1.
What are the main advantages that quantitative techniques for forecasting have over qualitative
techniques? What limitations do quantitative techniques have?
Qualitative forecasts rely solely on judgment and opinion to make forecasts. So,
when using quantitative techniques, organizations use historical data or the
development of associative models that attempt to utilize casual variable to make a
forecast. It also consists mainly of analyzing objective, or hard data. So, when using
quantitative techniques, organizations tend to see more accurate results then
qualitative techniques.
Some limitations involved in quantitative approach is that sometimes forecast can
vary depending on many external factors including things like the time of year and
competition. With a qualitative approach, companies spend less money and time
trying to come up with an accurate forecast while if using quantitative, it can be
very time consuming, expensive and sometimes lead to inaccurate forecasts.
2. What are some of the consequences of poor forecasts? Explain.
Inaccurate forecasts can lead to shortages and excesses throughout the supply chain.
Shortages of materials, parts, and services can lead to missed deliveries, work
disruption, and poor customer service. Conversely, overly optimistic forecasts can
lead to excesses of materials and/or capacity, which increase costs. Both shortages
and excesses in the supply chain have a negative impact not only on customer
service but also on profits. Furthermore, inaccurate forecasts can result in
temporary increases and decreases in orders to the supply chain, which can be
misinterpreted by the supply chain.
3. List the specific weaknesses of each of the following approaches to developing a forecast
a. Consumer surveys – a considerable amount of knowledge and skill is required to
construct a survey, administer it, and correctly interpret the results for valid
information. Surveys can be expensive and time-consuming.
b. Salesforce composite – the staff members may be unable to distinguish between what
customers would like to do and what they actually will do.
c. Committee of managers or executives – the risk that the view of one person will prevail,
and the possibility that diffusing responsibility for the forecast over the entire group
may result in less pressure to produce a good forecast.
4. Forecasts are generally wrong.
a. Why are forecasts generally wrong?
Forecasts generally are wrong due to the use of an incorrect model to forecast, random
variation, or unforeseen events.
b. Explain the term “wrong” as it pertains to a good forecast.
Forecasts are generally wrong because they are prediction or nomination of future
production based of past events. Forecasts are generally wrong because of personal bias,
mathematical system, or inaccurate past data. A wrong forecast could contain inaccurate
results, it cannot be expressed in meaningful units, and it can be difficult to draw valid
inferences for further use.
5. What is the purpose of establishing control limits for forecast errors?
6. What factors would you consider in deciding whether to use wide or narrow control limits for
forecasts?
In cases where the mean square error (MSE) provides that the distribution of errors
is too far from each other, a wider control limit would be used. On the other hand, in
cases where the MSE provides that too many errors point side on side of the
centerline, a narrower control limit would be used. However, both would still require
corrective actions.
7. Contrast the use of MAD and MSE in evaluating forecasts.
MAD weights all error evenly, it focuses on average error. MSE weights error
according to their squared values. MSE squares errors, it gives considerably more
weight to large forecast errors.
8. What advantages as a forecasting tool does exponential smoothing have over moving averages?
requires less data storage, gives more weight to recent data, and is easier to change
to make it more responsive to changes in demand.
9. How does the number of periods in a moving average affect the responsiveness of the forecast?
The fewer the periods in a moving average, the greater the responsiveness.
10. What factors enter into the choice of a value for the smoothing constant in exponential
smoothing?
The choice of alpha in exponential smoothing depends on how responsive a forecast
the manager desires. This, in turn, relates to the cost of not responding to a real
change relative to the cost of responding to what are merely random variations in
the data.