10/5/2018 MGT530 – Operations Management MGT530 – Operations Management Forecasting Applications Module Introduction Readings Note: The following readings may require you to be logged in to the Saudi Digital Library. You may do that here (https://lms.seu.edu.sa/bbcswebdav/xid-27610786_1). Required Review Chapter 3 in Operations Management. Review Chapter 3 PowerPoint slides (https://lms.seu.edu.sa/bbcswebdav/courses/MGT530-MASTER/Presentations/Stevenson_13e_Chapter_03.pptx) – Operations Management. Coker, J., & Helo, P. (2016). Demand-supply balancing in manufacturing operations (https://www-emeraldinsight-com.sdl.idm.oclc.org/doi/full/10.1108/BIJ-04-2014-0028). Benchmarking: An International Journal, 23(3), 564-583. Randheer, K., & Al-Aali, A. (2015). What, who, how and where: Retailing industry in Saudi Arabia (https://search-proquest-com.sdl.idm.oclc.org/docview/1795624910? accountid=142908). Journal of Competitiveness Studies, 23(3), 54-69. Recommended Pandey, P., Kumar, S., & Shrivastava, S. (2014). A unified strategy for forecasting of a new product (https://search-proquest-com.sdl.idm.oclc.org/docview/1651824412?accountid=142908). Decision, 41(4), 411-424. For Your Success In this module, consider the importance of forecasting in operations management. As you work through the module, think about the types of forecasting methods you might apply to specific challenges in your own organization or one with which you are familiar. This Week: Complete the Critical Thinking Assignment. You will read a case study on a manufacturing company, M&L Manufacturing, select an appropriate forecasting method, and prepare forecasts for the two products https://lms.seu.edu.sa/webapps/blackboard/execute/content/file?cmd=view&content_id=_3259036_1&course_id=_43144_1&framesetWrapped=true discussed 1/6 discussed. 10/5/2018 MGT530 – Operations Management Complete the graded quiz, covering Modules 3 and 4. Learning Outcomes 1. Recommend the best forecasting method for a specific business issue. 2. Apply forecasting techniques to specific problems found in an operations management setting. 1. Meaningful Units in the Forecast As discussed in Module 3, the forecast must be done in a way that is meaningful to the people involved in the operations. For example, if someone were to conduct forecasting on income, the meaningful units would most likely be in dollars (or riyals). That is important to the finance people in the organization. Dollars (or riyals) are also important within service industries. When predicting client behavior, however, there are other meaningful units that should be considered. For example, the overall number of clients seen is an important measurement; in this case, each client is a meaningful unit. Another unit that might be measured is the total number of services provided to each customer. Take a hospital, for example; there is a very large difference between 500 patients receiving one checkup and 500 patients receiving a checkup, having blood drawn, speaking with a nutritionist, and consulting the physical therapist during the forecast period. The operations will be very different in these cases, because that is approximately four times the number of services that need to be provided and, presumably, four times the hospital staff that needs to be involved. With new product forecasting, a unique challenge arises because there is no historical data on which to base the forecast. Units sold may be the appropriate measure, but determining a forecast when nothing is known about consumer demand can be difficult. Pandey, Kumar, and Shrivastava (2014) described a method for mixing expert opinions with quantitative methods to develop a new product forecast. The article is a recommended reading for you this week. 2. Writing Down the Forecast As Stevenson (2018) reminded us, one of the most important components to forecasting is making sure that the forecast is put on paper. It is much easier to work with a forecast when it is a written document, as opposed to something that was only discussed verbally. A documented forecast can be reviewed for accuracy and relevance when it is developed, and can also be easily reviewed in the future to ensure that its targets are being met. Individuals within an organization, moreover, are more likely to support the forecast if they are given the opportunity to read it and provide input on those items that will impact the ability to do their jobs. https://lms.seu.edu.sa/webapps/blackboard/execute/content/file?cmd=view&content_id=_3259036_1&course_id=_43144_1&framesetWrapped=true 2/6 10/5/2018 MGT530 – Operations Management Capacity management is an operations management function that requires communication of forecast requirements. Without documentation of capacity forecasts, operations may not have enough space or equipment to handle the demand, or it may pay too much for unused capacity. Your required reading by Coker and Helo (2016) described various issues of capacity forecasting. Types of Forecasts Generally, there are two major categories of forecasts: qualitative and quantitative. Consider qualitative forecasts. There are cases in which there is not sufficient time to gather quantitative data, or when such data is not available. For example, there would not be much quantitative data available for a new product. In these instances, opinions and judgments are utilized. The primary types of qualitative forecasts are as follows: Download Transcript (https://lms.seu.edu.sa/bbcswebdav/courses/MGT-530MASTER/Module4/media/SEU_MGT530_Interactive_Mod04_P02a.pdf) The following video provides a more detailed explanation of the Delphi method: The Delphi Method (Source: https://www.youtube.com/watch?v=5DcStnklwCI) https://lms.seu.edu.sa/webapps/blackboard/execute/content/file?cmd=view&content_id=_3259036_1&course_id=_43144_1&framesetWrapped=true 3/6 There are also quantitative forecast methods based on such things as time-series or correlation data Here There are also quantitative forecast methods, based on such things as time-series or correlation data. Here 10/5/2018 MGT530 – Operations Management are the four most common types of quantitative forecasts: Download Transcript (https://lms.seu.edu.sa/bbcswebdav/courses/MGT-530MASTER/Module4/media/SEU_MGT530_Interactive_Mod04_P02b.pdf) View this video on sharing forecasting models and information within organizations. What is something new that you discovered about operations management? Time Series Analysis – An Introduction (Source: https://www.youtube.com/watch?v=bhjg0TZssI8) 3. Conclusion Forecasting is somewhat of an educated guess about what is going to happen in the future. It is not only part of the strategic planning process for an organization, but is also a very important part of operations management. Every organization and every industry does some type of forecasting, whether it is to try to predict supply, demand, finances, economies, global issues, weather, or something else. Every industry has to try and predict the future in order to plan for it. The keys to the success of forecasting are the tools, data, and information that an organization uses to https://lms.seu.edu.sa/webapps/blackboard/execute/content/file?cmd=view&content_id=_3259036_1&course_id=_43144_1&framesetWrapped=true improve the accuracy of the predictions. The more accurate the forecasts, the more prepared the 4/6 10/5/2018 MGT530 – Operations Management organization is for the future, and the better it can deal with the ups and downs that all organizations must endure while in business. Take a look at your required reading by Randheer and Al-Aali (2015). Consider how you might use timeseries forecasting and the data in the article to develop a forecast for a new retail outlet. Could you do it? What process and forecasting method would you use? The following video shows how you can measure the accuracy of a forecasting technique by looking at forecasting error, which is the difference between actual values and forecasted values. Forecasting Accuracy (Source: https://www.youtube.com/watch?v=5IyPFyD4_Xk ) Check Your Understanding Match the forecasting methods (all listed in the left-side column) as they relate to either judgment and opinion-based approaches or statistical-based approaches. Click on the means appropriate for judgment and opinion-based approaches to forecasting to move them out of the judgement/opinion-based approaches column and into the statistical-based approaches column as appropriate. Check Your Understanding https://lms.seu.edu.sa/webapps/blackboard/execute/content/file?cmd=view&content_id=_3259036_1&course_id=_43144_1&framesetWrapped=true 5/6 10/5/2018 MGT530 – Operations Management Click Here to Begin References Coker, J., & Helo, P. (2016). Demand-supply balancing in manufacturing operations. Benchmarking, 23(3), 564-583. Pandey, P., Kumar, S., & Shrivastava, S. (2014). A unified strategy for forecasting of a new product. Decision, 41(4), 411-424. Randheer, K., & Al-Aali, A. (2015). What, who, how and where: Retailing industry in Saudi Arabia. Journal of Competitiveness Studies, 23(3), 54-69. Stevenson, W. (2018). Operations management (13th ed.). New York, NY: McGraw-Hill Irwin. https://lms.seu.edu.sa/webapps/blackboard/execute/content/file?cmd=view&content_id=_3259036_1&course_id=_43144_1&framesetWrapped=true 6/6 MGT530 Critical Thinking Writing Rubric - Module 4 Exceeds Expectation Content, Research, and Analysis 21-25 Points Requirements Exceeds Expectation Includes all of the required components, as specified in the assignment. 21-25 Points Content Exceeds Expectation Demonstrates substantial and extensive knowledge of the materials, with no errors or major omissions. 25-30 Points Analysis Exceeds Expectation Provides strong thought, insight, and analysis of concepts and applications. 13-15 Points Sources Exceeds Expectation Sources go above and beyond required criteria, and are well chosen to provide effective substance and perspectives on the issue under examination. Mechanics and Writing 5 Points Demonstrates Exceeds college-level Expectation proficiency in Project is clearly Meets Expectation Below Expectation Limited Evidence 16-20 Points Meets Expectation - Includes most of the required components, as specified in the assignment. 11-15 Points Below Expectation - Includes some of the required components, as specified in the assignment. 6-10 Points Limited Evidence Includes few of the required components, as specified in the assignment. 16-20 Points Meets Expectation - Demonstrates adequate knowledge of the materials; may include some minor errors or omissions. 11-15 Points Below Expectation - Demonstrates fair knowledge of the materials and/or includes some major errors or omissions. 6-10 Points Limited Evidence Fails to demonstrate knowledge of the materials and/or includes many major errors or omissions. 19-24 Points Meets Expectation - Provides adequate thought, insight, and analysis of concepts and applications. 10-12 Points Meets Expectation - Sources meet required criteria and are adequately chosen to provide substance and perspectives on the issue under examination. 13-18 Points Below Expectation - Provides poor thought, insight, and analysis of concepts and applications. 7-12 Points Limited Evidence Provides little or no thought, insight, and analysis of concepts and applications. 7-9 Points Below Expectation - Sources meet required criteria, but are poorly chosen to provide substance and perspectives on the issue under examination. 4-6 Points Limited Evidence Source selection and integration of knowledge from the course is clearly deficient. 4 Points Meets Expectation - Project is fairly well organized and 3 Points Below Expectation - Project is poorly organized and 1-2 Points Limited Evidence Project is not organized or well MGT530 Critical Thinking Writing Rubric - Module 4 organization, grammar and style. organized, well written, and in proper format as outlined in the assignment. Strong sentence and paragraph structure; contains no errors in grammar, spelling, APA style, or APA citations and references. Total points possible = 100 written, and is in proper format as outlined in the assignment. Reasonably good sentence and paragraph structure; may include a few minor errors in grammar, spelling, APA style, or APA citations and references. written, and may not follow proper format as outlined in the assignment. Inconsistent to inadequate sentence and paragraph development, and/or includes numerous or major errors in grammar, spelling, APA style, or APA citations and references. written, and is not in proper format as outlined in the assignment. Poor quality work; unacceptable in terms of grammar, spelling, APA style, and APA citations and references. M&L Manufacturing makes various components for printers and copiers. In addition to supplying these items to a major manufacturer, the company distributes these and similar items to office supply stores and computer stores as replacement parts for printers and desktop copiers. In all, the company makes about 20 different items. The two markets (the major manufacturer and the replacement market) require somewhat different handling. For example, replacement products must be packaged individually whereas products are shipped in bulk to the major manufacturer. The company does not use forecasts for production planning. Instead, the operations manager decides which items to produce and the batch size, based on orders and the amounts in inventory. The products that have the fewest amounts in inventory get the highest priority. Demand is uneven, and the company has experienced being overstocked on some items and out of others. Being understocked has occasionally created tensions with the managers of retail outlets. Another problem is that prices of raw materials have been creeping up, although the operations manager thinks that this might be a temporary condition. Because of competitive pressures and falling profits, the manager has decided to undertake a number of changes. One change is to introduce more formal forecasting procedures in order to improve production planning and inventory management. With that in mind, the manager wants to begin forecasting for two products. These products are important for several reasons. First, they account for a disproportionately large share of the company's profits. Second, the manager believes that one of these products will become increasingly important to future growth plans; and third, the other product has experienced periodic out-of-stock instances. The manager has compiled data on product demand for the two products from order records for the previous 14 weeks. These are shown in the following table. Questions 1. What are some of the potential benefits of a more formalized approach to forecasting? 2. Prepare a weekly forecast for the next four weeks for each product. Briefly explain why you chose the methods you used. (Hint: For product 2, a simple approach, possibly some sort of naive/intuitive approach, would be preferable to a technical approach in view of the manager's disdain of more technical methods.)
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