MGSC 499 Applied Projects in Management
Science - Lesson 4 study guide best for final
exam prep Athabasca University
, MGSC 499 Applied Projects in Management Science - Lesson 4 study guide best for final exam prep
Athabasca University
Chapter 18 Forecasting
-Forecasting is the basis of corporate planning and control. It provides the basis for budgetary
planning and cost control.
-To determine what forecast approach to use, determine the purpose of the forecast.
• Forecasts can be used for high-level demand analysis, which determine what
demand will be.
• STRATEGIC FORECASTS: medium and long-term forecasts used to set strategy of
how demand will be met.
• TACTICAL FORECASTS: short-term forecasts used to make day-to-day decisions.
These forecasts are used to determine things such as when to replenish inventory or
how much production to schedule.
o This forecast determines demand in the short run. It is used to ensure we
meet customer lead time expectations.
-Decoupling points are points in the supply chain where inventory is positioned to allow
entities in the supply chain to operate independently.
• The closer this point is to customers, the quicker the customer can be served.
• Selecting decoupling points is a strategic decision that determines customer lead
times and can impact inventory investment.
• There is a trade-off. Quick response to customer demands comes at the expense of
greater inventory investment because finished goods are more expensive to store
than raw materials.
• Forecasting is needed at decoupling points to set appropriate inventory levels. If
demand can be forecasted accurately, then we can set inventory accordingly. On the
other hand, if predicting short-term demand is difficult, then extra inventory should be
stocked to
cover for the uncertainty.
• In service firms, there is no inventory to buffer demand. Here, the issue is to measure
demand so companies can arrange the right amount of capacity to meet demand.
When demand is not predictable, the company may have excess capacity if it wants to
serve customers quickly.
-Demand can be broken down into six components:
• Average demand for the period
• Trend
• Seasonal element
• Cyclical element – cyclical influence on demand include political elections, war,
economic conditions, sociological pressures, etc. Cyclical influences are difficult
to
determine because the time span may be unknown.
• Random variation – when demand is caused by chance. When all the known causes
of demand (average, trend, seasonal, cyclical, autocorrelation) are subtracted from
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