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Demand Forecasting in A Supply Chain

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16 views20 pages

Demand Forecasting in A Supply Chain

Uploaded by

011-C Vennala
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Demand Forecasting in a

Supply Chain
C Vennala
F23012
What is Demand Forecasting?
• Business practice utilizing statistical models, historical data,
market trends, and other factors to estimate demand.
• The main aim is to ensure businesses deliver the right products in
the right quantities.
Importance of Demand Forecasting in
Supply Chain
• Aligns production, procurement, and distribution with market needs.
• Optimizes inventory costs and timely and precise forecasts help businesses
respond quickly to market changes and customer demands.
• Enhances customer loyalty and competitive advantage.
• Supports strategic decisions by providing insights into future demand trends,
market conditions, and operational requirements.
Role of Forecasting in a Supply Chain
 Push/Pull View:
 Push processes: Anticipate customer demand (e.g., production,
transportation).
 Pull processes: Respond to customer demand (e.g., capacity,
inventory).
 Example: Home Depot orders base paint and dyes (push) and
mixes paint per customer orders (pull).
Characteristics of Forecasts

• Inaccuracy: Always present; include expected value and error.


• Time Frame: Long-term forecasts are less accurate.
• Aggregation: Aggregate forecasts are more accurate than disaggregate.
• Information Distortion: Bullwhip effect: Upstream distortion increases.
Components of a Forecast

Systematic Component:

Expected Demand Value: This is the predicted demand based on three key
elements:
 Level: The baseline or average demand for a product over a certain period.
 Trend: The rate at which the demand is increasing or decreasing over time.
 Seasonality: Regular pattern of up-and-down fluctuations in demand that occur at
specific intervals due to seasonal factors.
Random Component:
• Deviation from the Systematic Part: This component accounts
for the variability in demand that cannot be predicted by the
systematic component. It represents the random, unpredictable
fluctuations in demand due to unforeseen factors such as sudden
market changes, economic shifts, or unexpected events.
Forecasting Methods in Supply Chain
Qualitative Forecasting
• Approach: Relies on subjective judgment, expert opinions, and
market research.
• Use Case: Suitable when historical data is limited or uncertain.
• Applications: Entering new markets or facing significant
uncertainties.
• Examples: Expert panels, market research surveys, Delphi
method.
Time Series Analysis

• Approach: Uses historical data to identify patterns and trends over time.
• Techniques: Moving averages, exponential smoothing.
• Use Case: Effective for data with identifiable seasonality or trends.
• Expert View: Offers insights into past data to predict future demand based
on established patterns.
Causal Inferences

• Approach: Establishes cause-and-effect relationships between demand and


influencing factors.
• Factors: Advertising, promotions, economic indicators.
• Use Case: When there is a clear understanding of influencing factors and
impact assessment is needed.
• Examples: Regression analysis, impact of promotional activities.
Machine Learning and Predictive Analytics
 Approach: Utilizes advanced algorithms and machine learning
models.
 Advantages: Analyzes large datasets, identifies complex
patterns, adapts to changing conditions.
 Use Case: For large datasets and complex demand patterns.
 Examples: Predictive models, real-time data analysis.
Collaborative Planning, Forecasting, and
Replenishment (CPFR)
 Approach: Collaboration among supply chain partners for joint
forecasts.
 Advantages: Enhances accuracy through shared information
and collaborative efforts.
 Use Case: Complex, interconnected supply chains.
 Examples: Jointly developed forecasts, shared planning
processes.
Delphi Method

 Approach: Solicits expert opinions through multiple rounds of


feedback and revision.
 Use Case: When collective expert wisdom is crucial for
informed predictions.
 Applications: Strategic planning, decision-making processes.
Simulation Models

• Approach: Creates virtual scenarios to assess the impact of various factors


on demand.
• Techniques: Monte Carlo simulations, scenario testing.
• Use Case: Testing different scenarios and understanding demand variability.
• Examples: Impact of price changes, competitor actions.
Consumer Surveys and Market Research
 Approach: Directly engages with customers to gather
preferences and expectations.
 Use Case: Industries with rapidly changing consumer
preferences.
 Applications: Shaping demand based on customer feedback.
 Examples: Customer satisfaction surveys, focus groups.
Challenges of Demand and Supply
Forecasting
• Managing demand with diverse global suppliers and regulations
complicates forecasting.
• Economic and geopolitical changes can disrupt accurate
predictions.
• Predicting seasonal peaks and trends requires advanced models to
avoid errors.
• Adapting to shifts in consumer preferences affects forecast
accuracy.
• Poor or incomplete data can lead to inaccurate forecasts .
The Role of IT in Forecasting

• IT systems provide real-time forecasts and incorporate the latest


demand data, helping companies react quickly to market changes.
• Advanced ERP systems improve forecast accuracy by integrating
data from various sources, such as customer orders and sales
information.
• IT systems use correlated data (e.g., weather, social trends) to
refine forecasts and identify marketing opportunities, though
human intuition is still valuable for qualitative insights.
Conclusion
• Use different methods like qualitative, time series, causal, and
simulation to predict demand effectively.
• Overcome issues like complex supply chains, market uncertainty,
and changing consumer behavior.
• IT systems improve forecasts with real-time updates and
advanced tools.
• Use both IT tools and human intuition for the most accurate
forecasts and better decision-making.
Nestle demand planning

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