
• Poor forecast will likely lead to a poor decision.

Qualitative
Qualitative Methods
• Used when little data exist
1. New products
2. New technology
• Involves intuition, experience

• PhD guys and experts provide data
Qualitative
• It relies on the expertise and experience:
1. Historical relations:
• Predict sales by ASSUMING SALES OF NEW PRODUCTS

WILL MIRROR AN EXISTING PRODUCT.
• Flying car taxis will mirror airplanes to arrive early.

Qualitative
2. Internal insights:
• Use insights of EXPERIENCED STAFF to inform predictions.
• UBER DRIVERS CAN PREDICT IF FLYING TAXIS WILL DO WELL.
• It is not known for a high level of accuracy.

Qualitative
3. Market research:
• Researching the market before launching a new product.
1. Talking to people about the new product.

2. Interviewing people about new products.
3. Will it work or not work?
4. Why provide product test?
What makes supply chain forecasting difficult?
• Several factors can make supply chain difficult:
1. Regulation changes and global events like COVID-19 –
• Changes in regulations between nations and continent
• This can disrupt forecasting when new laws are made.

• Difficulties to adapt to accommodate new laws.
What makes supply chain forecasting difficult?
2. Changing trends and consumer habits –
• In the last year as the world closed down consumers

went online.
• The sudden shift forced many small businesses to adapt

quickly to online shopping.
• This affected the forecasting on-building in-shopping.

Strategic Importance of Forecasting
1. Human Resources – Hiring, training, laying off workers.
2. Capacity – Capacity shortages can result in undependable

delivery, loss of customers, loss of market share.
3. Supply-Chain Management – Good supplier relations and

price advantages.
Conclusion
We covered:
• Forecasting and Business Forecasting

• Importance of Forecasting in Business
• Supply chain forecasting and its importance
• Quantitative methods of forecasting
• Qualitative methods of forecasting
• Supply chain forecasting difficulties
• Forecasting Time Horizons
• Influence of Product Life Cycle
• Strategic Importance of Forecasting
• Quiz – Due
• Assignment -1- Forecasting Due: Next Week

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Operation

• Forecasting and Business Forecasting

Final Term Exam 30%

Mid Term Exam 15%

Group Project / Presentation 20%

• All business decisions are ultimately driven by forecasts of the

1. Production: example Covid-19 impact

• Business forecasting refers to the techniques used to

• The purpose of business forecasting is to develop better

• Past data is collected and analyzed so that patterns can be

1. Determining the possibility of facing existing competition.

• It combines data from past supply with insights and

• This is to help you make the best decisions for your

• Businesses can be built or broken in plans: like an expansion to

• Forecasting gives you the insights to make these decisions

• If you have a better understanding of the demand for your

• This keeps shortages to a minimum.

• Customer experience is about being able to predict

• The result is a SENSE OF TRUST BETWEEN YOUR

• Quantitative forecasting relies on historical data to predict the

1. Moving average forecasting:

• Is based on historical averages.

It considers historical data but does put more

• This makes it hard to make precise predication.

• It is known for being highly accurate

• It is specifically designed for seasonal products.

• Is forecasting less than 18 months or more than 18 months

• Poor forecast will likely lead to a poor decision.

• Used when little data exist

• Involves intuition, experience

• Predict sales by ASSUMING SALES OF NEW PRODUCTS

• Flying car taxis will mirror airplanes to arrive early.

• Use insights of EXPERIENCED STAFF to inform predictions.

• UBER DRIVERS CAN PREDICT IF FLYING TAXIS WILL DO WELL.

• It is not known for a high level of accuracy.

• Researching the market before launching a new product.

1. Talking to people about the new product.

• Several factors can make supply chain difficult:

1. Regulation changes and global events like COVID-19 –

• Changes in regulations between nations and continent

• This can disrupt forecasting when new laws are made.

2. Changing trends and consumer habits –

• In the last year as the world closed down consumers

• The sudden shift forced many small businesses to adapt

• This affected the forecasting on-building in-shopping.

2. Capacity – Capacity shortages can result in undependable

3. Supply-Chain Management – Good supplier relations and

• Forecasting and Business Forecasting

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