chopra_scm5_tif_ch07.doc

Supply Chain Management, 5e (Chopra/Meindl) Chapter 7 Demand Forecasting in a Supply Chain 7.1 True/False Questions 1) The forecast of demand forms the basis for all strategic and planning decisions in a supply chain. Answer: TRUE Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 2) Throughout the supply chain, all pull processes are performed in anticipation of customer demand, whereas all push processes are performed in response to customer demand. Answer: FALSE Diff: 1 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 3) For pull processes, a manager must forecast what customer demand will be in order to plan the level of available capacity and inventory. Answer: TRUE Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 4) For push processes, a manager must forecast what customer demand will be in order to plan the level of available capacity and inventory. Answer: FALSE Diff: 3 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 5) The result when each stage in the supply chain makes its own separate forecast is often a match between supply and demand, because these forecasts are often very different. Answer: FALSE Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 6) When all stages of a supply chain produce a collaborative forecast, it tends to be much more accurate. Answer: TRUE Diff: 1 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7) Leaders in many supply chains have started moving toward collaborative forecasting to improve their ability to match supply and demand. Answer: TRUE Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 8) Mature products with stable demand are usually the most difficult to forecast. Answer: FALSE Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 9) Forecasting and the accompanying managerial decisions are extremely difficult when either the supply of raw materials or the demand for the finished product is highly variable. Answer: TRUE Diff: 1 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 10) Forecasts are always right. Answer: FALSE Diff: 1 Topic: 7.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 11) Forecasts should include both the expected value of the forecast and a measure of forecast error. Answer: TRUE Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 7-2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall as they tend to have a smaller standard deviation of error relative to the mean.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 14) In general. the further up the supply chain a company is (or the further they are from the consumer). Answer: FALSE Diff: 1 Topic: 7.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 13) Aggregate forecasts are usually more accurate than disaggregate forecasts. Answer: TRUE Diff: 2 Topic: 7. publishing as Prentice Hall .12) Long-term forecasts are usually more accurate than short-term forecasts. Answer: FALSE Diff: 2 Topic: 7. Answer: TRUE Diff: 2 Topic: 7. Answer: TRUE Diff: 1 Topic: 7. Inc.3 Components of a Forecast and Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 17) Time series forecasting methods are based on the assumption that past demand history is a good indicator of future demand.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 15) Collaborative forecasting based on sales to the end customer can help enterprises further up the supply chain reduce forecast error. Answer: FALSE Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 7-3 Copyright © 2013 Pearson Education.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 16) Qualitative forecasting methods are most appropriate when there is good historical data available or when experts do not have market intelligence that is critical in making the forecast. the smaller the distortion of information they receive. 3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 22) The forecast error measures the difference between the forecast and the estimate. Answer: FALSE Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 23) The goal of any forecasting method is to predict the systematic component of demand and estimate the random component.5 Time-Series Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-4 Copyright © 2013 Pearson Education. Answer: TRUE Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 20) Simulation forecasting methods imitate the consumer choices that give rise to demand to arrive at a forecast. Answer: FALSE Diff: 1 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 19) Causal forecasting methods find a correlation between demand and environmental factors and use estimates of what environmental factors will be to forecast future demand. publishing as Prentice Hall . trend. Answer: TRUE Diff: 2 Topic: 7. and seasonality within the systematic component vary as new demand is observed. Answer: TRUE Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 21) The objective of forecasting is to filter out the random component (noise) and estimate the systematic component. Answer: FALSE Diff: 2 Topic: 7. Answer: TRUE Diff: 2 Topic: 7.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 24) A static method of forecasting assumes that the estimates of level.18) Time series forecasting methods are the most difficult methods to implement. Inc. 1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 29) Forecasting and the accompanying managerial decisions are relatively simple when either the supply of raw materials or the demand for the finished product is highly unpredictable.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 26) The moving average forecast method is used when demand has an observable trend or seasonality. trend. Answer: TRUE Diff: 1 Topic: 7. Answer: TRUE Diff: 3 Topic: 7. Inc.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 28) Forecasting and the accompanying managerial decisions are extremely difficult when either the supply of raw materials or the demand for the finished product is highly unpredictable.25) In adaptive forecasting. the estimates of level.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 27) For pull processes.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 30) Long-term forecasts have a larger standard deviation of error relative to the mean than short- term forecasts. and seasonality are updated after each demand observation. publishing as Prentice Hall . Answer: TRUE Diff: 1 Topic: 7. Answer: FALSE Diff: 1 Topic: 7. a manager must plan the level of available capacity and inventory but not the actual amount to be executed. Answer: FALSE Diff: 2 Topic: 7. Answer: TRUE Diff: 2 Topic: 7.2 Characteristics of Forecasts Learning Outcome: Describe major approaches to forecasting 7-5 Copyright © 2013 Pearson Education. 1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 4) The result of each stage in the supply chain making its own separate forecast is A) an accurate forecast. a manager must forecast what customer demand will be in order to A) plan the service level.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 3) For pull processes. D) production efficiency goals. E) none of the above Answer: B Diff: 2 Topic: 7. E) none of the above Answer: D Diff: 2 Topic: 7.2 Multiple Choice Questions 1) The basis for all strategic and planning decisions in a supply chain comes from A) the forecast of demand. B) sales targets. C) plan the level of productivity. D) plan the level of production. C) profitability projections. D) plan the level of production. C) a match between supply and demand. E) all of the above Answer: A Diff: 1 Topic: 7. E) none of the above Answer: D Diff: 2 Topic: 7.7. C) plan the level of productivity. B) a more accurate forecast. B) plan the level of available capacity and inventory. a manager must forecast what customer demand will be in order to A) plan the service level.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 2) For push processes. B) plan the level of available capacity and inventory. D) a mismatch between supply and demand. publishing as Prentice Hall .1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-6 Copyright © 2013 Pearson Education. Inc. B) both more responsive and more efficient in serving their customers. D) toward collaborative forecasting to improve their ability to match supply and demand. C) less responsive but less efficient in serving their customers. E) None of the above are true.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7) Leaders in many supply chains have started moving A) toward independent forecasting to improve their ability to match supply and demand. E) all of the above Answer: C Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 6) The resulting accuracy of a collaborative forecast enables supply chains to be A) more responsive but less efficient in serving their customers. C) toward sequential forecasting to improve their ability to match supply and demand. C) much more accurate. D) both less responsive and less efficient in serving their customers. D) much more flexible. Answer: D Diff: 2 Topic: 7. it tends to be A) much more detailed. B) toward consecutive forecasting to improve their ability to match supply and demand.5) When all stages of a supply chain produce a collaborative forecast. Answer: B Diff: 2 Topic: 7.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-7 Copyright © 2013 Pearson Education. E) None of the above are true. B) much more complex. Inc. publishing as Prentice Hall . 1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 9) Marketing can utilize forecasts to make decisions concerning A) scheduling.8) Production can utilize forecasts to make decisions concerning A) scheduling. B) promotions. Answer: A Diff: 2 Topic: 7. D) workforce planning. C) inventory control. E) budgetary planning. B) promotions. E) purchasing. publishing as Prentice Hall . Answer: B Diff: 1 Topic: 7. D) aggregate planning.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 11) Personnel can utilize forecasts to make decisions concerning A) scheduling. E) purchasing. Inc. B) promotions. Answer: B Diff: 2 Topic: 7. B) sales-force allocation. C) plant/equipment investment. Answer: A Diff: 2 Topic: 7. D) aggregate planning.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-8 Copyright © 2013 Pearson Education. C) promotions. E) purchasing.1 The Role of Forecasting in a Supply Chain AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 10) Finance can utilize forecasts to make decisions concerning A) scheduling. C) plant/equipment investment. D) new product introduction. forecasting and the accompanying managerial decisions A) are extremely simple. C) short-term forecasts are usually less accurate than long-term forecasts. C) short-term forecasts are usually less accurate than long-term forecasts.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 14) One of the characteristics of forecasts is A) forecasts are always right. D) long-term forecasts are usually less accurate than short-term forecasts.1 The Role of Forecasting in a Supply Chain Learning Outcome: Describe major approaches to forecasting 13) When either the supply of raw materials or the demand for the finished product is highly variable.2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 7-9 Copyright © 2013 Pearson Education. E) none of the above Answer: B Diff: 2 Topic: 7. B) are relatively straightforward. Inc. B) are usually hardest to forecast. E) none of the above Answer: C Diff: 1 Topic: 7. B) disaggregate forecasts are usually more accurate than aggregate forecasts. D) do not need to be forecast. C) are extremely difficult. C) cannot be forecast. D) long-term forecasts are usually more accurate than short-term forecasts. D) should not be attempted. B) forecasts are always wrong.2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 15) One of the characteristics of forecasts is A) aggregate forecasts are usually less accurate than disaggregate forecasts.12) Mature products with stable demand A) are usually easiest to forecast. publishing as Prentice Hall . E) none of the above Answer: D Diff: 2 Topic: 7. E) none of the above Answer: A Diff: 1 Topic: 7. D) should be missing the expected value of the forecast and a measure of forecast error. C) short-term forecasts are usually less accurate than long-term forecasts. D) long-term forecasts have a larger standard deviation of error relative to the mean than short- term forecasts. C) long-term forecasts have a smaller standard deviation of error relative to the mean than short- term forecasts.2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 18) Long-term forecasts are usually less accurate than short-term forecasts because A) short-term forecasts have a larger standard deviation of error relative to the mean than long- term forecasts. publishing as Prentice Hall .16) One of the characteristics of forecasts is A) aggregate forecasts are usually more accurate than disaggregate forecasts.2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 17) Forecasts are always wrong and therefore A) should include both the expected value of the forecast and a measure of forecast error. C) should only be used when there are no accurate estimates. E) none of the above Answer: D Diff: 2 Topic: 7. B) disaggregate forecasts are usually more accurate than aggregate forecasts. E) none of the above Answer: A Diff: 1 Topic: 7. E) none of the above Answer: A Diff: 2 Topic: 7. D) long-term forecasts are usually more accurate than short-term forecasts. B) should not include both the expected value of the forecast and a measure of forecast error. Inc. B) short-term forecasts have more standard deviation of error relative to the mean than long-term forecasts.2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 7-10 Copyright © 2013 Pearson Education. B) the smaller the distortion of information they receive.19) Aggregate forecasts are usually more accurate than disaggregate forecasts because A) aggregate forecasts tend to have a larger standard deviation of error relative to the mean. the further up the supply chain a company is (or the further they are from the consumer). E) none of the above Answer: A Diff: 2 Topic: 7. C) the information they receive is more accurate.2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 20) In general. E) none of the above Answer: A Diff: 2 Topic: 7. A) the greater the distortion of information they receive. B) aggregate forecasts tend to have a smaller standard deviation of error relative to the mean. Answer: E Diff: 2 Topic: 7. D) disaggregate forecasts tend to have less standard deviation of error relative to the mean. D) simulation forecasting methods. E) none of the above Answer: B Diff: 1 Topic: 7. C) disaggregate forecasts tend to have a smaller standard deviation of error relative to the mean. publishing as Prentice Hall .3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 7-11 Copyright © 2013 Pearson Education. C) causal forecasting methods.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 22) Forecasting methods that are primarily subjective and rely on human judgment are known as A) qualitative forecasting methods. Inc.2 Characteristics of Forecasts AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 21) Which of the following is not a forecasting method? A) Qualitative B) Time series C) Causal D) Simulation E) All of the above are forecasting methods. D) the information they receive is more useful. B) time series forecasting methods. D) simulation forecasting methods. Inc. B) time series forecasting methods.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 24) Forecasting methods that assume that the demand forecast is highly correlated with certain factors in the environment (e. B) time series forecasting methods.) to make a forecast are known as A) qualitative forecasting methods. interest rates.3 Components of a Forecast and Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-12 Copyright © 2013 Pearson Education. D) forecasting demand into the near future.23) Forecasting methods that use historical demand to make a forecast are known as A) qualitative forecasting methods. D) simulation forecasting methods. E) none of the above Answer: B Diff: 2 Topic: 7. B) time series forecasting methods.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 26) Qualitative forecasting methods are most appropriate when A) there is good historical data available. C) experts do not have critical market intelligence. D) simulation forecasting methods.g. publishing as Prentice Hall . E) none of the above Answer: C Diff: 2 Topic: 7. Answer: B Diff: 2 Topic: 7..3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 25) Forecasting methods that imitate the consumer choices that give rise to demand to arrive at a forecast are known as A) qualitative forecasting methods. etc. C) causal forecasting methods. E) trying to achieve a high level of detail. C) causal forecasting methods. C) causal forecasting methods. B) there is little historical data available. the state of the economy. E) none of the above Answer: D Diff: 2 Topic: 7. D) Identify and understand supplier requirements. C) Understand and identify customer segments. Answer: C Diff: 3 Topic: 7.3 Components of a Forecast and Forecasting Methods AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 30) The goal of any forecasting method is to A) predict the random component of demand and estimate the systematic component. E) Determine the appropriate forecasting technique.27) Time series forecasting methods are most appropriate when A) there is little historical data available. B) predict the systematic component of demand and estimate the random component. publishing as Prentice Hall .3 Components of a Forecast and Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 28) Which forecasting methods are the simplest to implement and can serve as a good starting point for a demand forecast? A) Qualitative forecasting methods B) Time series forecasting methods C) Causal forecasting methods D) Simulation forecasting methods E) none of the above Answer: B Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 7-13 Copyright © 2013 Pearson Education. E) forecasting demand several years into the future. B) the basic demand pattern varies significantly from one year to the next. E) predict the trend component of demand and estimate the random component. D) predict the random component of demand and estimate the seasonal component. D) experts have critical market intelligence. Answer: B Diff: 2 Topic: 7. Inc. Answer: D Diff: 2 Topic: 7. C) predict the seasonal component of demand and estimate the random component. B) Integrate demand planning and forecasting throughout the supply chain. C) the basic demand pattern does not vary significantly from one year to the next.3 Components of a Forecast and Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 29) Which of the following is not a step to help an organization perform effective forecasting? A) Understand the objective of forecasting. D) All of the above are steps. D) level × (trend + seasonal factor). B) Estimate seasonal factors.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 33) The mixed form of the systematic component of demand is shown as A) level × trend × seasonal factor.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 7-14 Copyright © 2013 Pearson Education. E) None of the above are steps. and seasonal factors of the systematic component of demand? A) Deseasonalize demand and run linear regression to estimate level and trend. Answer: C Diff: 3 Topic: 7. C) (level + trend) × seasonal factor. Answer: A Diff: 1 Topic: 7. E) (level × trend) + seasonal factor. Inc. B) level + trend + seasonal factor. D) level × (trend + seasonal factor). E) (level × trend) + seasonal factor. B) level + trend + seasonal factor. C) (level + trend) × seasonal factor. trend. C) Remove the trend factor of demand and run linear regression to estimate seasonal factors.31) The multiplicative form of the systematic component of demand is shown as A) level × trend × seasonal factor.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 34) Which of the following is not a necessary step to estimate the three parameters–level. publishing as Prentice Hall . Answer: C Diff: 2 Topic: 7. Answer: B Diff: 1 Topic: 7. C) (level + trend) × seasonal factor. D) level × (trend + seasonal factor). B) level + trend + seasonal factor.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 32) The additive form of the systematic component of demand is shown as A) level × trend × seasonal factor. E) (level × trend) + seasonal factor. Answer: A Diff: 1 Topic: 7. and seasonality within the systematic component do not vary as new demand is observed. trend. Inc. E) None of the above are true. C) the estimates of level. C) demand has observable trend and seasonality. and seasonality are updated after each demand observation. B) assumes that the estimates of level. D) demand has no observable level or seasonality. and seasonality are updated after each demand observation. trend. C) the estimates of level. trend.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 7-15 Copyright © 2013 Pearson Education. D) All of the above are true. and seasonality within the systematic component do not vary as new demand is observed.35) A static method of forecasting A) assumes that the estimates of level. and seasonality within the systematic component vary as new demand is observed. B) demand has no observable trend or seasonality. publishing as Prentice Hall . trend. E) none of the above Answer: B Diff: 2 Topic: 7.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 37) The moving average forecast method is used when A) demand has observable trend or seasonality. Answer: C Diff: 1 Topic: 7.5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 36) In adaptive forecasting A) there is an assumption that the estimates of level. trend. and seasonality within the systematic component are not adjusted as new demand is observed. E) None of the above are true. trend. B) the estimates of level. D) All of the above are true. C) demand has observable trend but no seasonality. E) none of the above Answer: B Diff: 2 Topic: 7.6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 7-16 Copyright © 2013 Pearson Education. E) none of the above Answer: C Diff: 2 Topic: 7.5 Time-Series Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 40) The measure of forecast error where the amount of error of each forecast is squared and then an average is calculated is A) mean squared error (MSE). B) demand has no observable trend or seasonality. D) bias. Inc. D) demand has no observable level or seasonality. D) demand has no observable level or seasonality. Answer: A Diff: 2 Topic: 7. E) the tracking signal.5 Time-Series Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 39) The trend corrected exponential smoothing (Holt's Model) forecast method is appropriate when A) demand has observable trend or seasonality. B) demand has no observable trend or seasonality. B) mean absolute deviation (MAD). publishing as Prentice Hall . C) mean absolute percentage error (MAPE).38) The simple exponential smoothing forecast method is appropriate when A) demand has observable trend or seasonality. C) demand has observable trend and seasonality. Answer: D Diff: 2 Topic: 7. B) mean absolute deviation (MAD). C) mean absolute percentage error (MAPE). Inc.6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 7-17 Copyright © 2013 Pearson Education.6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 43) The measure of whether a forecast method consistently over.6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 42) The measure of forecast error where the average absolute error of each forecast is shown as a percentage of demand is A) mean squared error (MSE).41) The measure of forecast error where the absolute amount of error of each forecast is averaged is A) mean squared error (MSE).or underestimates demand is A) mean squared error (MSE). Answer: C Diff: 3 Topic: 7. B) mean absolute deviation (MAD). C) mean absolute percentage error (MAPE). E) the tracking signal. D) bias. publishing as Prentice Hall .6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 44) The measure of how significantly a forecast method consistently over. D) bias. E) the tracking signal. C) mean absolute percentage error (MAPE). Answer: E Diff: 3 Topic: 7. B) mean absolute deviation (MAD). C) mean absolute percentage error (MAPE). D) bias. Answer: B Diff: 2 Topic: 7. B) mean absolute deviation (MAD).or underestimates demand is A) mean squared error (MSE). E) the tracking signal. D) bias. E) the tracking signal. interest rates. C) seasonality. Inc. Answer: D Diff: 3 Topic: 7. A) Qualitative B) Time-series C) Causal D) Simulation Answer: A Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 46) ________ forecasting methods are primarily subjective and rely on human judgment. A) Qualitative B) Time-series C) Causal D) Simulation Answer: C Diff: 2 Topic: 7.).3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 48) With respect to time-series methods. the systematic component measures the expected value of demand and does NOT consist of A) level.45) ________ forecasting methods assume that the demand forecast is highly correlated with certain factors in the environment (the state of the economy. A) Qualitative B) Time-series C) Causal D) Simulation Answer: B Diff: 2 Topic: 7.3 Components of a Forecast and Forecasting Methods Learning Outcome: Describe major approaches to forecasting 47) ________ forecasting methods use historical demand to make a forecast. etc. B) trend. publishing as Prentice Hall . D) random component.3 Components of a Forecast and Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-18 Copyright © 2013 Pearson Education. Forecast demand for Period 5 using a three-period moving average. A) MAD B) MSE C) MKE D) MAPE Answer: D Diff: 3 Topic: 7.00 Answer: B Diff: 2 Topic: 7.00 D) 142. and D4 =142 gallons over the last four weeks. A) 128.6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 7-19 Copyright © 2013 Pearson Education.25 B) 127. publishing as Prentice Hall .5 Time-Series Forecasting Methods Learning Outcome: Describe major approaches to forecasting 50) A supermarket has experienced weekly demand of milk of D1 = 130. Which is not one of those forms listed in the text? A) Associative B) Multiplicative C) Additive D) Mixed Answer: A Diff: 2 Topic: 7.67 C) 133. Inc. D2 =117.5 Time-Series Forecasting Methods AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 51) Which of the following is a commonly used measure for measuring forecast error? A) MDE B) MKE C) MAD D) MES Answer: C Diff: 2 Topic: 7.6 Measures of Forecast Error Learning Outcome: Describe major approaches to forecasting 52) The ________ is a good measure of forecast error when the underlying forecast has significant seasonality and demand varies considerably from one period to the next. D3 =124.49) The equation for calculating the systematic component may take a variety of forms. 7. Answer: The forecast of demand forms the basis for all strategic and planning decisions in a supply chain. The result is a mismatch between supply and demand. Collaborative forecasting based on sales to the end customer can help enterprises further up the supply chain reduce forecast error.1 The Role of Forecasting in a Supply Chain AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 2) Describe the basic characteristics of forecasts that managers should be aware. Aggregate forecasts are usually more accurate than disaggregate forecasts. these forecasts are often very different. In general. a manager must plan the level of production. When all stages of a supply chain produce a collaborative forecast. Throughout the supply chain. from PC manufacturers to packaged goods retailers. 3. 4. the more accurate the forecast. long-term forecasts have a larger standard deviation of error relative to the mean than short-term forecasts. One classic example of this is the bullwhip effect. Answer: Companies and supply chain managers should be aware of the following characteristics of forecasts: 1. For pull processes. The greater the degree of aggregation. Long-term forecasts are usually less accurate than short-term forecasts. it tends to be much more accurate. the higher the forecast error. whereas all pull processes are performed in response to customer demand. For push processes. that is. publishing as Prentice Hall . Diff: 2 Topic: 7. a manager must plan the level of available capacity and inventory. In both instances.3 Essay Questions 1) Explain the role of forecasting in a supply chain. where order variation is amplified as orders move further from the end customer. the first step a manager must take is to forecast what customer demand will be. all push processes are performed in anticipation of customer demand. Thus. When each stage in the supply chain makes its own separate forecast. the greater the distortion of information they receive. the further up the supply chain an enterprise exists. Inc. as they tend to have a smaller standard deviation of error relative to the mean. As a result. have started moving toward collaborative forecasting to improve their ability to match supply and demand. The resulting forecast accuracy enables supply chains to be both more responsive and more efficient in serving their customers. 2. Diff: 2 Topic: 7. the forecast error (or demand uncertainty) must be a key input into most supply chain decisions. An estimation of demand uncertainty is unfortunately often missing from forecasts. the further up the supply chain a company is (or the further they are from the consumer).2 Characteristics of Forecasts AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 7-20 Copyright © 2013 Pearson Education. Leaders in many supply chains. Forecasts are always wrong and should thus include both the expected value of the forecast and a measure of forecast error. resulting in estimates that vary widely among different stages of a supply chain that is not forecasting collaboratively. etc. 2. Using simulation. interest rates. They are most appropriate when there is little historical data available or when experts have market intelligence that is critical in making the forecast. Causal: Causal forecasting methods assume that the demand forecast is highly correlated with certain factors in the environment (e. Such methods may be necessary to forecast demand several years into the future in a new industry. a firm can combine time series and causal methods to answer such questions as: What will the impact of a price promotion be? What will the impact be of a competitor opening a store nearby? Diff: 2 Topic: 7. Simulation: Simulation forecasting methods imitate the consumer choices that give rise to demand to arrive at a forecast. They are based on the assumption that past demand history is a good indicator of future demand.. 4. Time series: Time series forecasting methods use historical demand to make a forecast. These methods are most appropriate when the basic demand pattern does not vary significantly from one year to the next.g.3 Components of a Forecast and Forecasting Methods AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 7-21 Copyright © 2013 Pearson Education.). Inc.3) Explain the four types of forecasting methods. These are the simplest methods to implement and can serve as a good starting point for a demand forecast. Causal forecasting methods find this correlation between demand and environmental factors and use estimates of what environmental factors will be to forecast future demand. Qualitative: Qualitative forecasting methods are primarily subjective and rely on human judgment. 3. the state of the economy. Answer: Forecasting methods are classified according to the following four types: 1. publishing as Prentice Hall . Companies should establish clear performance measures to evaluate the accuracy and timeliness of the forecast. a highly accurate forecast may not be especially important. 3. As a variety of functions are affected by the outcomes of the planning process. On the supply side. These include capacity planning. with members from each affected function responsible for forecasting demand–and an even better idea to have members of different companies in the supply chain working together to create a forecast. If alternate supply sources with short lead times are available. However. 7-22 Copyright © 2013 Pearson Education. product groups. a firm selects an appropriate forecasting method from the four methods discussed earlier–qualitative. Failure to make these decisions jointly may result in either too much or too little product in various stages of the supply chain. production planning. declining. At this stage. On the product side. A proper analysis of these factors is central to developing an appropriate forecasting technique. causal. Understand and identify customer segments. a company must ascertain whether demand is growing. order frequency. companies may use different forecasting methods for different segments. a company must consider the available supply sources to decide on the accuracy of the forecast desired. 2. and product-related phenomena. a firm must know the number of variants of a product being sold and whether these variants substitute for or complement each other. 4. Integrate demand planning and forecasting throughout the supply chain. Determine the appropriate forecasting technique. among others. Identify the major factors that influence the demand forecast. The company should understand the differences in demand along each dimension. 6. it is important that all of them are integrated into the forecasting process. Customers may be grouped by similarities in service requirements. a company should first understand the dimensions that will be relevant to the forecast. Each organization must use all six steps to forecast effectively. Examples of such decisions include how much of a particular product to make. A firm would be wise to have different forecasts and techniques for each dimension. These measures should correlate with the objectives of the business decisions based on these forecasts. and purchasing. These estimates must be based on demand–not sales data. Answer: The following basic. and how much to order. an accurate forecast will have great value. A company should link its forecast to all planning activities throughout the supply chain. To accomplish this integration. Establish performance and error measures for the forecast. Understand the objective of forecasting. demand volumes. 5. This link should exist at both the information system and the human resource management level. These dimensions include geographical area. The objective of every forecast is to support decisions that are based on the forecast. six-step approach to help an organization perform effective forecasting. If demand for a product influences or is influenced by demand for another product. so an important first step is to clearly identify these decisions. seasonality. A clear understanding of the customer segments facilitates an accurate and simplified approach to forecasting. six-step approach helps an organization perform effective forecasting: 1. In selecting an appropriate forecasting technique. publishing as Prentice Hall . or simulation. Inc. how much to inventory. Using a combination of these methods is often effective. supply. The main factors influencing forecasts are demand. All parties affected by a supply chain decision should be aware of the link between the decision and the forecast.4) Explain the basic. Here a firm must identify the customer segments the supply chain serves. or has a seasonal pattern. and customer groups. On the demand side. the two forecasts are best made jointly. time series. promotion planning. and so forth. demand volatility. if only a single supplier with a long lead time is available. In general. it is a good idea for a firm to have a cross-functional team. Diff: 2 Topic: 7. Diff: 2 Topic: 7. this does not mean that reams and reams of data need to be shared across the supply chain. competitor actions. however. Be sure to distinguish between demand and sales. However. Although it is not always easy. The value of data depends on where you are in the supply chain. To get true demand. In many cases. publishing as Prentice Hall . are often an order of magnitude greater than the cost. pricing. these adjustments are qualitative in nature but are crucial to accurately reflect reality. Collaboration with supply chain partners can often create a much more accurate forecast. and so forth. To avoid being overwhelmed with data when collaborating and not being able to sort out what's valuable. It takes an investment of time and effort to build the relationships with your partners to begin sharing information and creating collaborative forecasts. companies make the mistake of looking at historical sales and assuming that this is what the historical demand was. Answer: Collaborate in building forecasts.11 Forecasting in Practice AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 7-23 Copyright © 2013 Pearson Education. making an adjustment in a forecast to move toward demand from just sales will increase accuracy and therefore supply chain performance.4 Basic Approach to Demand Forecasting AACSB: Reflective Thinking Skills Learning Outcome: Describe major approaches to forecasting 5) Discuss key issues of forecasting in practice. but within one function in a company. adjustments need to be made for unmet demand due to stockouts. The value of data depends on where one sits in the supply chain. most forecasts are still made not just within one company. Inc. promotions. think about what data is valuable to each member of the supply chain and share only that data. The supply chain benefits of collaboration. Although collaboration is a hot topic. Often. Is this a good forecast? Answer: The standard deviation of the random element of demand is approximately 140. Diff: 2 Topic: 7. publishing as Prentice Hall .6) Given the following data for demand at the XYZ Company.63. calculate the monthly forecast for 2003 using a 3-month moving average. The tracking signal indicates that this forecast method tends to under-forecast demand. Inc. Calculate the MAD and the tracking signal. but not to the extreme.6 Measures of Forecast Error AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-24 Copyright © 2013 Pearson Education. calculate the monthly forecast for 2003 using simple exponential smoothing with an α = .2.6 Measures of Forecast Error AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-25 Copyright © 2013 Pearson Education. The tracking signal indicates that simple exponential smoothing over- forecasts a little. Diff: 3 Topic: 7. where the moving average under-forecasts a little. How does this forecast compare with the previous one? Answer: The simple exponential smoothing has a smaller MAD and therefore a smaller standard deviation than the moving average.7) Using data from the previous problem. publishing as Prentice Hall . Calculate the MAD and the tracking signal. Inc. 1. 7-26 Copyright © 2013 Pearson Education. Which of the two methods do you prefer? Why? NOTE: For the simple exponential smoothing use the actual from the first period as the forecast for the first period. Inc. Evaluate the MAD for each case.8) Weekly demand for pairs of pants at a Hot Tropic store is as follows: Estimate demand for the week 13 using a four-week moving average as well as simple exponential smoothing with α=0. publishing as Prentice Hall . Answer: The Exponential smoothing method gives a lower measure of the Mean Absolute Deviation and is therefore a better method for this data set than the Moving Average method. Diff: 3 Topic: 7. Inc.6 Measures of Forecast Error AACSB: Analytic Skills Learning Outcome: Describe major approaches to forecasting 7-27 Copyright © 2013 Pearson Education. publishing as Prentice Hall .