1. Samuel H. Huang, Winter 2012 Basic Concepts and Constant Process Overview of demand forecasting Constant process –Average and moving average method –Exponential Smoothing method

2. Samuel H. Huang, Winter 2012 Demand Influencing Factors Product characteristics Past demand Economic condition Competition Planned marketing efforts Planned price discount

3. Samuel H. Huang, Winter 2012 Forecasting Methods Qualitative: rely on human judgment –Market survey (customer response) –Delphi technique (expert opinion) Causal: demand is highly correlated with certain factors Time Series: past demand is a good indicator of future demand Simulation: mimic consumer behavior to conduct what-if analysis

4. Samuel H. Huang, Winter 2012 Time-series Forecasting Constant process –Average –Moving average –Exponential smoothing Trend process –Regression –Double exponential smoothing Seasonal process

5. Samuel H. Huang, Winter 2012 Characteristics of Forecast Forecasts are always wrong and thus should include an error analysis Long-term forecasts are usually less accurate than short-term forecasts Aggregate forecasts are usually more accurate than disaggregate forecasts

6. Samuel H. Huang, Winter 2012 Constant Model: Average Constant model Forecast Derived based on minimizing the sum of squared errors

7. Samuel H. Huang, Winter 2012 Example: Average

8. Samuel H. Huang, Winter 2012 Moving Average Average only the most recent data points Smooth out noise Can respond to change in process

9. Samuel H. Huang, Winter 2012 Example: Moving Average

10. Samuel H. Huang, Winter 2012 Noise Smoothing

11. Samuel H. Huang, Winter 2012 Response to Process Change

12. Samuel H. Huang, Winter 2012 Exponential Smoothing Adjust forecast based on the most recent data point It is a weighted average of all historical data points, with the weight decreasing exponentially with the age of the data point Different initial estimates can be used – average of several past data points

13. Samuel H. Huang, Winter 2012 Example: Exponential Smoothing

14. Samuel H. Huang, Winter 2012 Insensitive to Initial Estimate

15. Samuel H. Huang, Winter 2012 Effect of Weighting Factor

16. Samuel H. Huang, Winter 2012 Response to Process Change