Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions

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Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions. Since the future is unknown, it is expected that some errors between a forecast and actual demand will exist, so the goal of a good forecasting technique would be to minimize the difference between the forecast and the actual demand. 

Address the following requirements:

Articulate the difference in short and long-term forecasts, forecasting techniques, and the benefits and challenges of each technique. 

Create a forecast for a situation with which you are familiar (personal or professional) explaining the situation and why you chose the method of forecasting that you did.

• Embed course material concepts, principles, and theories, which require supporting citations along with at least two scholarly, peer-reviewed references in supporting your answer. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references.

Operations Management Operations Management THIRTEENTH EDITION William J. Stevenson Saunders College of Business Rochester Institute of Technology This book is dedicated to you. OPERATIONS MANAGEMENT, THIRTEENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2012, and 2009. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 LWI 21 20 19 18 17 ISBN MHID 978-1-259-66747-3 1-259-66747-2 Chief Product Officer, SVP Products & Markets: G. Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Deliver: Betsy Whalen Managing Director: Tim Vertovec Senior Brand Manager: Charles Synovec Director, Product Development: Rose Koos Lead Product Developer: Michele Janicek Product Developer: Christina Holt / Ryan McAndrews Marketing Manager: Trina Maurer Senior Director of Digital Content: Douglas Ruby Digital Product Analyst: Kevin Shanahan Director, Content Design & Delivery: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Harvey Yep (Core) / Kristin Bradley (Assessment) Buyer: Sandy Ludovissy Design: Matt Diamond Content Licensing Specialists: Shawntel Schmitt (Image) / Beth Thole (Text) Typeface: 10/12 STIX Mathjax Main Compositor: SPi Global Printer: LSC Communications – Willard Cover images: © Andrew Bret Wallis/Getty Images; © Peopleimages.com/Getty Images; © Echo/Getty Images; © Jorg Greuel/Getty Images; © Monty Rakusen/Getty Images Library of Congress Cataloging-in-Publication Data Names: Stevenson, William J., author. Title: Operations management / William J. Stevenson, Saunders College of Business, Rochester Institute of Technology. Description: Thirteenth edition. | New York, NY : McGraw-Hill Education, [2018] | Series: The McGraw-Hill series in operations and decision sciences Identifiers: LCCN 2016052871| ISBN 9781259667473 (alk. paper) | ISBN 1259667472 (alk. paper) Subjects: LCSH: Production management. Classification: LCC TS155 .S7824 2018 | DDC 658.5--dc23 LC record available at https://lccn.loc.gov/2016052871 All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered The McGraw-Hill Series in Operations and Decision Sciences Operations Management Beckman and Rosenfield, Operations, Strategy: Competing in the 21st Century, First Edition Benton, Purchasing and Supply Chain Management, Second Edition Bowersox, Closs, Cooper, and Bowersox, Supply Chain Logistics Management, Fourth Edition Brown and Hyer, Managing Projects: A Team-Based Approach, First Edition Burt, Petcavage, and Pinkerton, Supply Management, Eighth Edition Cachon and Terwiesch, Operations Management, First Edition Cachon and Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, Third Edition Cooper and Schindler, Business Research Methods, Twelfth Edition Finch, Interactive Models for Operations and Supply Chain Management, First Edition Fitzsimmons, Fitzsimmons, and Bordoloi, Service Management: Operations, Strategy, Information Technology, Eighth Edition Gehrlein, Operations Management Cases, First Edition Harrison and Samson, Technology Management, First Edition Hayen, SAP R/3 Enterprise Software: An Introduction, First Edition Hill, Manufacturing Strategy: Text & Cases, Third Edition Hopp, Supply Chain Science, First Edition Jacobs, Berry, Whybark, and Vollmann, Manufacturing Planning & Control for Supply Chain Management, Sixth Edition Jacobs and Chase, Operations and Supply Management: The Core, Fourth Edition Jacobs and Chase, Operations and Supply Management, Fifteenth Edition Jacobs and Whybark, Why ERP? First Edition Larson and Gray, Project Management: The Managerial Process, Seventh Edition Leenders, Johnson, and Flynn, Purchasing and Supply Management, Fifteenth Edition Olson, Introduction to Information Systems Project Management, Second Edition Schroeder, Goldstein, Rungtusanatham, Operations Management: Contemporary Concepts and Cases, Seventh Edition Seppanen, Kumar, and Chandra, Process Analysis and Improvement, First Edition Simchi-Levi, Kaminsky, and Simchi-Levi, Designing and Managing the Supply Chain: Concepts, Strategies, Case Studies, Third Edition Sterman, Business Dynamics: Systems Thinking and Modeling for Complex World, First Edition Stevenson, Operations Management, Thirteenth Edition Swink, Melnyk, Cooper, and Hartley, Managing Operations Across the Supply Chain, Third Edition Thomke, Managing Product and Service Development: Text and Cases, First Edition Ulrich and Eppinger, Product Design and Development, Fourth Edition Zipkin, Foundations of Inventory Management, First Edition Quantitative Methods and Management Science Hillier and Hillier, Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets, Fifth Edition Stevenson and Ozgur, Introduction to Management Science with Spreadsheets, First Edition v Preface The material in this book is intended as an introduction to the field of operations management. The topics covered include both strategic issues and practical applications. Among the topics are forecasting, product and service design, capacity planning, management of quality and quality control, inventory management, scheduling, supply chain management, and project management. My purpose in revising this book continues to be to provide a clear presentation of the concepts, tools, and applications of the field of operations management. Operations management is evolving and growing, and I have found updating and integrating new material to be both rewarding and challenging, particularly due to the plethora of new developments in the field, while facing the practical limits on the length of the book. This text offers a comprehensive and flexible amount of content that can be selected as appropriate for different courses and formats, including undergraduate, graduate, and executive education. This allows instructors to select the chapters, or portions of chapters, that are most relevant for their purposes. That flexibility also extends to the choice of relative weighting of the qualitative or quantitative aspects of the material and the order in which chapters are covered because chapters do not depend on sequence. For example, some instructors cover project management early, others cover quality or lean early, etc. As in previous editions, there are major pedagogical features designed to help students learn and understand the material. This section describes the key features of the book, the chapter elements, the supplements that are available for teaching the course, highlights of the eleventh edition, and suggested applications for classroom instruction. By providing this support, it is our hope that instructors and students will have the tools to make this learning experience a rewarding one. What’s New in This Edition Class preparation exercises are now available for all chapters and chapter supplements. The purpose of these exercises is to introduce students to the subject matter before class in order to enhance classroom learning. These exercises are available in the Instructor’s Resource Manual. Special thanks to Linda Brooks for her help in developing the exercises. Some content has been rewritten or added to improve clarity, shorten wording, or update information. New material has been added on supply chains (including a different, more realistic, way to conceptualize supply chains), as well as on product life-cycle management, 3-D printing, drones, locations, and other topics. New critical thinking exercises have been added. The explanation of learning curve time reduction has been simplified with a new diagram. Some older readings have been deleted, and new readings added on such topics as fracking, mass customization of fast foods, and self-driving vehicles. Acknowledgments I want to thank the many contributors to this edition. Reviewers and adopters of the text have provided a “continuously improving” wealth of ideas and suggestions. It is encouraging to me as an author. I hope all reviewers and readers will know their suggestions were valuable, were carefully considered, and are sincerely appreciated. The list includes postpublication reviewers. Robert Aboolian, California State University—San Marcos Pamela Barnes, Kansas State University Greg Bier, University of Missouri Gary Black, University of Southern Indiana Jeff Brand, Marquette University Cenk Caliskan, Utah Valley University Cem Canel, University of North Carolina—Wilmington Jen-Yi Chen, Cleveland State University Robert Clark, Stony Brook University Dinesh Dave, Appalachian State University Abdelghani Elimam, San Francisco State Kurt Engemann, Iona College Michael Fathi, Georgia Southwestern State Warren Fisher, Stephen F. Austin State University Gene Fliedner, Oakland University Theodore Glickman, George Washington University Haresh Gurnani, University of Miami Johnny Ho, Columbus State University Ron Hoffman, Greenville Technical College Lisa Houts, California State University—Fresno Stella Hua, Western Washington University Neil Hunt, Suffolk University Faizul Huq, Ohio University Richard Jerz, St. Ambrose University George Kenyon, Lamar University Casey Kleindienst, California State University—Fullerton John Kros, East Carolina University vii viii Preface Anita Lee-Post, University of Kentucky Nancy Levenburg, Grand Valley State University F. Edward Ziegler, Kent State University Other contributors include accuracy checkers: Gary Black, University of Southern Indiana, Michael Godfrey, University of Wisconsin at Oshkosh, and Richard White, University of North Texas; Test Bank: Alan Cannon, University of Texas at Arlington; PowerPoints: David Cook, Old Dominion University; Data Sets: Mehdi Kaighobadi, Florida Atlantic University; Excel Templates and ScreenCam tutorials: Lee Tangedahl, University of Montana; Instructors Manual: Michael Godfrey. Special thanks goes out to Larry White, Eastern Illinois University, who helped revise, design, and develop interactive content in Connect ® Operations Management for this edition. Finally I would like to thank all the people at McGrawHill/Irwin for their efforts and support. It is always a pleasure to work with such a professional and competent group of people. Special thanks go to Dolly Womack, Senior Brand Manager; Michele Janicek, Lead Product Developer; Christina Holt and Ryan McAndrews, Product Developers; Harvey Yep and Kristin Bradley, Content Project Managers; Sandy Ludovissy, Buyer; Matt Diamond, Designer; Shawntel Schmitt and Beth Thole, Content Licensing Specialists; and many others who worked behind the scenes. I would also like to thank the many reviewers of previous editions for their contributions. Vikas Agrawal, Fayetteville State University; Bahram Alidaee, University of Mississippi; Ardavan Asef-Faziri, California State University at Northridge; Prabir Bagchi, George Washington State University; Gordon F. Bagot, California State University at Los Angeles; Ravi Behara, Florida Atlantic University; Michael Bendixen, Nova Southeastern; Ednilson Bernardes, Georgia Southern University; Prashanth N. Bharadwaj, Indiana University of Pennsylvania; Greg Bier, University of Missouri at Columbia; Joseph Biggs, Cal Poly State University; Kimball Bullington, Middle Tennessee State University; Alan Cannon, University of Texas at Arlington; Injazz Chen, Cleveland State University; Alan Chow, University of Southern Alabama at Mobile; Chrwan-Jyh, Oklahoma State University; Chen Chung, University of Kentucky; Robert Clark, Stony Brook University; Loretta Cochran, Arkansas Tech University; Lewis Coopersmith, Rider University; Richard Crandall, Appalachian State University; Dinesh Dave, Appalachian State University; Scott Dellana, East Carolina University; Kathy Dhanda, DePaul University; Xin Ding, University of Utah; Ellen Dumond, California State University at Fullerton; Richard Ehrhardt, University of North Carolina at Greensboro; Kurt Engemann, Iona College; Diane Ervin, DeVry University; Farzaneh Fazel, Illinois State University; Wanda Fennell, University of Mississippi at Hattiesburg; Joy Field, Boston College; ­Warren Fisher, Stephen F. Austin State University; Lillian Fok, University of New Orleans; Charles Foley, Columbus State Community College; Matthew W. Ford, Northern Kentucky University; Phillip C. Fry, Boise State University; Charles A. Gates Jr., Aurora University; Tom Gattiker, Boise State University; Damodar Golhar, Western Michigan University; Robert Graham, Jacksonville State University; Angappa Gunasekaran, University of Massachusetts at Dartmouth; Haresh Gurnani, University of Miami; Terry Harrison, Penn State University; Vishwanath Hegde, California State University at East Bay; Craig Hill, Georgia State University; Jim Ho, University of Illinois at Chicago; Seong Hyun Nam, University of North Dakota; Jonatan Jelen, Mercy College; Prafulla Joglekar, LaSalle University; Vijay Kannan, Utah State University; Sunder Kekre, Carnegie-Mellon University; Jim Keyes, University of Wisconsin at Stout; Seung-Lae Kim, Drexel University; Beate Klingenberg, Marist College; John Kros, East Carolina University; Vinod Lall, ­Minnesota State University at Moorhead; Kenneth Lawrence, New ­Jersey Institute of Technology; Jooh Lee, Rowan University; Anita Lee-Post, University of Kentucky; Karen Lewis, University of Mississippi; Bingguang Li, Albany State University; Cheng Li, California State University at Los Angeles; Maureen P. Lojo, California State University at Sacramento; F. Victor Lu, St. John’s University; Janet Lyons, Utah State University; James Maddox, Friends University; Gita Mathur, San Jose State University; Mark McComb, Mississippi College; George Mechling, Western Carolina University; Scott Metlen, University of Idaho; Douglas Micklich, Illinois State University; Ajay Mishra, SUNY at Binghamton; Scott S. Morris, Southern Nazarene University; Philip F. Musa, University of Alabama at Birmingham; Roy Nersesian, Monmouth University; Jeffrey Ohlmann, University of Iowa at Iowa City; John Olson, University of St. Thomas; Ozgur Ozluk, San Francisco State University; Kenneth Paetsch, Cleveland State University; Taeho Park, San Jose State University; Allison Pearson, Mississippi State University; Patrick Penfield, Syracuse University; Steve Peng, California State University at Hayward; Richard Peschke, Minnesota State University at Moorhead; Andru Peters, San Jose State University; Charles Phillips, Mississippi State University; Frank Pianki, Anderson University; Sharma Pillutla, T ­ owson University; Zinovy Radovilsky, California State University at Hayward; Stephen A. Raper, University of Missouri at Rolla; Pedro Reyes, Baylor University; Buddhadev Roychoudhury, Minnesota State University at Mankato; ­Narendra Rustagi, Howard University; Herb Schiller, Stony Brook ­University; Dean T. Scott, DeVry University; Scott J. Seipel, Middle Tennessee State University; Raj Selladurai, Indiana University; Kaushic Sengupta, Hofstra University; Kenneth Shaw, Oregon State University; Dooyoung Shin, Minnesota State University at Mankato; Michael Shurden, Lander University; Raymond E. Simko, Myers University; John Simon, Governors State University; Jake Simons, Georgia Southern University; Charles Smith, Virginia Commonwealth University; Kenneth Solheim, DeVry University; Young Son, Preface Bernard M. Baruch College; Victor Sower, Sam H ­ ouston State University; Jeremy Stafford, University of North ­Alabama; Donna Stewart, University of Wisconsin at Stout; Dothang Truong, Fayetteville State University; Mike Umble, Baylor University; Javad Varzandeh, California State University at San Bernardino; Timothy Vaughan, University of Wisconsin at Eau Claire; Emre Veral, Baruch College; Mark Vroblefski, University of Arizona; Gustavo Vulcano, New York University; Walter Wallace, Georgia State University; ix James Walters, Ball State University; John Wang, Montclair State University; Tekle Wanorie, Northwest Missouri State University; Jerry Wei, University of Notre Dame; Michael Whittenberg, University of Texas; Geoff Willis, University of Central Oklahoma; Pamela Zelbst, Sam Houston State University; Jiawei Zhang, NYU; Zhenying Zhao, University of Maryland; Yong-Pin Zhou, University of Washington. William J. Stevenson Walkthrough MAJOR STUDY AND LEARNING FEATURES A number of key features in this text have been specifically designed to help introductory students learn, understand, and apply Operations concepts and problem-solving techniques. Examples with Solutions Rev.Confirming Pages Throughout the text, wherever a quantitative or analytic technique is introduced, an example is included to illustrate the application of that technique. These are designed to be easy to follow. Chapter Three Forecasting EXAMPLE Determining a Regression Equation Sales of new houses and three-month lagged unemployment are shown in the following table. Determine if unemployment levels can be used to predict demand for new houses and, if so, derive a predictive equation. Period . . . . . . . . . . . 1 Units sold . . . . . . . . 20 Unemployment % (three-month lag) 7.2 1. 2 41 3 17 4 35 5 25 6 31 7 38 8 50 9 15 10 19 11 14 4.0 7.3 5.5 6.8 6.0 5.4 3.6 8.4 7.0 9.0 Plot the data to see if a linear model seems reasonable. In this case, a linear model seems appropriate for the range of the data. 50 Units sold, y 40 30 20 10 0 2 4 6 8 10 Level of unemployment (%), x 2. Check the correlation coefficient to confirm that it is not close to zero using the website template, and then obtain the regression equation: r = −.966 This is a fairly high negative correlation. The regression equation is y = 71.85 − 6.91x Note that the equation pertains only to unemployment levels in the range 3.6 to 9.0, because sample observations covered only that range. x 105 10 mhhe.com/stevenson13e S O L U T I O N 1. Competitive pressure often means that business organizations must frequently assess their competitors’ strengths and weaknesses, as well as their own, to remain competitive. 2. Strategy formulation is critical because strategies provide direction for the organization, so they can play a role in the success or failure of a business organization. 3. Functional strategies and supply chain strategies need to be aligned with the goals and strategies of the overall organization. 4. The three primary business strategies are low cost, responsiveness, and differentiation. 5. Productivity is a key factor in the cost of goods and services. Increases in productivity can become a competitive advantage. 6. High productivity is particularly important for organizations that have a strategy of low costs. competitiveness, 42 core competencies, 46 environmental scanning, 48 goals, 44 mission, 44 Solved Problems At the end of chapters and chapter supplements, “Solved Problems” are provided to illustrate problem solving and the core con...