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Global Company Profile: Tupperware What is Forecasting? Types of Forecasts Seven Steps in the Forecasting System Forecasting Approaches Overview of Qualitative & Quantitative Methods Time-Series Forecasting Monitoring and Controlling Forecasts
(Principles of Operations Management, Heizer & Render, 5th Edition)
Forecasting at Tupperware
Each of 50 profit centers around the world is
responsible for computerized monthly, quarterly, and 12-month sales projections These projections are aggregated by region, then globally, at Tupperwares World Headquarters Tupperware uses techniques discussed in text
(Principles of Operations Management, Heizer & Render, 5th Edition)
sales representatives The percentage of currently active dealers (this number changes each week and month) Sales per active dealer, on a weekly basis
marketing, finance, and production, final forecasts are the consensus of all participating managers. The final step is Tupperwares version of the jury of executive opinion
What is Forecasting?
Process of predicting a
Sales will be $200 Million!
future event
Underlying basis of
scheduling, worker assignments & production planning, budgeting product planning, facility location
Medium-range forecast
Sales New
Long-range forecast
Types of Forecasts
Economic forecasts Address business cycle, e.g., inflation rate, money supply, etc. Technological forecasts Predict technological change Predict new product sales Demand forecasts Predict existing product sales
Forecasting Approaches
Qualitative Methods
Used when situation is vague & little data exist
New products New technology
Quantitative Methods
Used when situation is stable & historical data exist
Existing products Current technology
Time-series models
Associative models
Trend
Cyclical
Seasonal
Random
Naive Approach
Assumes demand in next period is the
be 48
Sometimes can be cost effective &
efficient
Equation
Equation
WMA
Weights
= Smoothing constant
Y-intercept
^ Yi = a +b X i
Dependent (response) variable Independent (explanatory) variable
^ Yi = a + b X i
Observed value of Operations Management, Heizer & Render, 5 (Principles
Regression line
X
th
Edition)
Slope:
b = i =1 n 2 x i nx 2
i =1
x i y i nx y
Y-Intercept: a = y bx
Interpretation of Coefficients
Slope (b) Estimated Y changes by b for each 1 unit increase in X
If b = 2, then sales (Y) is expected to increase by 2 for each 1 unit increase in advertising (X)
Error = (Yi - Yi) = (Actual - Forecast) Seen in plots of errors over time
Smallest
forecast error
forecast =
n
errors
yi |
| forecast
errors |
Tracking Signal
Measures how well the forecast is predicting
actual values Ratio of running sum of forecast errors (RSFE) to mean absolute deviation (MAD)
Good
limits
forecasts
Ch 4 Forecasting
4.6, 4.7
Ch 4 Forecasting
xy 20 42 45 56 65 96 119 144 180 200 231 276 1474
Ch 4 Forecasting
P 4.6 a) Plotting this data:
Sales
25 20 Dollars 15 10 5 0 1 2 3 4 5 6 7 8 9 10 11 12 Month
Ch 4 Forecasting
P 4.6 b) Forecast January Sales using each of the following : 1) Naive Method
Demand in next period same as last period Therefore January will be 23 since those were Decembers sales
Ch 4 Forecasting
3) 6-month weighted average Using weighting of .1, .1, .1, .2, .2 and .3; with the heavier weights applied to the most recent months ( Oct, Nov, Dec) (0.1 * 17) + (0.1 * 18) + (0.1 * 20) + (0.2 * 20) + ( 0.2 * 21) + (0.3 * 23) = 21.33 which gives us a January forecast of 21
4) Exponential smoothing
Ch 4 Forecasting
Therefore with alpha of .3 and Septembers forecast of 18 October forecast = Sept forecast + alpha times (Sept. actual - Sept. forecast) October forecast November forecast December forecast January forecast = 18 + 0.3 (20-18) = 18.6 = 18.6 + 0.3 (20-18.6) = 19.02 = 19.02 + 0.3 (21-19.02) = 19.6 = 19.6 + 0.3 (23-19.6) = 20.6
Ch 4 Forecasting
5) Trend projection is a forecasting method that fits a trend line to a series of = a + b*x
Calculate slope b = xy n x y x - nx historical data points and then projects the line into the future for forecasting:
= summation sign = (y hat) computed value of the variable to be predicted (dependant variable) a = y-axis intercept b = slope of regression line (rate of change in y given change in x) x = the independent variable X = known values of the independent variable Y = known values of the dependant variable x = average of value of xs y = average of value of ys n = number of data points or observations (Principles of Operations Management, Heizer & Render, 5th Edition)
Ch 4 Forecasting
5) Trend projection:
Based on earlier data supplied: x X y = 78 = 6.5 = 218 = 18.2
Calculate slope b = xy n x y x - nx b = 1474-(12*6.5*18.2) 650 (12*(6.5)2 ) and y-intercept a = y bx a = 18.2 (0.38*6.5) = 15.73 Forecast is = a + b*x = 15.73 + ( .38*13) = 20.76 , where January is 13th month
Ch 4 Forecasting
P 4.7
Doug Moodie is the president of Garden Products Limited. Over the last 5 tears, he has asked both his vice president of marketing and his vice president of operations to provide sales forecasts. The actual sales and the forecasts are given below. Mkt VP Oper VP VP VP YEAR SALES Marketing Operations Error Error
1 2 3 4 5
170,000 2,675 5,362 170,000 7,464 170,000 23,268 170,000 11,325 165,000 50,094
160,000 7,325 10,322 160,000 2,536 160,000 18,268 160,000 11,325 165,000 49,816
Using MAD which vice president is better at forecasting? MAD VP Marketing = 50,094 /5 = 10,019 MAD VP Operations = 49,816 /5 = 9.963 Therefore, based on past data, the VP of operations has been presenting better forecasts.
(Principles of Operations Management, Heizer & Render, 5th Edition)