Production and Operations Management- Exam 2

Economic Forecasting

addresses the business cycle

Technological Forecasting

Rate of process and development

Demand Forecasting

Sales of existing products and services

Qualitative Methods

Used when situation is vague and little data exists

Quantitative Methods

Used when situation is “stable” and historical data exists.

Examples of Qualitative Methods

Jury of Executive Opinion

Delphi Method

Sales Force Composite

Consumer Market Survey

Jury of Executive Opinion

A forecasting technique that uses the opinion of a small group of high level managers to form a group estimate of demand

Delphi Method

A forecasting technique using a anonymous group process that allows experts to make forecasts

Sales Force Composite

A forecasting technique based on salesperson’s estimates of expected sales.

Consumer Market Survey

A forecasting method that solicits input from customers or potential customers regarding future purchasing plans.

Time series forecasting

Set of evenly spaced numerical data. Obtained by observing response variable at regular time periods. Based only on past values. Assumes that factors influencing the past and present will remain stable in the future.

Time Series Components

Trend

Seasonal

Cyclical

Random

Trend Time Series Component

Overall, persistent upward or downward trend within a few years

Seasonal Time series component

Regular pattern of up and down fluctuations within a single year

Cyclical Time series component

Repeating up and down movement over multiple years- usually within a business cycle.

Random Time series component

erratic, unsystematic, “residual” fluctuations. Short and nonrepetitive.

Naive Approach

A forecasting technique which assumes that demand in the next period is equal to demand in the most recent period

Moving Average Method

A series of arithmetic means. Used if there is little or no trend. Often used in smoothing techniques.

Moving Average Method Equation

Sum of Demand in Each Period/# of Periods

Weighted Moving Average Method

Used when some trends might be present. Weights based on experience and intuition.

Weighted Moving Average Method Equation

Sum of (demand x variable) for each period

Exponential Smoothing

A form of weighted moving average. Weights decline exponentially. Most recent data weighted most. Ranges from 0 to 1. Subjectively chosen. Involves little record of keeping past data.

Exponential smoothing formula

new forecast=old forecast +smoothing forecast + alpha x (old actual demand-old forecast)

Potential Problems with Moving Average

Doesn’t forecast well and requires extensive historical data

Forecast Error

Actual demand-forecast value

Choosing a Model

Pick which one gives you the lowest forecast

Mean Absolute Deviation

Average Absolute (meaning how much above or below zero something is) forecast error

What does x mean in trend projection?

time periods

What does x mean in progression?

real world factor

Associative Forecasting

Used when changes in one or more independent variables can be used to predict the changes in the dependent variable.

International Trade

They sell to us and we sell to them

Law of Comparative Advantage

Producers should produce goods that they are most efficient at and purchase those that they are not efficient at producing

Exports

We sell to them

Imports

They sell to us

Balance of Trade

Difference between value of goods a country exports vs what it imports

Trade surplus

export > imports

Trade Deficit

export <imports

Multinational Business

A company operating in multiple countries but makes strategic decisions independently in each.

Global Business

A company with a centralized management structure and standardized products/services across the world.

Transitional Business

A blend of multinational and global approaches, emphasizing both local responsiveness and global integration.

International Business

Business activities that involve transactions across national borders.

Reasons to Globalize are:

Mission, strategy, corporate mission and strategy, and differentiation, cost, and response

SWOT

Analysis of a company's Strengths, Weaknesses, Opportunities, and Threats.

Qualitative Forecasting Models

Forecasting methods based on expert judgment, not numerical data.

Quantitative Forecasting models

Forecasting methods using historical data and mathematical techniques.

Realities of Forecasting

Challenges and uncertainties in predicting future demand.

Time Series

Data collected and recorded over successive time periods.

Economic, Technological, and Demand Forecasts

Predictions related to the economy, technology trends, and market demand.

Trends, Cycles, Seasons, Random Events

Components of time series data, e.g., long-term trends, short-term cycles, seasonal patterns, and unpredictable random events.

Forecasting Time Horizons

The time duration over which a forecast is made, e.g., short-term, medium-term, or long-term.

Calculating Predicted Demand using Quantitative Models

Using mathematical models to estimate future demand for products/services.