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CHAPTER 1
INTRODUCTION
1.0 Introduction
Ability to predict future events such as number of customer or demands can bring significant advantage to an industry management team. By knowing the expected
demands, the management can plan accurately the number of products to be produced. The closes the number of product produced compared to demands, the higher is the
number of customer‘s demand being fulfilled without producing extra products.
The act of predicting future events is also called forecasting. Due to the significant of forecasting in management decision making, this research focuses on the development
of forecasting software for small medium industry SMI. Specifically this chapter introduce background to forecasting in Section 1.1, declares problem statement in
Section 1.2, provides research objective in Section 1.3, describe scope of study in Section 1.4, explain research methodology in Section 1.5 before finally presents the
organization of this report in Section 1.6.
1.1 Introduction to Forecasting
Forecasting is a key element of management decision making. This is not surprising, since the ultimate effectiveness of any decision depends upon a sequence of events
following the decision. The ability to predict the uncontrollable aspects of these events
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otherwise be made Montgomery et al., 1990. For this reason, management systems for planning and controlling the operations of an organization typically contain a forecasting
function. The following are examples of situations where forecasts are useful: a.
Inventory management – in controlling inventories of purchased spare parts at an aircraft maintenance facility, it is necessary to have an estimate of the usage rate
for each part in order to determine procurement quantities. b.
Production planning – to plan the manufacturing of a product line, it may be necessary to have forecast of unit sales for each item by delivery period for a
number of months in the future. c.
Financial planning – a financial manager has concern about the pattern of cash flow that the company will experience over time.
d. Staff scheduling – the manager of a mail processing facility of the United States
Postal Service needs a forecast of the hourly volume and mix of mail to be processed in order to schedule staff and equipment efficiently.
e. Facilities planning – decisions about new facilities generally require a long-range
forecast of the activities using the facilities. f.
Process control – forecasting also can be an important part of a process control. By monitoring key process variables and using them to predict the future
behavior of the process, it may be possible to determine the optimal time and extent of control action.
From these examples and others that easily come to mind, to see that a forecast is a prediction of the future events. The purpose of forecasting is to reduce the risk in
decision making. Forecasts are usually wrong, but the magnitude of the forecasting errors experienced will depend upon the forecasting system used Montgomery et al.,
1990. By devoting more resources to forecasting, it should be able to improve the forecasting accuracy and thereby eliminate some of the losses resulting from uncertainty
in decision making process.
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1.2 Problem Statement
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