Question

Your boss comes in “with their hair on fire”, and says, “just came from a staff meeting and the CEO announced the building next door is coming available at a really good price per square foot.” He needs you to tell him if the forecasted demand for the next 36 months is high enough that we may need some of the new space. He follows up with, “If we miss this opportunity, and later we figure out that we need more space then the only option is to rent space in another building about 5 miles away at almost double the price per square foot”. As the operations manager, the last thing you want to do is to split your staff across two different buildings. That is going to be a staffing and scheduling headache, not to mention morale will take a hit. Do you shoot from the hip and tell your boss, “no doubt, forecasted demand indicates we can use the space”, or do you say, “let me run the forecast and get back to you later today”? Which response has the most risk? Are you willing to bet your job on your answer? Forecasting is both an art and a science. In the assignments for Unit 2 you will get the opportunity to practice forecasting by solving end of chapter problems and completing a linear trending assignment. In order to determine if it makes sense to rent additional space, it will be important to assess the level of operational efficiency of existing processes associated with the delivery of products to consumers. Improving process efficiencies could result in a reduction in labor requirements. Maybe the company can support greater demand with a leaner labor force. In this unit, in addition to applying forecasting models to scenarios, you will also gain a more in-depth understanding of the concept and practices used to create efficient organizations. Unit Learning Outcomes Develop a plan for forecasting impacts to an organization’s bottom line. (CLO 1, 2, 4, and 7) Demonstrate how to perform forecasting using data and statistics. (CLO 4 and 5) Identify trends and patterns in data as they apply to forecasting. (CLO 1, 3, 5, and 7) Develop a data collection plan that will permit the creation of an accurate and reliable forecasting model. (CLO 3, 4, and 5

Answer 1

In the given case, forecasting is quite critical as it will help the company to take the expansion decision. If the forecasting results show high rate of consumer demands, then the company can think of acquiring the building next door and expanding its workspace. However, if the demand is not substantial, then the company will work in the existing infrastructure only. If the forecasting model gives wrong results and the company does not consider expansion option, there are high chances that the company will lose the building next door. In such a scenario, the company will face difficulty in handling high demand requirements as then they would have to split the workforce to operate from 2 different locations. This will act as a constraint on the collaborative work environment of the company and communication lines across organization will also get disturbed. This eventually will have repercussions on the overall performance of the company. Hence, using the appropriate forecasting methods and using it appropriately to get correct results is quite critical for the company.

The company can employ time series forecasting model to estimate the future demand pattern. This model lays importance on the past behaviour of demand and trade fluctuations as well as the varying price patterns to forecast future demands. So, the accuracy of the forecasting is quite credible and relatable.

• Time series forecasting helps in forecast the demands based on seasonal patterns, so the variations in forecast and actual data is not much.
• Time series forecasting is quite a reliable method for forecasting
• Trend estimation gets facilitated with the help of this approach

The various types of trends and patterns which can be intercepted in the forecasting results are:

• Linear Trend
• Exponential Trend
• Damped Trend
• No Trend- Constant Demand
• Bottoming patterns
• Topping patterns
• Continuation patterns

Data collection plan to facilitate the forecasting technique:

• Demand data of the last 5 years can be collected and used for analysis
• Seasonal trends data can be taken into consideration
• The change in microscopic and macroscopic factors must be considered to analyse the change in demand pattern
• Company performance data for the last 5 years. This will help in analysing how the company fared on the customer demand pattern