Texas A&M Industrial Engineering

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Presentation transcript:

Texas A&M Industrial Engineering ISEN 220 Introduction to Production and Manufacturing Systems Dr. Gary Gaukler 12/3/2018 Texas A&M Industrial Engineering 1

?? What is Forecasting? Process of predicting a future event Underlying basis of all business decisions Production Inventory Personnel Facilities ?? 2

Forecasting Approaches Qualitative Methods Used when situation is vague and little data exist New products New technology Involves intuition, experience e.g., forecasting sales on Internet 3

Forecasting Approaches Quantitative Methods Used when situation is ‘stable’ and historical data exist Existing products Current technology Involves mathematical techniques e.g., forecasting sales of color televisions 4

∑ demand in previous n periods Moving Average Method MA is a series of arithmetic means Used if little or no trend Used often for smoothing Provides overall impression of data over time Moving average = ∑ demand in previous n periods n 5

Moving Average Example January 10 February 12 March 13 April 16 May 19 June 23 July 26 Actual 3-Month Month Sales Moving Average

Graph of Moving Average Moving Average Forecast | | | | | | | | | | | | J F M A M J J A S O N D Shed Sales 30 – 28 – 26 – 24 – 22 – 20 – 18 – 16 – 14 – 12 – 10 – Actual Sales 7

Potential Problems With Moving Average Increasing n smooths the forecast but makes it less sensitive to changes Does not forecast trends well Requires extensive historical data 8

Exponential Smoothing Form of weighted moving average Weights decline exponentially Most recent data weighted most Requires smoothing constant () Ranges from 0 to 1 Subjectively chosen Involves little record keeping of past data 9

Exponential Smoothing New forecast = last period’s forecast + a (last period’s actual demand – last period’s forecast) Ft = Ft – 1 + a(At – 1 - Ft – 1) where Ft = new forecast Ft – 1 = previous forecast a = smoothing (or weighting) constant (0  a  1) 10

Exponential Smoothing Example Predicted demand = 142 Ford Mustangs Actual demand = 153 Smoothing constant a = .20 11