COURSE: INDUSTRIAL ENGINEERING LESSON: TYPES OF FORECASTING-PART-1)
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TYPE OF FORECASTING Forecasting Qualitative or subjective Quantitative or objective Judgmental Time series Causal or econometric Opinion Survey -Past Average Correlation -Market trial Moving Average Regression -Market research Weighted moving average Exponential Smoothing Delphi technique NOTE: I. Qualitative or subjective techniques are employed for long term (I-5 years) forecasting. 2. Quantitative or objective techniques are used for short term (I-3 months) and midterm (3-12) forecasting
JUDGEMENTAL This method is preferred for forecast of new product and this technique is based purely on the art of human judgment i.e. how well a human being can predict the demand of a product in future. This method does not require past data or sales figure. (i) Opinion survey: In this method opinions are collected from the customer, from a retailer and distributor regarding the demand pattern of a product and this information is used to get the forecast. (ii) Market trial: This method is applicable for new product and in that case product is introduced between a limited population in the form of free samples. The response from the limited population is used to project the demand from a bigger population. It is applied for low cost consumables like toothpaste, cold drink, cosmetic item etc.
JUDGEMENTAL ii) Market research: In this method the survey work is assigned to external marketing agencies and purpose of research is to collect the information regarding the demand of a product. The details about various factor which influence the demand like customer income, occupation, location, quality, quantity etc. are related to get the forecast. (iv) Delphi technique: In this method a panel of experts is asked sequential questions in which the response to one question is used to produce next question. The information available to some expert is made available to others. It is a step by step procedure in which opinions are collected from the experts to reach a reliable forecast. If the experts are willing to cooperate, this is the best technique for forecasting of new product
PAST AVERAGE METHOD In this method, past data is arranged in chronological order as dependent variable and time as independent variable. Based on the past data we project the demand in future. (i) Past average method: In this method forecast for any period (t) is equal to average actual demand of a product for the previous periods. Year Actual demand (D) Forecasted demand (F) 1. 2003 2. 2004 3. 2005 4. 2006 108 127 113 121 116 108+127 2005= 117.5 2 108+127+113 3 F2006 = 116
SIMPLE MOVING AVERAGE (ii) Simple moving average: This method uses past data and calculates a moving average for a constant period. Fresh average is computed at the end of each period by adding the actual demand data for the most recent period and deleting the data for older period. In this method as data changes from period to period, it is called moving average method If n number of period, then first forecast (n+1)th period For n 3, first forecast will be from 4th period. 108+127+113 3 127+113+121 3 113+121+129 3 2006 -120.33 F2007 F2008 = -121 Year Actual demand (D) Forecasted demand (F) 108 1. 2003 2. 2004 3. 2005 4. 2006 5. 2007 6. 2008 127 121 129 143 116 120.33 121
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