DEMAND FORECASTING

INSUPPLY CHAIN

EP JOHN

ROLE OF FORECASTING

ALL PUSH PROCESSES IN SUPPLY CHAIN ARE PERFORMED IN ANTICIPATION OF

CUSTOMER DEMAND

ALL PULL PROCESSES IN SUPPLY CHAIN ARE PERFORMED IN RESPONSE TO

CUSTOMER DEMAND

CHARACTERISTICSFORECASTS ARE ALWAYS WRONG AND

SHOULD THUS INCLUDE THE EXPECTED VALUE AND A MEASURE OF FORECAST

ERROR

LONG TERM FORECASTS ARE USUALLY LESS ACCURATE THAT SHORT TERM

FORECAST i.e. LONG TERM FORECASTS HAVE A

LARGER STANDARD DEVIATION OF ERROR RELATIVE TO THE

MEAN THAN SHORT TERM FORECAST

CHARACTERISTICSAGGREGATE FORECASTS ARE USUALLY

MORE ACCURATE THAN DISAGGREGATE FORECASTS

AS THEY TEND TO HAVE A SMALLER STANDARD DEVIATION OF ERROR

RELATIVE TO THE MEAN

THE FARTHER UP A SUPPLY CHAIN, OF A COMPANY, GREATER IS THE DISTORTION

OF INFORMATION IT RECEIVES. (BULLWHIP EFFECT)

COMPONENTSPAST DEMANDLEAD TIME OF PRODUCTPLANNED ADVERTISING

OR MARKETING EFFORTSSTATE OF THE ECONOMYPLANNED PRICE DISCOUNTSACTIONS THAT COMPETITORS HAVE

TAKEN

METHODSQUATITATIVETIME SERIES

CASUALSIMULATION

APPROACH1.UNDERSTAND THE OBJECTIVE OF FORECASTING

2.INTEGRATE DEMAND PLANNING AND FORECASTING THROUGH OUT THE SUPPLY CHAIN

3.UNDERSTAND AND IDENTIFY CUSTOMER SEGMENTS

APPROACH4.IDENTIFY THE MAJOR FACTORS THAT INFLUENCE THE DEMAND FORECAST

5.DETERMINE THE APPROPRIATE FORECASTING TECHNIQUE

6. ESTABLISH PERFORMANCE AND ERROR MEASURES FOR THE FORECAST

TIME-SERIESGOAL – SYSTEMATIC COMPONENET & RANDOM COMPONENTSYSTEMATIC COMPONENT – LEVEL, TREND AND SEASONAL FACTORMULTIPLICATIVELEVEL X TREND X SEASONAL FACTOR

ADDITIVELEVEL + TREND + SEASONAL FACTOR

MIXED(LEVEL + TREND) X SEASONAL FACTOR

MEASURE OF ERROR

A GOOD FORECASTING METHOD SHOULD CAPTURE THE SYSTEMATIC COMPONENT OF DEMAND BUT NOT THE RANDOM COMPONENT.

THE RANDOM COMPONENT MANIFESTS ITSELF IN THE FORM OF A FORECAST ERROR THAT CONTAIN VALUABLE INFORMATION AND MUST BE ANALYSED FOR THE TWO REASONS,

MEASURE OF ERROR

MANAGERS USE ERROR ANALYSIS TO DETERMINE WHETHER THE CURRENT FORECASTING METHOD IS PREDICTING THE SYSTEMATIC COMPONENT OF DEMAND ACCURATELY.

ALL CONTIGENCY PLANS MUST ACCOUNT FOR FORECAST ERROR.

Et = Ft - Dt

ROLE OF ITDEMAND PLANNING MODULE (COMMERCIAL DEMAND PLANNING MODULES)ALSO USED FOR PRODUCTS AND CATEGORIESCUSTOMER SALES INFORMATIONFACILITATE SHAPING OF DEMAND

THESE TOOLS HELP ANALYSE THE IMPACT OF PROMOTIONS ON DEMAND AND CAN BE USED TO DETERMINE THE EXTENT

AND TIMING OF PROMOTIONS

RISK MANAGEMENT

FIRMS WITH A FEW CUSTOMERS OFTEN EXPERIENCE VERY LUMPY DEMAND THAT IS HARDER TO FORECAST THAN DEMAND FROM MANY SMALL CUSTOMERS, THAT TENDS TO BE SMOOTHER.TWO STRATEGIES USED TO MITIGATE FORECAST RISK WITH RIGHT BALANCE ARE

INCREASEING THE RESPONSIVENESS UTILISING OPPURTUNITIES FOR POOLING OF

DEMAND.

FORECASTING IN PRACTICE

COLLABORATE IN BUILDING FORECASTS

SHARE ONLY THE DATA THAT TRULY PROVIDE VALUE

BE SURE TO DISTINGUISH BETWEEN DEMAND AND SALES

SUMMARYUNDERSTAND THE ROLE OF FORECASTING FOR BOTH AN ENTERPRISE AND A SUPPLY CHAINIDENTIFY THE COMPONENTS OF A DEMAND FORECASTFORECAST DEMAND IN A SUPPLY CHAIN GIVEN HISTORICAL DATA USING TIME-SERIES METHGODOLOGIESANALYSE DEMAND FORECASTS TO ESTIMATE FORECAST ERROR

THANK YOU