1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 20

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Logistics ManagementLSM 730

Dr. Khurrum S. Mughal

Lecture 20

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Forecasting Supply Chain Requirements

CR (2004) Prentice Hall, Inc.

I hope you'll keep in mind that economic forecasting is far from a perfect science. If recent history's any guide, the experts have some explaining to do about what they told us had to happen but never did.

Ronald Reagan, 1984

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Forecasting in Inventory Strategy

CR (2004) Prentice Hall, Inc.

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Transport Strategy• Transport fundamentals• Transport decisions

Customer service goals

• The product• Logistics service• Ord. proc. & info. sys.

Inventory Strategy• Forecasting• Inventory decisions• Purchasing and supply

scheduling decisions• Storage fundamentals• Storage decisions

Location Strategy• Location decisions• The network planning process

PL

AN

NIN

G

OR

GA

NIZ

ING

CO

NT

RO

LL

ING

Transport Strategy• Transport fundamentals• Transport decisions

Customer service goals

• The product• Logistics service• Ord. proc. & info. sys.

Inventory Strategy• Forecasting• Inventory decisions• Purchasing and supply

scheduling decisions• Storage fundamentals• Storage decisions

Location Strategy• Location decisions• The network planning process

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What’s Forecasted in the Supply Chain?

•Demand, sales or requirements

•Purchase prices

•Replenishment and delivery times

CR (2004) Prentice Hall, Inc.

Supply Chain Management• Accurate forecasting determines inventory

levels in the supply chain• Continuous replenishment

– supplier & customer share continuously updated data

– typically managed by the supplier– reduces inventory for the company– speeds customer delivery

• Variations of continuous replenishment– quick response– JIT (just-in-time)– VMI (vendor-managed inventory)– stockless inventory 12-5

Copyright 2011 John Wiley & Sons, Inc.

The Effect of Inaccurate Forecasting

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Copyright 2011 John Wiley & Sons, Inc.

Types of Forecasting Methods• Depend on

– time frame– demand behavior– causes of behavior

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Copyright 2011 John Wiley & Sons, Inc.

Time Frame

• Indicates how far into the future is forecast– Short- to mid-range forecast

• typically encompasses the immediate future• daily up to two years

– Long-range forecast• usually encompasses a period of time longer than two

years

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What’s Forecasted in the Supply Chain?

•Spatial Vs Temporal Demand

•Lumpy Vs Regular Demand

•Derived Vs. Independent Demand

CR (2004) Prentice Hall, Inc.

8-10CR (2004) Prentice Hall, Inc.

Some Forecasting Method Choices

• QualitativeSurveysExpert systems or rule-based

• Historical projectionExponential smoothing

• Causal or associativeRegression analysis

• Collaborative