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INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Demand Management

<< INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:The Decision Process
Roadmap to the Lecture:Fundamental Types of Forecasts, Finer Classification of Forecasts >>
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Production and Operations Management ­MGT613
VU
Lesson 07
Introduction
·Forecasting demand is like forecasting weather .Sometimes the forecast or prediction fails completely
and sometimes its near the predicted value but still not the exact value. Often scientists call forecasting
as an educated guess, but even then forecasting helps us to plan our trips and journeys and most
importantly we as farmers make use of forecasting to plant, harvest and take precautionary measures.
·Forecasting in business forms the basis for budgeting and planning for capacity, sales, production,
inventory, manpower, purchasing and more.
·Forecasting allows the manager to anticipate the future so then can plan accordingly.
Introduction
·There
are two major uses for forecasts. One is to help the Operations Manager plan the system and the
other one is to help him plan the use of the system. These are important concepts different distinct but at
the same time closely lined.
Planning the system refers to planning long term plans about the type of
products or services to offer, what facilities and equipment to have, where to locate and so on and so
forth. Planning the use of the system relates to short range and intermediate range planning which
means planning inventory workforce resources, planning of purchasing and production activities,
budgeting and scheduling etc.
Thus it can be said that planning the systems more of a job of a senior manager, birds eye view and has
ORGANIZATIONAL STRATEGY in it where as planning the use of the system is an OPERATIONAL
STRATEGY
Business Forecasting is more than just predicting demand. Forecasting is also used to predict profits,
revenues, costs, productivity changes, prices and availability of energy and raw materials, interest rates,
movements of key economic indicators (GNP, inflation and government loans) and prices of stocks and
bonds.
Forecasting is not an exact science. Even with the availability of computers, and algorithms, its unable
to make an exact prediction it requires Experience, Managerial Judgment and Technical expertise.
General Responsibility lies with the Marketing workforce but to this day not a single marketing forecast
has been created without the valuable contribution of the Operations side.
FORECAST:
·A statement about the future value of a variable of interest such as resource requirements, capacity
planning, SCM and product or service demand.
Forecasts affect decisions and activities throughout an organization
1. Accounting, finance
2. Human resources
3. Marketing
4. MIS
5. Operations
6. Product / service design
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Production and Operations Management ­MGT613
VU
Applications of Forecasts
Accounting
Cost/profit estimates
Finance
Cash flow and funding
Human Resources
Hiring/recruiting/training
Marketing
Pricing, promotion, strategy
MIS
IT/IS systems, services
Operations
Schedules, MRP, workloads
Product/service design
New products and services
Demand Management
Demand Management
Independent Demand:
Finished Goods/Services
Dependent Demand:
A
Raw Materials,
Component parts,
Sub-assemblies, etc.
C(2
B(4
D(2
E(1
D(3
F(2
Independent Demand: What a firm can do to manage it?
1. Either be Active or Passive meaning?
2. Can take an active role to influence demand
3. Can take a passive role and simply respond to demand
Components of Demand
·Average demand for a period of time
·Trend
·Seasonal element
·Cyclical elements
·Random variation
·Autocorrelation
Finding Components of Demand
Web-Based Forecasting: CPFR Defined
·Collaborative
Planning, Forecasting, and Replenishment (CPFR) a Web-based tool used to coordinate
demand forecasting, production and purchase planning, and inventory replenishment between supply
chain trading partners. You will learn about this in your later part of the semester.
·Used
to integrate the multi-tier or n-Tier supply chain, including manufacturers, distributors and
retailers.
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Production and Operations Management ­MGT613
VU
·CPFR's
objective is to exchange selected internal information to provide for a reliable, longer term
future views of demand in the supply chain.
·CPFR
uses a cyclic and iterative approach to derive consensus forecasts.
Web-Based Forecasting:
Steps in CPFR
1. Creation of a front-end partnership agreement
2. Joint business planning
3. Development of demand forecasts
4. Sharing forecasts
5. Inventory replenishment
·Assumes causal system( That same system that existed in the past will exist in future, where as in
reality unplanned events happen like tax rate increase, introduction of a competitors product or service
or natural disasters)
·Forecasts rarely perfect because of RANDOMNESS (having no specific pattern). Allowances should
be made for inaccuracies.
·Forecasts more accurate for groups vs. individuals naturally because forecasting errors in a group tend
to cancel out forecasting errors for individuals.
·Forecast accuracy decreases as time horizon increases indicating it is safe to make short range forecasts
instead of long term forecasts. If you can recall we had talked about Flexible and Agile Corporations in
the past.
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Table of Contents:
  1. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
  2. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Decision Making
  3. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Strategy
  4. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System
  5. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity
  6. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:The Decision Process
  7. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Demand Management
  8. Roadmap to the Lecture:Fundamental Types of Forecasts, Finer Classification of Forecasts
  9. Time Series Forecasts:Techniques for Averaging, Simple Moving Average Solution
  10. The formula for the moving average is:Exponential Smoothing Model, Common Nonlinear Trends
  11. The formula for the moving average is:Major factors in design strategy
  12. The formula for the moving average is:Standardization, Mass Customization
  13. The formula for the moving average is:DESIGN STRATEGIES
  14. The formula for the moving average is:Measuring Reliability, AVAILABILITY
  15. The formula for the moving average is:Learning Objectives, Capacity Planning
  16. The formula for the moving average is:Efficiency and Utilization, Evaluating Alternatives
  17. The formula for the moving average is:Evaluating Alternatives, Financial Analysis
  18. PROCESS SELECTION:Types of Operation, Intermittent Processing
  19. PROCESS SELECTION:Basic Layout Types, Advantages of Product Layout
  20. PROCESS SELECTION:Cellular Layouts, Facilities Layouts, Importance of Layout Decisions
  21. DESIGN OF WORK SYSTEMS:Job Design, Specialization, Methods Analysis
  22. LOCATION PLANNING AND ANALYSIS:MANAGING GLOBAL OPERATIONS, Regional Factors
  23. MANAGEMENT OF QUALITY:Dimensions of Quality, Examples of Service Quality
  24. SERVICE QUALITY:Moments of Truth, Perceived Service Quality, Service Gap Analysis
  25. TOTAL QUALITY MANAGEMENT:Determinants of Quality, Responsibility for Quality
  26. TQM QUALITY:Six Sigma Team, PROCESS IMPROVEMENT
  27. QUALITY CONTROL & QUALITY ASSURANCE:INSPECTION, Control Chart
  28. ACCEPTANCE SAMPLING:CHOOSING A PLAN, CONSUMER’S AND PRODUCER’S RISK
  29. AGGREGATE PLANNING:Demand and Capacity Options
  30. AGGREGATE PLANNING:Aggregate Planning Relationships, Master Scheduling
  31. INVENTORY MANAGEMENT:Objective of Inventory Control, Inventory Counting Systems
  32. INVENTORY MANAGEMENT:ABC Classification System, Cycle Counting
  33. INVENTORY MANAGEMENT:Economic Production Quantity Assumptions
  34. INVENTORY MANAGEMENT:Independent and Dependent Demand
  35. INVENTORY MANAGEMENT:Capacity Planning, Manufacturing Resource Planning
  36. JUST IN TIME PRODUCTION SYSTEMS:Organizational and Operational Strategies
  37. JUST IN TIME PRODUCTION SYSTEMS:Operational Benefits, Kanban Formula
  38. JUST IN TIME PRODUCTION SYSTEMS:Secondary Goals, Tiered Supplier Network
  39. SUPPLY CHAIN MANAGEMENT:Logistics, Distribution Requirements Planning
  40. SUPPLY CHAIN MANAGEMENT:Supply Chain Benefits and Drawbacks
  41. SCHEDULING:High-Volume Systems, Load Chart, Hungarian Method
  42. SEQUENCING:Assumptions to Priority Rules, Scheduling Service Operations
  43. PROJECT MANAGEMENT:Project Life Cycle, Work Breakdown Structure
  44. PROJECT MANAGEMENT:Computing Algorithm, Project Crashing, Risk Management
  45. Waiting Lines:Queuing Analysis, System Characteristics, Priority Model