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    Lecture - 07: Demand Forecasting in A Supply Chain

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    Shahriar Rahman
    This document discusses demand forecasting in supply chains. It explains that demand forecasts are used for strategic planning and push/pull processes. Forecasts become less accurate over longer time horizons and at higher aggregation levels. Qualitative, time series, and causal methods are used to forecast systematic demand components like level, trend, and seasonality. The goal is to predict systematic demand and estimate random error. Adaptive forecasting iteratively updates estimates based on forecast errors.

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    Lecture - 07: Demand Forecasting in A Supply Chain

    Uploaded by

    Shahriar Rahman
    31 views14 pages
    This document discusses demand forecasting in supply chains. It explains that demand forecasts are used for strategic planning and push/pull processes. Forecasts become less accurate over longer time horizons and at higher aggregation levels. Qualitative, time series, and causal methods are used to forecast systematic demand components like level, trend, and seasonality. The goal is to predict systematic demand and estimate random error. Adaptive forecasting iteratively updates estimates based on forecast errors.

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    SupplyChain Management IBA Dhaka University

    Original Title

    Lecture 7

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    This document discusses demand forecasting in supply chains. It explains that demand forecasts are used for strategic planning and push/pull processes. Forecasts become less accurate over longer time horizons and at higher aggregation levels. Qualitative, time series, and causal methods are used to forecast systematic demand components like level, trend, and seasonality. The goal is to predict systematic demand and estimate random error. Adaptive forecasting iteratively updates estimates based on forecast errors.

    Copyright:

    © All Rights Reserved
    Download as PPSX, PDF, TXT or read online from Scribd
    Download as ppsx, pdf, or txt
    31 views14 pages

    Lecture - 07: Demand Forecasting in A Supply Chain

    Uploaded by

    Shahriar Rahman
    This document discusses demand forecasting in supply chains. It explains that demand forecasts are used for strategic planning and push/pull processes. Forecasts become less accurate over longer time horizons and at higher aggregation levels. Qualitative, time series, and causal methods are used to forecast systematic demand components like level, trend, and seasonality. The goal is to predict systematic demand and estimate random error. Adaptive forecasting iteratively updates estimates based on forecast errors.

    Copyright:

    © All Rights Reserved
    Download as PPSX, PDF, TXT or read online from Scribd
    Download as ppsx, pdf, or txt
    of 14

    Lecture – 07

    Demand Forecasting in a Supply Chain


     The basis for all strategic and planning decisions in a
    supply chain
     Used for both push and pull processes
     Examples:
     Production: scheduling, inventory, aggregate planning
     Marketing: sales force allocation, promotions, new
    production introduction
     Finance: plant/equipment investment, budgetary
    planning
     Personnel: workforce planning, hiring, layoffs
     All of these decisions are interrelated
     Forecasts are always inaccurate, so should include expected
    value and measure of error.
     Long-term forecasts are less accurate than short-term
    forecasts (forecast horizon is important)
     Aggregate forecasts are more accurate than disaggregate
    forecasts
     The farther up the supply chain a company is (or the farther
    it is from the consumer), the greater the distortion of
    information it receives
     Numerous factors influence the demand forecast,
    including the following:
     Past demand
     Lead time of product replenishment
     Planned advertising or marketing efforts
     Planned price discounts
     State of the economy
     Actions that competitors have taken
     A company must understand such factors before it can
    select an appropriate forecasting methodology.
     Qualitative: primarily subjective; rely on judgment and
    opinion
     Time Series: use historical demand only
     Static
     Adaptive
     Causal: use the relationship between demand and
    some other factor to develop forecast
     Simulation
     Imitate consumer choices that give rise to demand
     Can combine time series and causal methods
    Observed demand (O) =
    Systematic component (S) + Random component (R)
    Level (current deseasonalized demand)

    Trend (growth or decline in demand)

    Seasonality (predictable seasonal fluctuation)

    • Systematic component: Expected value of demand


    • Random component: The part of the forecast that deviates
    from the systematic component
    • Forecast error: difference between forecast and actual demand
     The following five points are important for an
    organization to forecast effectively:
     Understand the objective of forecasting.
     Integrate demand planning and forecasting throughout
    the supply chain.
     Identify the major factors that influence the demand
    forecast.
     Forecast at the appropriate level of aggregation.
     Establish performance and error measures for the
    forecast.
     The goal of any forecasting method is to predict the
    systematic component of demand and estimate the random
    component.
     The systematic component of demand data contains a level, a
    trend, and a seasonal factor.
     Systematic component = level * trend * seasonal factor
     Systematic component = level + trend + seasonal factor
     Systematic component = 1level + trend2 * seasonal factor
     The specific form of the systematic component applicable to
    a given forecast depends on the nature of demand.
     Companies may develop both static and adaptive forecasting
    methods for each form.
     Assume a mixed model:
    Systematic component = (level + trend)(seasonal factor)
    Ft+l = [L + (t + l)T]St+l
    = forecast in period t for demand in period t + l
    L = estimate of level for period 0
    T = estimate of trend
    St = estimate of seasonal factor for period t
    Dt = actual demand in period t
    Ft = forecast of demand in period t
     Before estimating level and trend, demand data must be
    deseasonalized
     Deseasonalized demand = demand that would have
    been observed in the absence of seasonal fluctuations
     Periodicity (p)
     the number of periods after which the seasonal cycle
    repeats itself
     for demand at Tahoe Salt (Table 7.1, Figure 7.1) p = 4
     Use the previous equation to calculate deseasonalized
    demand for each period
    St = Dt / Dt = seasonal factor for period t
     The seasonal factors for the other periods are calculated in
    the same manner
     The overall seasonal factor for a “season” is then obtained by
    averaging all of the factors for a “season”
     If there are r seasonal cycles, for all periods of the form pt+i,
    1<i<p, the seasonal factor for season i is
    Si = [Sum(j=0 to r-1) Sjp+i]/r
     The estimates of level, trend, and seasonality are adjusted after
    each demand observation
     General steps in adaptive forecasting:
     Initialize
     Forecast
     Estimate error
     Modify estimates

     Examples:
     Moving average
     Simple exponential smoothing
     Trend-corrected exponential smoothing (Holt’s model)
     Trend- and seasonality-corrected exponential smoothing (Winter’s
    model)

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