Ch 2: Forecasting and Demand Planning

what are the critical building blocks from which all supply chain planning activities are derived and are crucial components of customer satisfaction

Forecasting and Demand Planning

describe demand planning?

it combines statistical forecasting techniques and judgement to construct demand estimates for products or services.

what is demand ?

the need for a certain product or component

what are the two basic types of demand ?

independent demand

&

Dependent

what is is independent demand ?

It is the demand for an item unrelated to the demand for other items, such as finished products, a spare part or a service part.

is independent demand calculated or forecasted?

Forecasted ?

what is dependent demand?

demand for an item directly related to other items or finished products, like a component used in making a finished product

is dependent demand calculated or forecasted ?

calculated

In a bicycle what would be independent or dependent demand ?

independent: Bicycle

Dependent : Frame seat, handlebar, wheels, etc

what is a forecast ?

an estimate of future demand

what is forecasting ?

the business function that estimates future demand for products so they can be purchased or manufactured in appropriate quantities in advance of need

how long is short term forecastin ?

< 3 months

how long is medium term forecasting?

3 months <x<2 years

what are two basic forecasting techniques ?

qualitative

and

quantitative

describe qualitative forecasting

Based on opinion and intuitiion

what is quantitative forecasting?

using models and historical data to make forecasts

when is qualitative forecasting used

when data is limited, unavailable or irrelevant

what is historical analogy ?

An qualitative forecasting technique based in identifying a sales history comparable to a present situation like a sales history or a SIMILAR product

what two things are used fore qualitative forecasting ?

time series

cause and effect

what does cause and effect assume ?

assumes that one or more factors is used to predict future demand

what are random variations ?

instability in data caused by random occurrences,

includes things like weather emergencies, labor strikes, war etc

example: spikes in demand for woof after hurricane katrina

these data are removed when they are used to make new forecasts

what are seasonal variations ?

repeating patterns of demand

includes holidays

this patterns can be repeated yearly with some periods of considerable higher demand than others

what are times series forecasting models ?

naive forecasting

moving average

weighted moving average

what does naive forecasting do ?

sets demand for the next period to be precisely the same as demand in the last period

when does naive forecasting work well?

works well for mature products with stable demand

how does simple moving average forecasting work ?

uses calculated average of historical demand during a specified # of most RECENT periods to generate the forecast

when would simple moving average forecasting be the best ?

for short term forecasting, when demand is not growing fast or slow and no seasonality

(M1 + M2 + M3 + M4) / 4

what is weighted moving average

its similar to simple moving average

most recent months are usually given heavier weight .

(M1 x W1) + (M2 x W2) + (M3 x W3) + (M4 x W4)

what is exponential smoothing ?

more sophisticated than weighted moving average requires 3 essential elements

last periods ACTUAL demand

previous FORECAST

smoothing factor

(A1 *S) + (F1 x (1-S)

n Microsoft Excel, select

a data range and select

“Add Trendline” from the

dropdown menu

what is regression and what does it do ?

it uses historical relationship between an independent and dependent variable to predict future values of the dependent variable

what is multiple linear regression ?

it is a regression that tries to model the relationship between 2 or more independent variables and dependent variable (demand)

is forecasting most likely right or wrong ?

wrong

generally speakign the more granular or specific the forecast the less accurate it is t/f

true

are simple forecast methodology better than complex ones or vice versa?

Simple is better there easy to understand and see where you went wrong

when forecasting demand how are errors be quantified ?

quantified as an absolute value IGNORE THE NEG OR POS SIGNS

what is MAD ?

it measure the SIZE OF THE FORECAST.

it the average of the absolute deviation

what is mape ?

Mean Absolute percent error

like MAD just as average of the precents of absolute deviation

what is the bull whip effect ?

In the absence of any other information or visibility, individual supply chain

participants second-guess what is happening with ordering patterns and

potentially over-reacting, creating the bullwhip effect.

 In periods of rising demand, downstream participants increase orders

lowkey having safety stock

what is collaborative planning, forecasting, replenishment or CPFR

is a

business practice that combines the intelligence of multiple trading

partners who share their plans, forecasts, and delivery schedules to

ensure a smooth flow of goods and services across a supply chain

CPFR reduces bullwhip effect which reduces safety stocks within trading partners