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CHAPTER OUTLINE
 Introduction

 Demand Forecasting

 Forecasting Techniques

 Qualitative Methods

 Quantitative Methods

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 DEMAND FORECASTING

Forecasting – estimating future demand, serves

planning and business decisions.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
4
 FORECASTING TECHNIQUES

• Qualitative forecasting methods

• Quantitative forecasting methods

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
5
 Qualitative Methods
Qualitative forecasting methods:
 Intuition or judgmental evaluation
 Used when data are limited, unavailable, or not currently relevant.
 Can be very low cost,
 Depends on the skill and
experience of the forecaster(s) and the amount of relevant
information available.
 The qualitative techniques are often used - develop long-range
projections when current data is no longer very useful, and for new
product introductions when current data does not exist.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
6
 Qualitative Methods

Jury of Executive Opinion

Delphi Method
Sales Force Composite
Consumer Survey

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
7
 Qualitative Methods
Jury of Executive Opinion

A group of senior management

executives develop the forecast
together.
When a person dominate the
discussion – harmful
Used for long-range planning and
new product introductions.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Qualitative Methods
Delphi Method
 A group - internal and external experts -
surveyed several rounds in terms of future events
and long-term forecasts of demand.
 Group members do not physically meet and thus
avoid the scenario where one or a few experts
could dominate a discussion.
 Used for high-risk technology forecasting; large,
expensive projects; or major, new product
introductions.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Qualitative Methods
Sales Force Composite

 Based on the sale force who are knowledgeable about the

market.
 Could be affected by individuals’ motivations and bias.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Qualitative Methods
Consumer Survey

• Survey the customers.

• A problem with representative
customers and get acceptable
response rate.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Quantitative Methods
• Mathematical techniques & historical data
• Components of Time Series
• Time Series Forecasting Models
• Naïve Forecast
• Simple Moving Average Forecast
• Weighted Moving Average Forecast
• Exponential Smoothing Forecast
• Linear Trend Forecast
• Multiple Regression Forecast

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
12
 Time Series Forecasting Models
Naïve Forecast
The estimate for the next period is equal to the
actual demand for the immediate past period:

Ft + 1 = At
where Ft+1 = forecast for period t+1;
At = actual demand for period t.

may not create accurate forecasts.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Simple Moving Average Forecast
• The simple moving average forecast uses
historical data to generate a forecast and
works well when the demand is fairly
stable over time.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Simple Moving Average Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Simple Moving Average Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Weighted Moving Average Forecast
•

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Weighted Moving Average Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Weighted Moving Average Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Exponential Smoothing Forecast

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Exponential Smoothing Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Exponential Smoothing Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Linear Trend Forecast

Ŷ = b0 + b1x
Where Ŷ = forecast or dependent
variable;
x = time variable;
b0 = intercept of the vertical axis;
b1 = slope of the trend line.

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Linear Trend Forecast (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 Time Series Forecasting Models
Multiple Regression Forecast

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 FORECAST ACCURACY

• The costs associated with prediction error -sales, safety

stock, unsatisfied customers and loss of goodwill.
• Tracking forecast error and improve next forecasts

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 FORECAST ACCURACY (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 FORECAST ACCURACY (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 FORECAST ACCURACY (cont.)

• The tracking signal - determine if the forecast bias is within

the acceptable control limits.
Tracking signal = 𝑹𝑺𝑭𝑬/𝑴𝑨𝑫

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 FORECAST ACCURACY (cont.)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 SOFTWARE SOLUTIONS
• Forecasting Software
1. Business Forecast Systems, Inc.
(www.forecastpro.com/)
2. John Galt (www.johngalt.com/)
3. JustEnough (www.justenough.com/)
4. SAS (www.sas.com/)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
 USEFUL FORECASTING WEBSITES
1. Institute for Forecasting Education (www.forecastingeducation.com/)
2. International Institute of Forecasters (www.forecasters.org/)

3. Forecasting Principles: Evidence-based Forecasting

(www.forecastingprinciples.com/)

4. Stata (Data Analysis and Statistical Software): Statistical Software

Providers
(www.stata.com/links/stat_software.html)

Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply Chain Management: A balanced Approach. South-Western/Cengage Learning.
32
References
• Wisner Joel, D., Keah-Choon, T., & Leong Keong, G. (2012). Supply
Chain Management: A balanced Approach. South-Western/Cengage
Learning.

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END OF CHAPTER 5

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Thank you!