Demand Forecasting in supply chain management

Demand Forecasting in supply chain management

1. Demand Forecasting

2. Understand the role of forecasting for both an enterprise and a supply chain Identify the components of a demand forecast Forecast demand in a supply chain given historical demand data using time-series methodologies What we will learn

3. Role of Forecasting in a Supply Chain Demand forecast form the basis of all supply chain planning. Remember Push/pull view of Supply chain? Mature products with stable demand are usually easiest to forecast. Forecasting and the accompanying managerial decisions are extremely difficult and complex when either the supply of raw material or the demand of finished product is highly unpredictable.

4. Characteristics of forecasts

5. Components of a forecast and forecasting methods Demand does not arise in vacuum. Rather customer demand is influenced by a variety of factors and can be predicted, at least with some probability, if a company can determine the relationship between these factors and future demand. Companies must balance objective and subjective factors when forecasting demand. A company must be knowledgeable about numerous factors which includes: Past Demand - Lead time of product Planned advertising - State of the economy Planned price discounts - Actions that competitors have taken

6. Forecasting Methods

7. Basic approach to demand forecasting Understand the objective of forecasting Integrate demand planning and forecasting throughout the supply chain Understand and identify customer segments Identify major factors that influence the demand forecast (Demand side, Supply side or product side) Determine the appropriate forecasting technique Establish performance and error measures for the forecast

8. Measures of Forecast Error --A good forecasting method should capture the systematic component of demand but not the random component. It manifests it self in the form of a forecast error which must be analyzed because of: Managers use error analysis to determine whether the current forecasting method is predicting the systematic component of demand accurately. All contingency plans must account for forecast error.

9. Role of IT in demand planning --IT has a natural role in forecasting as it involves large amount of data analysis, the frequency with which forecasting is performed, and the importance of getting the highest-quality results possible. Risk Management in Forecasting --Risks associated with forecast error must be considered when planning for future. Errors in forecasting can cause significant misallocation of resources in inventory, facilities, transportation, sourcing, pricing and even information management.