Forecasting :- Introduction & its Applications

Forecasting: Introduction & Its Applications

Department of Mechanical EngineeringNITTTR, Chandigarh

Presented By:-

Deepam Goyal

CONTENTS Introduction Characteristics of Forecasting Principles & Need of Forecasting Forecasting Process Areas of Forecasting Advantages & Disadvantages of Forecasting Applications of Forecasting Case Study : Henkel References

Forecasting :-• It is the technique of estimating the relevant future

events and problems on the basis of past & present data.

• It is a systematic guess of the future course of events.

• It provides basis for a planning.

Sales forecast:- Estimate of a firm’s revenue for a

specified time period.

INTRODUCTION

Contd..

Why are we interested ?

Affects the decisions we make today

Where is forecasting used in POM ?

Forecast demand for products and services

Forecast availability/need for manpower

Forecast inventory and material needs daily

Forecasting Prediction

Objective

Scientific

Free from ‘bias’

Reproducible

Error analysis possible

Subjective

Intuitive

Individual bias

Non reproducible

Error analysis limited

Characteristics of Good Forecast

Compatible with existing

database system

GOODFORECAST

Timely

Online Capability

Easy to Use & Understand

Meaningful Units

Writing Presentation

ReliableAccurate

Six Key Principles Of Forecasting

Iteration

PrudenceDisaggregation

Judgement

Tangiblisation

Triangulation

Need of Forecasting

Lead time require that decisions be made in advance of uncertain events. is important for all strategic i.e. changing the engineering design and planning decisions in a supply chain.

Forecasts of product demand, materials, labour, financing are an important inputs to scheduling, acquiring resources & determining resource requirements.

Forecasting Process

6. Check forecast accuracy with one or more measures

4. Select a forecast model that seems

appropriate for data

5. Develop/compute forecast for period of

historical data

8a. Forecast over planning horizon

9. Adjust forecast based on additional

qualitative information and insight

10. Monitor results and

measure forecast accuracy

8b. Select new forecast model or adjust

parameters of existing model

7. Is accuracy of forecast

acceptable?

1. Identify the purpose of forecast

3. Plot data and identify patterns

2. Collect historical data

Yes

No

Importance of Forecasting Pivotal role in an Organization Key to

Success

Development of a EffectiveBusiness Control

Implementation of Co-ordinationProject Primacy to Planning

Areas Of Forecasting

Technology

AREAS OF FORECASTING

Supply of Labour

Economic Condition

Growth TrendNew Laws & Regulations

Social Change

Political ChangeCompetition

Advantages of Forecasting

The anticipation of future problems and events to accelerate early achievements of objectives.

Facilitates Planning

Ensures Coordination

Easy Controlling

Limitation of Forecasting

Forecasting is to be made on the basis of certain assumptions

and human judgments.

Too much of expectation will cause disappointment and

impair the initiative of the executives.

It requires high degree of skill and the process must be

undertaken by specialists.

Long-term forecasts will be less accurate as compared to

short-term forecast

Heavy cost and time

Applications of Forecasting

1. Supply chain management• includes the movement and storage of raw materials, work-in- process inventory, and finished goods from point of origin to point of consumption.

2. Economic forecasting• is the process of making predictions about the economy

3.Earthquake Forecasting• defined as the specification of the time, location, and magnitude of a future earthquake within stated limits", and particularly of "the next strong earthquake to occur in a region

4.Egain Forecasting• The process of climate change and increasing energy prices has led to the usage of Egain Forecasting of buildings

5.Land Use Forecasting• undertakes to project the distribution and intensity of trip generating activities in the urban area

6.Player & Team Performance in Sports• PECOTA, is a sabermetric system for forecasting Major League Baseball player performance

7. Political Forecasting• aims at predicting the outcome of elections

Contd..

8.Transportation Forecasting• the process of estimating the number of vehicles or people that will use a specific transportation facility in the future

9. Telecommunications Forecasting• Telecommunications service providers perform forecasting calculations to assist them in planning their networks

10. Product Forecasting• is the science of predicting the degree of success a new product will enjoy in the marketplace.

11. Sales Forecasting

Contd..

12.Technology Forecasting• attempts to predict the future characteristics of useful technological machines, procedures or techniques

13.Weather Forecasting• is the application of science and technology to predict the state of the atmosphere for a given location.

14. Flood Forecasting• the use of real-time precipitation and streamflow data in rainfall-runoff and streamflow routing models to forecast flow rates and water levels for periods ranging from a few hours to days ahead, depending on the size of the watershed or river basin.

Contd..

CASE STUDY : HENKEL Introduction :-Henkel is a manufacturer which operates in three business areas:

- home care products- sanitary- adhesive technologies

The Henkel group has a workforce of approximately 48,000 employees in over 120 countries around the world, and is amongst the 500 most profitable companies.

Aim :-To improve the accuracy of their sales forecasts of existing

and upcoming products. The goal was not an incremental improvement, but a “step-change” in the forecasting accuracy.

Company’s Problem :-

The main reasons to change the existing forecasting model

was the low forecasting accuracy and difficulties with

evaluating the potential of new products.

Price promotions performed by competitors influenced

Henkel’s data-only based predictions and made them

inaccurate.

Social forecasting at Henkel :-

• The key to increasing the forecasting accuracy is the use of incentives in Social Forecasting.• Each month the top 10 forecasters can win iPads and other valuable prizes. These top 10 forecasters also gain recognition. • The difference in a survey is that participants are not rewarded for their mere participation but for their actual forecasting accuracy.

Results :-These incentives greatly increased the forecasting accuracy as we

will show below.

The average accuracy of Social Forecasting is 85.3%, while Henkel’s method achieved only 69.3%.

REFERENCESNarasimhan, S.L., D.W. Mcleavey, and P.J. Billington. “Production

Planning And Inventory Control”. 2. New Delhi: Prentice Hall of India Learning Private Limited, 2009. 25-52. Print.

Groover, M.P., Emory W. Zimmers JR. “CAD/CAM:Computer-Aided Design and Manufacturing”. 25. New Delhi: Prentice Hall of India Private Limited, 2002. 324-332. Print.

Mukhopadhyay, S.K. ”Production Planning and Control”. 2. New Delhi: Prentice Hall of India Private Limited, 2004. 27-63. Print.

Reddy, J.Mahender. ”Demand forecasting : methods, applications & cases”. 1. New Delhi: Light & Life Publishers, 1981. 152-192. Print.

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