Dr. AbediniDr. Abedini

Forecasting is used to predict the Forecasting is used to predict the demand, production, or time required demand, production, or time required for future periodsfor future periods

Forecasting is always done first in Forecasting is always done first in production planningproduction planning

By knowing the forecasted demands By knowing the forecasted demands for future periods, companies can for future periods, companies can increase or decrease production to increase or decrease production to meet their needsmeet their needs

For data that doesn’t vary over a large range, For data that doesn’t vary over a large range, constant forecasting appliesconstant forecasting applies

Simply take the average of the data points and Simply take the average of the data points and assume that value for all future periodsassume that value for all future periods

The average of 2, 5, 2, 4, 2 = 3 The average of 2, 5, 2, 4, 2 = 3 Therefore the red dashed line represents the new Therefore the red dashed line represents the new

forecast for all future periodsforecast for all future periods

The honesty of a forecast found by The honesty of a forecast found by finding the mean errorfinding the mean error

N = number of data points availableN = number of data points available

MayMay JuneJune JulyJuly AugustAugust

20002000 19001900 23002300 18001800

21002100 21002100 20002000 19001900

100100 200200 -300-300 100100

d hat = forecasted demandd hat = forecasted demand

d = actual demand d = actual demand

If +, then the actual demand is If +, then the actual demand is higher than the forecasted demand, higher than the forecasted demand, commonly referred to as a commonly referred to as a pessimistic forecastpessimistic forecast

If - , then the forecasted demand is If - , then the forecasted demand is higher than the actual demand, higher than the actual demand, commonly referred to as an commonly referred to as an optimistic forecastoptimistic forecast

Using linear regression we can also Using linear regression we can also forecast for future periodsforecast for future periods

Here are the basic formulas:Here are the basic formulas:

With the given information With the given information forecast for the 24forecast for the 24thth period period

tt dd

11 42004200

22 43004300

33 40004000

44 44004400

55 50005000

66 47004700

77 53005300

88 49004900

99 54005400

1010 57005700

1111 63006300

1212 60006000

We now know what to expect in the We now know what to expect in the 2424thth period period

We use this technique when we We use this technique when we believe that the new data has more believe that the new data has more importance than the old dataimportance than the old data

For example, a company purchases a For example, a company purchases a new lathe that can turn more pieces new lathe that can turn more pieces per minute, now the new data has per minute, now the new data has more importance more importance

The real data minus the forecasted is The real data minus the forecasted is the same as the new forecast minus the same as the new forecast minus the old forecastthe old forecast

ERRORERROR

The older the data the more hats it hasThe older the data the more hats it has

Seasonal forecasting is used where data Seasonal forecasting is used where data varies over the seasons of the year (Fall, varies over the seasons of the year (Fall, winter, etc.)winter, etc.)

To forecast for this type:To forecast for this type: Remove any growth effects to see Remove any growth effects to see

seasonal changesseasonal changes• A.) Find the average in each cycleA.) Find the average in each cycle• B.) divide the data by its cycle’s averageB.) divide the data by its cycle’s average• C.) Find the average for each given period of C.) Find the average for each given period of

a cyclea cycle

CyclCyclee

FallFall WinterWinter SpringSpring SummerSummer AverageAverage

11 3030 2525 1515 2020 22.522.5

22 3535 2828 1818 2323 2626

33 4040 3131 2020 2525 2929

44 4545 3636 2525 3030 3434

11 (30/22.5)=(30/22.5)=1.331.33 1.111.11 .66.66 .88.88

22 1.351.35 1.071.07 .69.69 .88.88

33 1.371.37 1.071.07 .68.68 .86.86

44 1.321.32 1.061.06 .73.73 .88.88

Now we can plot the averages for the Now we can plot the averages for the following future cyclesfollowing future cycles• = 3.75= 3.75• = 18.5= 18.5• = 18.5 +3.75t (Equation for the line)= 18.5 +3.75t (Equation for the line)

What if you want to forecast for the What if you want to forecast for the fifth cycle?fifth cycle?

= 18.5 + 3.75(5) = 37.25= 18.5 + 3.75(5) = 37.25 = 1.35(37.25) = 49.925= 1.35(37.25) = 49.925

= 1.07(37.25) = 39.84= 1.07(37.25) = 39.84 = .69(37.25) = 25.7= .69(37.25) = 25.7 = .88(37.25) = 32.77= .88(37.25) = 32.77 Forecasting for the eighth, 13Forecasting for the eighth, 13thth, 50, 50thth , ,

etc. cycle would be done in the same etc. cycle would be done in the same manner as the fifth cyclemanner as the fifth cycle

Strategies for Aggregate planningStrategies for Aggregate planning 1.) Have constant resources no matter 1.) Have constant resources no matter

what the demand iswhat the demand is 2.) Vary the resources as the demand 2.) Vary the resources as the demand

variesvaries 3.) Produce more when demand is low and 3.) Produce more when demand is low and

keep excess good in inventorykeep excess good in inventory 4.) Hire additional people or go overtime, 4.) Hire additional people or go overtime,

add a shift when demand is highadd a shift when demand is high

Anytime you go overtime, we Anytime you go overtime, we assume the quality is the sameassume the quality is the same

Secondly, we assume the production Secondly, we assume the production rate is the samerate is the same

If they go overtime we assume they If they go overtime we assume they work 4 hourswork 4 hours

5.) Use a subcontractor when 5.) Use a subcontractor when demand is high ( can potentially save demand is high ( can potentially save money)money)

1.) Develop an aggregate plan by hiring or laying off workers 1.) Develop an aggregate plan by hiring or laying off workers for future periods (11-15)for future periods (11-15)

2.) Find the total minimum cost of your proposal2.) Find the total minimum cost of your proposal

productionproduction AdditionalAdditional

UnitsUnitsInitial Initial InventoryInventory

Production Production

By HiredBy HiredInventoryInventory StockoutStockout

10201020

10201020

720720

10201020

10201020

1111

1212

1313

1414

1515

Inventory carrying cost=$2/unit/periodInventory carrying cost=$2/unit/period Backorder (stockout) cost=$3/unit/periodBackorder (stockout) cost=$3/unit/period Hiring cost=$40 /personHiring cost=$40 /person Lay off cost=$60/personLay off cost=$60/person Regular Wages=$5/unitRegular Wages=$5/unit Overtime wages=$6/unitOvertime wages=$6/unit Sub contractor cost=$8/unitSub contractor cost=$8/unit Regular work force = 20 workersRegular work force = 20 workers Regular time production=50 Regular time production=50

units/person/periodunits/person/period Initial inventory at period 11= 0Initial inventory at period 11= 0

productionproduction AdditionalAdditional

UnitsUnitsInitial Initial InventoryInventory

Production Production

By HiredBy HiredInventoryInventory StockoutStockout

10201020 10001000 2020 00 5050 3030

10201020 10001000 2020 3030 -- 1010

720720 10001000 -280-280 1010 -- 290290

10201020 10001000 2020 290290 -- 270270

10201020 10001000 2020 270270 -- 250250

1111

1212

1313

1414

1515

50005000 850850

(5000+50)(5)+40+60+850(2)=$27,050(5000+50)(5)+40+60+850(2)=$27,050

Commonly known as (MRP)Commonly known as (MRP) Used for dependent productsUsed for dependent products A chair requires screws, an engine A chair requires screws, an engine

requires bolts, a skateboard needs requires bolts, a skateboard needs wheels, etc.wheels, etc.

Now that you have your assembly Now that you have your assembly planned there is some information planned there is some information you will needyou will need

1.) lead time1.) lead time 2.) Source of material2.) Source of material 3.) Lot size3.) Lot size 4.) Inventory information4.) Inventory information 5.) Safety stock5.) Safety stock Now we can develop a Master Now we can develop a Master

Production Schedule (MPS)Production Schedule (MPS)

NB= nuts and boltsNB= nuts and bolts T = trucksT = trucks B = boardB = board W = wheelsW = wheels

WeekWeek 11 22 33 44 55 66 77 88

demanddemand 300300 660660 250250

Skateboard: lead time = 0Skateboard: lead time = 0Initial inventory = 0Initial inventory = 0Lot size = 1Lot size = 1

W: lead time = 2 weeksW: lead time = 2 weeksInitial Inventory = 200Initial Inventory = 200Lot size = 300Lot size = 300Safety Stock = 0Safety Stock = 0

T: lead time = 1 weekT: lead time = 1 weekLot size = 10Lot size = 10Initial inventory = 0Initial inventory = 0Safety Stock = 0Safety Stock = 0

B: Lead time = 1 weekB: Lead time = 1 week Initial Inventory = 60Initial Inventory = 60 Lot size = 500Lot size = 500 Safety Stock = 0Safety Stock = 0

NB: Lead time = 0NB: Lead time = 0 Initial Inventory = 0Initial Inventory = 0 Lot size = 250Lot size = 250 Safety Stock = 0Safety Stock = 0

The following slide will The following slide will show you the format show you the format required to create an required to create an MRP schedule with this MRP schedule with this given informationgiven information

SkateboardSkateboard

L= 0L= 0

I = 0I = 0

SS = 0SS = 0

Gross req.Gross req.

Scheduled Scheduled RecRec

AvailAvail

Net RequiredNet Required

Planned Rec.Planned Rec.

Planned Planned ReleaseRelease

WheelsWheels

L = 2L = 2

Lot = 300Lot = 300

I = 200I = 200

SS = 0SS = 0

TrucksTrucks

L = 1L = 1

Lot = 10Lot = 10

I = 0I = 0

SS = 0SS = 0

BoardBoard

L = 1L = 1

Lot = 500Lot = 500

I = 60I = 60

SS = 0SS = 0

Nuts and Nuts and BoltsBolts

300300 660660 250250

Remember: the gross required of a Remember: the gross required of a child is dependent on the planned child is dependent on the planned order releases of the parentorder releases of the parent

Used to cut down on material Used to cut down on material handling charges and inventory handling charges and inventory spacespace

1.) Product design1.) Product design 2.) Process design2.) Process design 3.) Whole person3.) Whole person The best part is made of no parts at The best part is made of no parts at

allall

1.) Inventory is 100% waste1.) Inventory is 100% waste 2.) Queue is 100% waste2.) Queue is 100% waste 3.) Inspection is 100% waste3.) Inspection is 100% waste 4.) Movement is 100% waste4.) Movement is 100% waste 5.) Process defects are 100% waste5.) Process defects are 100% waste 6.) Setup time is 100% waste6.) Setup time is 100% waste 7.) Poor communication is 100% waste7.) Poor communication is 100% waste 8.) Multiple sourcing is 100% waste8.) Multiple sourcing is 100% waste 9.) Poor design is 100% waste9.) Poor design is 100% waste 10.) Excess capacity is 100% waste10.) Excess capacity is 100% waste 11.) Down time 11.) Down time is 100% wasteis 100% waste