Operations Management: Processes and Supply Chains, 12th Edition

Causal Methods: Linear Regression

Causal methods are used when historical data are available and the relationship between the factor to be forecasted and other external or internal factors (e.g., government actions or advertising promotions) can be identified. These relationships are expressed in mathematical terms and can be complex. Causal methods are good for predicting turning points in demand and for preparing long-range forecasts. We focus on linear regression, one of the best known and most commonly used causal methods.

In linear regression, one variable, called a dependent variable, is related to one or more independent variables by a linear equation. The dependent variable (such as demand for door hinges) is the one the manager wants ...