1. 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

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

3. 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

4. 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

5. ∑ 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

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

7. 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

8. 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

9. 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

10. 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

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