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Forecast & Demand Planning

The document discusses forecasting and demand planning. It defines forecasting as predicting future events and demand planning as determining expected future demand. Accurate forecasts are needed throughout the supply chain. The document outlines short, medium, and long-range planning horizons. It also describes different types of forecasts including economic, technological, and demand forecasts. Finally, it discusses qualitative and quantitative forecasting methods such as judgmental techniques, time series analysis, moving averages, weighted averages, and exponential smoothing.

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Heinrich Siangco
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8 views20 pages

Forecast & Demand Planning

The document discusses forecasting and demand planning. It defines forecasting as predicting future events and demand planning as determining expected future demand. Accurate forecasts are needed throughout the supply chain. The document outlines short, medium, and long-range planning horizons. It also describes different types of forecasts including economic, technological, and demand forecasts. Finally, it discusses qualitative and quantitative forecasting methods such as judgmental techniques, time series analysis, moving averages, weighted averages, and exponential smoothing.

Uploaded by

Heinrich Siangco
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FORECAST

& DEMAND
PLANNING
Forecasting & Demand Planning

Forecasting: The art and science of predicting future events


- Many firms integrate forecasting with supply chain and capacity
management systems to make better operational dencisions.
- Accurate forecasts are needed throughout the supply chain and are
used by all functional areas of the organization, including accounting ,
finance, marketing, operations, and distribution.
Forecasting & Demand Planning

Demand Planning- Is a prediction of what


a company intends to sell in the future.
- It consists of determining what demand there
will be for its products and then building plans to
support that estimated demand.
Forecasting & Demand Planning
Planning Horizon: the length of time on which a forecast is based
1.) Short Range forecasts = Up to 1 year, but generally less than 3 months
Ex. Purchasing, job scheduling, workforce levels, inventory
2.) Medium Range Forecasts = 3 months to 3 years
Ex. Sales & production planning, budgeting
3.) Long Range Forecasts= 3+ years
Ex. Facility locations and new products
TYPES OF FORECAST
Types Of Forecasts

1.) Economic Forecasts: Planning indications


that are valuable in helping organizations prepare
medium to long range forecasts.
Address business cycle – inflation rate, money
supply, housing starts ,etc…
Types Of Forecasts

2.) Technological Forecasts: Long-term


forecasts concerned with the rates of technological
progress.
Impact Development of new products, plants, and
equipment
Types Of Forecasts
3.) Demand forecasts: projections of a company’s sales for each time period
in the planning horizon
Forecasts of demand drive decisions in many areas, examples:
a.)Supply-chain Management- good supplier relationship, advantages in
product innovation, cost and speed to market
b.)Human Resources – hiring, training , laying off workers
c.) Capacity- capacity shortages can result in undependable delivery, loss of
customers, loss of market share.
BASIC FORECASTING METHODS
Basic Forecasting Methods
QUALITATIVE METHODS/JUDGEMENTAL
FORECASTING
-Forecasts that incorporate such factors as the
decision maker’s intuition, emotions, personal
experiences, and value system.
Basic Forecasting Methods

1.) Jury of executive opinion: a


forecasting technique that uses the
opinion of high-level managers to form a
group estimate of demand
Basic Forecasting Methods

2.) Delphi Method: a forecasting


technique using a group process that
allows experts to make forecasts
Basic Forecasting Methods

3.) Sales force composite: a forecasting


technique based on salespersons
estimates of expected sales.
Basic Forecasting Methods

4.) Consumer market Survey: a


forecasting method that solicits input
from customers or potential customers
regarding future purchasing plans
Qualitative (Judgemental) Forecasting
When no historical data is available, only judgemental forecasting is available
The major reasons for using judgemental methods are:
A.) Greater accuracy (* If there is no historical date)
B.) Ability to incorporate unusual or one-time events.
C.) The difficulty of obtaining the data necessary for quantitative techniques
D.) When paired with quantitative data ], good forecasts can be created.
Quantitative Methods

Time Series
• Naïve
• Moving averages
• Weighted averages
• Exponential smoothing
Naïve Approach
Y A-D FD
1 10
2 12 10
3 13 12
4 13
Moving Average
Months Actual 2 months A 3 months A
1 10
2 12
3 13 11
4 16 12.5 11.67
5 19 17.5 13.67
Weighted Moving Average
Scale
Months Actual 3 months
1 1 1 0.2
1 10
2 2 2 0.3
2 12 3 3 3 0.5
3 13
4 16 12.17 [13 x 3) + ( 12 x 2) + (10 x 1)]
5 6 =12.17
19 14.33
6 23 [ 16 x 3) + (13 x 2) + ( 12 x 1)]
6 =14.33
Exponential Smoothing
α = smoothing constant
(0-1)
Ft = Ft -1 + α ( At-1 – Ft-1)

Actual demand of 2011 =153 cars


Estimated demand of 2011 = 142 cars
(Estimate the demand of 2012)

Ft = Ft -1 + α ( At-1 – Ft-1)
Ft = 142 + α ( 153 -142)
Ft = 1 At-1
Ft = 153 cars

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