COMMERCE 2OC3 Lecture Notes - Lecture 4: Delphi Method, Production Planning, Business Cycle

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CHAPTER 4: FORECASTING
OUTLINE
Global Company Profile: Walt Disney Parks and Resorts
What Is Forecasting?
The Strategic Importance of Forecasting
Seven Steps in the Forecasting System
Forecasting Approaches
Time-Series Forecasting
Monitoring and Controlling Forecasts
Forecasting in the Service Sector
LEARNING OBJECTIVES
1. Understand the three time horizons and which models apply for each use
2. Explain when to use each of the four qualitative models
3. Apply the naive, moving average, exponential smoothing, and trend methods
4. Compute three measures of forecast accuracy
5. Develop seasonal indices
6. Conduct a regression and correlation analysis
7. Use a tracking signal
FORECASTING & WALT DISNEY PARKS & RESORTS
Global portfolio includes parks in Hong Kong, Paris, Tokyo, Orlando, and Anaheim
It is a 43 billion dollar corporation
Revenues are derived from people – number of visitors and their level of expenditure
Daily management report contains only the forecast and actual attendance at each park
Disney generates daily, weekly, monthly, annual, and five-year forecasts
Forecast used by labour management, maintenance, operations, finance, and park
scheduling
Forecast used to adjust opening times, rides, shows, staffing levels, and guests admitted
20% of customers come from outside the USA
Economic model includes gross domestic product (GDP), cross-exchange rates, arrivals
into the USA
A staff of 35 analysts and 70 field people survey 1 million park guests, employees, and
travel professionals each year
Inputs to the forecasting model include airline specials, Federal Reserve policies, Wall
Street trends, vacation/holiday schedules for 3000 school districts around the world
Average forecast error for the five-year forecast is 5%
Average forecast error for annual forecasts is between 0% and 3%
WHAT IS FORECASTING
Process of predicting a future event
Underlying basis of all business decisions
Production
Inventory
Personnel
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Facilities
FORECASTING TIME HORIZONS
Short-range forecast
Up to 1 year, generally less than 3 months
Purchasing, job scheduling, workforce levels, job assignments, production levels
Medium-range forecast
3 months to 3 years
Sales and production planning, budgeting
Long-range forecast
3+ years
New product planning, facility location, research and development
DISTINGUISHING DIFFERENCES
Medium/long-range forecasts deal with more comprehensive issues and support
management decisions regarding planning and products, plants and processes
Short-term forecasting usually employs different methodologies than longer-term
forecasting
Short-term forecasts tend to be more accurate than longer-term forecasts
INFLUENCE OF PRODUCT LIFE CYCLE
INTRODUCTION – GROWTH – MATURITY – DECLINE
Introduction and growth require longer forecasts than maturity and decline
As product passes through life cycle, forecasts are useful in projecting
Staffing levels
Inventory levels
Factory capacity
TYPES OF FORECASTS
Economic forecasts
Address business cycle – inflation rate, money supply, housing starts, etc.
Technological forecasts
Predict rate of technological progress
Impacts development of new products
Demand forecasts
Predict sales of existing products and services
STRATEGIC IMPORTANCE OF FORECASTING
Human Resources – Hiring, training, laying off workers
Capacity – Capacity shortages can result in undependable delivery, loss of customers,
loss of market share
Supply-Chain Management – Good supplier relations and price advantages
SEVEN STEPS IN FORECASTING
1. Determine the use of the forecast
2. Select the items to be forecasted
3. Determine the time horizon of the forecast
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4. Select the forecasting model(s)
5. Gather the data
6. Make the forecast
7. Validate and implement results
THE REALITIES!
Forecasts are seldom perfect
Most techniques assume an underlying stability in the system
Product family and aggregated forecasts are more accurate than individual product
forecasts
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
QUANTITATIVE METHODS
Used when situation is ‘stable’ and historical data exist
Existing products
Current technology
Involves mathematical techniques
e.g., forecasting sales of colour televisions
OVERVIEW OF QUALITATIVE METHODS
1. Jury of executive opinion
Pool opinions of high-level experts, sometimes augment by statistical models
Bristol-Myers Squibb Company, for example, uses 220 well-known research
scientists as its jury of executive opinion to get a grasp on future trends in the world
of research
2. Delphi method
Panel of experts, queried iteratively
3. Sales force composite
Estimates from individual salespersons are reviewed for reasonableness, then
aggregated
4. Consumer Market Survey
Ask the customer
OVERVIEW OF QUANTITATIVE APPROACHES
1. Naive approach --------------------------
2. Moving averages | TIME – SERIES MODELS
3. Exponential smoothing |
4. Trend projection-------------------------
5. Linear regression ----------------------- ASSOCIATE MODEL
Think about lawn mower sales
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Document Summary

Global company profile: walt disney parks and resorts. Global portfolio includes parks in hong kong, paris, tokyo, orlando, and anaheim. It is a 43 billion dollar corporation. Revenues are derived from people number of visitors and their level of expenditure. Daily management report contains only the forecast and actual attendance at each park. Disney generates daily, weekly, monthly, annual, and five-year forecasts. Forecast used by labour management, maintenance, operations, finance, and park scheduling. Forecast used to adjust opening times, rides, shows, staffing levels, and guests admitted. 20% of customers come from outside the usa. Economic model includes gross domestic product (gdp), cross-exchange rates, arrivals into the usa. A staff of 35 analysts and 70 field people survey 1 million park guests, employees, and travel professionals each year. Inputs to the forecasting model include airline specials, federal reserve policies, wall. Street trends, vacation/holiday schedules for 3000 school districts around the world. Average forecast error for the five-year forecast is 5%

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