Logistics and Supply Chain

Management

Presented By:
Dr. Jemini Sejpal
Topics
 Introduction to Logistics & Supply Chain
Management
 Definitions of Logistics and supply chain

Management
 Inbound Logistics, Outbound Logistics, In

process Logistics
 Green Logistics, Reverse Logistics
 Logistical Performance Cycle
 Integrated Logistics management
 Logistical Competency

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 Concept of Logistics
 Logistics is the part of supply chain management, Involved in
managing the forward and reverse flow and storage of goods,
Services, and related information between the point of origin and
the point of consumption to meet customer's requirements.

FLOW OF MATERIALS
Suppliers

Markets
Manufacturing
procureme Distribution
nt

FLOW OF INFORMATION
3
 Definitions
Acc. To Council of Logistics Management 1991
“Logistics is the process of planning, implementing and controlling the
efficient, effective flow and storage of goods, services and related
information from the point of origin to the point of consumption for the
purpose of controlling to customer requirement”
Its clear from the definition:
1. There is a point of origin and there is point of consumption
2. Flow of goods and information
3. Planning implementation and control
4. Logistical functions( includes inventory management, transportation,
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 Inbound Logistics
To produce particular product, it is important to make the raw material available at
right time, at right place and in right quantity. Hence inbound logistics involves all the
activities associated with procurement of raw material from the vendors. It is also
known as Upstream Logistics. It involves pre production logistics activities. I.e.
movement of material from suppliers to the company. Various activities involved in
inbound logistics are:
Sourcing Order Placement
Expediting

Issue
Suppliers/Vendor
( for Processing)
Storage

Receiving
Transportation

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 Outbound Logistics
Once the product is manufactured, it has to be made available to the customers for their
final consumption. Outbound logistics involves all the activities associated with physically
distributing the product to the customers. It is also known as Downstream Logistics.
Outbound logistics involves post production logistics activities, i.e. movement of finished
goods from warehouse to customers. Various activities involved in outbound logistics are:
Customer Order Order
Order Transmission Processing

Customer Order Order

Delivery Transportation Selection

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 Reverse Logistics
 Reverse logistics involves flow of goods and services from the customers to the
company, i.e. moving a product from its point of consumption to the point of
origin.
 During the past few years due to increased consumerism, stiff competition,
increased rigid quality standards and changes in environmental laws, reversed
logistics has gained importance.
 Now a days reverse logistics has become important tool to gain competitive
advantage over competitors. Most of the companies offer speedy and reliable
reverse logistical services such as:
1. Replacement of defective products.
2. Repairing the used products
3. Replacing the expired products.
4. Refurbishing the return products.
5. Recalling substandard or harmful products.

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 Scope of Reverse Logistics
Reverse logistics takes place because of following reasons:
1. Return of Unsold Goods: Exists a mutual understanding of return of unsold
goods Ex- Newspapers, Magazines
2. Refilling/ Reusable Packaging: Gas cylinders, Milk bottles, reusable bottles of
soft drinks. Here reverse logistics takes place just for the purpose of refilling.
3. Repairs and Refurbishing: Refurbishing is done for the goods return by
customers during warranty period because of damage, defects or because of poor
performance. All Consumer durables requires repairs and refurbishing.
Ex - smart watch, massage machines etc.
4. Product Recall: Product recall is a situation where in sold products are called
back because of following reasons:
 Expired products ( Medicines)

 Defective products that can cause harm to human life( pressure cooker, Cylinders)

 Manufacturing defects in the product ( 75k +Maruti Suzuki Baleno and nearly 2 k

swift Dzire were recalled because of faulty airbags.

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 Scope of Reverse Logistics
5. Recycling: Many countries government has devised laws
making recycling compulsory. Newspapers, magazines etc
can be returned back to the company for the purpose of
recycling
6. Scientific Disposal of Waste Material: Rigid laws
prohibiting unscientific disposal of items has increased the
scope of reverse logistics. Thus product needs to be
returned back to company so as to ensure scientific
disposal of product.
Ex - Disposal of laptops by European countries, Chemical

disposal in Ganga damages water creatures.

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 Green Logistics
Economic Growth, Industrialization, advance technology have resulted
in increased waste, poor disposal. This resulted in adverse impact on
the environment in the form of air pollution, deforestation, reduced air
quality, land degradation, less agricultural production, climate change
etc. Ultimately leading to poor health of society as a whole.
Concept of Green Logistics:
Green logistics refers to procedures and step instituted by a logistic
company to minimize its waste and other negative effects on the
environment. It is aimed to strike a balance between economic and
environmental efficiency. It describes all the attempts to measure and
minimize the ecological impact of logistic activities.

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 How to achieve Green Logistics
1. Network Optimization: The Company should adopt optimal
transport network by aggregating the entire loads of to be
delivered after studying the volumes and frequencies of each
transportation location. This will help companies to achieve full
capacity utilization of vehicles, reduce number of trips leading
to reduction in fuel consumption and reduce emissions.
2. Alternative Mode of Transportation: In order to reduce
emissions, we need to adopt intermodal transport. i.e.
focusing more on railways with roads providing only the
last mile delivery. Because rail emissions are 5 times
lesser than road transport. So restoring rail as primary
mode of transport would be essential to achieve green
logistics.
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 How to achieve Green Logistics
3. Alternative Fuel: Replacement of fossil fuel with other alternatives
like CNG, battery operated vehicles, electronically powered vehicles
etc.
4. Building Bypass Roads: Building bypass roads for speeding up
traffic is another solution for reducing emission.
5. Paper Usage Reduction: Many e-retailors no longer provide paper
receipts to enhance their green image.
6. New Fleet Induction: Replacing older vehicles with higher
emissions and lower fuel efficiencies with newer vehicles that are
fuel efficient & are low on emissions.
7. Waste Recycling and Scientific Disposal: to achieve green
logistics objective government should devise a law making recycling
mandatory. Left out materials, used products, and wrapper wastes
pose sever environment hazards. Thus proper steps should be taken
for recycling of waste.
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 In process Logistics
In process logistics is known to provide production logistics. It is
concerned with managing work in progress inventory as it flows
between stages of manufacturing. The major activities involved
in this cycle are:

Inventories from Work in progress Factory

Finished Goods
the stores Warehouse

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 Logistical performance Cycle
 The performance cycle represents elements of work necessary to
complete the logistics related activities. In performance cycle
the suppliers, the firm and the customers are linked together by
communication and transportation. The input to the performance
cycle is order for the product.
 There are basically Three logistical performance cycle:

1. Procurement performance cycle – Inbound

2. Manufacturing support performance cycle – In Process
3. Physical Distribution performance - Outbound

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 Logistical performance Cycle
1. Procurement performance cycle: This involves all the activities associated with
procurement of raw materials from vendors. Operations performed under
procurement performance cycle is known as INBOUND LOGISTICS. The objective
of this cycle is to perform inbound logistics activities at lower cost.
2. Manufacturing support Performance Cycle: Manufacturing performance cycle
provides production logistics. This cycle is positioned between the physical
distribution and procurement performance cycle. Major activities involved in this
cycle are:

 Making timely availability of materials, components etc

 Managing work in progress inventory.
 Transferring finished goods from manufacturing plants to factory warehouse once
they are produced.
3. Physical distribution performance cycle : Physical distribution performance
cycle involves all the activities associated with the physically distributing the
products to the customers. It is also known as OUTBOUND LOGISTICS. Main
objective of physical distribution performance cycle is to make goods available
where they are needed and when they are needed. 15
 Integrated Logistics Management
 Integrated logistics is a logistics management model that is
increasingly used to accelerate product delivery and improve
customer service. In this model all departments,
processes and resources are aligned to work in perfect
sync and operate as one cohesive unit.
 Integrated logistics management is the process of
 Anticipating customer needs
 Acquiring necessary resources like raw material, technology,

people, information to satisfy those needs

 To create products and services which are delivered to the

customers on time. ( Adidas footwear and apparel company)

 The basic objective of integrated logistical management is to

achieve maximum efficiency and competency.

 16
 Internal Integration
 Internal integration refers to the processes and activities carried out to
integrate different functions within the organization.(ex. Production,
marketing, finance) to ensure sharing of critical helps in speeding up the
decision making and gaining the cost advantage.
External Integration
FLOW OF MATERIALS
Suppliers

Markets
Manufacturin
procureme g Distribution
nt

Internal Integration(within the organization)

FLOW OF INFORMATION
External Integration 17
 External Integration
 It is the process of integrating the organization with its
suppliers and markets so that the flow of materials from
suppliers to manufacturer and flow of final products from
manufacturer to market is managed with maximum efficiency.
Also there is a continuous flow of information like orders,
demand forecast etc from the markets to organization and
from the suppliers to organization.

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Logistical Mix OR Logistical Functions
Transportation

Material Handling
Warehousing

Logistical Packaging
Inventory
Management Functions

-Order Information
Processing Management

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 Logistical Mix

ORDER PROCESSING:
a.Checking whether quantity ordered is available
b.If not available start its production
c.Checking whether customer's credit is satisfactory
d.Acknowledging the order given by the customers

Computers can reduce the order processing time

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 Inventory Management
 Inventory Management involves maintaining the required level of stocks
to meet customers requirement and all together ensuring minimum
inventory carrying cost.
 Inventory is associated with other cost like transportation, material
handling cost, warehousing cost etc.(increased level of inventory
increases all cost and vice –versa)
 The success of company depends upon how well they manage inventory
level.
 Hence one of the objective of logistics is to reduce inventory to the
lowest possible level.
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 Warehousing
 Warehouse is place where goods are stored until they are
sold. Ex – Sharktank ( Flowers for décor & fruits for juice )
 A firm can have private warehouse, public warehouse or
contract warehouse ( Economics sem III)
 Location of the warehouse plays important role in order to
provide good customer service. Warehouse should be
located near the market ( Bhivandi furniture warehouses)

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 Transportation
 Transportation refers to physical movement of products from
one place to another. It is a physical link that connects the
company to its suppliers and customers since place of
production and place of consumption area is different.
 Transportation is accomplished in 3 ways:

1. One’s own fleet - Private Carriage

2. Contract with specialist on long term basis – Contract Carriage
3. Contract on individual shipment basis – Common Carriage

Determinants of effective transport system – Cost, speed

of transportation, Consistency in speed.

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 Material Handling
 Material handling means providing the right amount of right
material, in the right condition, at the right place, at the right
time. It involves movement, protection, storage and control of
materials. ( ex – manufacturing of Medicines)
 Material handling cycle starts from

receipt of material moving of materials to production unit

followed by moving of finished products to warehouse
finally
it reaches to final consumers.
 Around 15% to 20% of the cost of product is spent on material

handling.

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 Packaging and Information Management
Packaging is one of the most important logistical management
function. It has significant impact on the cost and productivity of
logistical system. There are two types of packaging
1.Consumer Packaging: Focuses on customer convenience, market
appeal, product protection
2.Industrial Packaging : This includes individual units, master
cartons and containers. It focuses on handling, protection and
communication.
Information Management : Information management is an
invisible element of logistical mix/management.
Information is needed by organization to make better tactical and
strategic decisions for the benefit of the organization as well as for
the benefit of customer.

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 Logistical Competency
 The objective of logistics is to achieve competency or
competitive advantage over competitors in market. This
competitive advantage can be achieved by identifying the
areas which are critical for logistical performance and then
creating distinctive advantage in that particular area.
 Thus logistical competency aims at providing superior

customer service at lowest possible cost.

 Competitive advantage can be achieved either as a cost

advantage ( Reduced per unit cost) or value advantage i.e.

improved quality of products and service. Or as combination
of cost and value advantage.
 Ex – Technology, communication process, people ( Google

work flexibility), Production capacity etc)

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Five Pillars/Parameters to achive Logistical Competency

1. Network Design: Logistical network includes various

facilities such as manufacturing plants, warehouses,
distribution centers and retail stores.( Flip card distribution
center )
2. Information Management: Information management is a
invisible element in the process of logistical management
and plays very important role in the entire logistical process.
Demand forecasting and order processing are two areas of
logistical work which depends on information and timely
information is the key to better logistical performance

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3. Transportation: It refers to physical movement of
products from one place to another. It acts as a physical
link that connects the company to its suppliers and
customers because place of production is generally
different then the place of consumption.
 Transportation is accomplished in 3 ways:

1. One’s own fleet - Private Carriage

2. Contract with specialist on long term basis – Contract
Carriage
3. Contract on individual shipment basis – Common Carriage

Determinants of effective transport system – Cost,

speed of transportation, Consistency in speed.

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4. Inventory Management: Inventory management involves
decision to be taken on various aspects such as
 Safety stocks
 Lead time - Time between when purchase order is placed to
the order is received in the warehouse
 Replenishment of stocks - The controlled movement of
inventory from upstream point in a supply chain to a
downstream location that requires sufficient stock to cover
demand

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5. Warehousing, Material Handling & Packaging:
 Logistical competency can be achieved by deciding
number of warehouses, location of warehouses,
offering specialized services etc.
 Logistical competency can be achieved by deciding
the type of Material handling equipment,
Scheduling material activities and proper
maintenance equipment.
( assigning proper job shop on machines)
 Packaging: In align to logistical Mix

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 Comparison Between Logistics And Supply
Chain Management
LOGISTICS SUPPLY CHAIN MANAGEMENT

Concerned with getting goods & services from SCM encompasses all the activities associated
where they are required to when they are with movement of goods from raw materials
required stage to end user
Narrow concept, Originated from military Broader Concept, originated from business
logistics logistics
Logistics is concerned with inbound, SCM Coordinates and co-operates among value
manufacturing and outbound process chain members
Logistical activities are conducted within the SCM functions outside the organization
organization.
Objective is to minimize cost Objective is to maximize profitability
The focus of logistics management depend The focus of SCM depend upon the
upon the management of resources within the management of relationship in order to achieve
organization more profitable outcome for all parties in the
chain
There are two flows, Product flow i.e. flow of There are three flows i.e. Product flow,
goods and services , and information flow Information flow and Financial flow
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 Chapter 2
Supply Chain - Concept

 A supply chain is a network between a company and its

suppliers to produce and distribute a specific product to the final
buyer. This network includes different activities, people, entities,
information and resources.
 Supply chain is a network of organizations that are having

linkages both upstream and downstream

Examples : Dubbavalas of Mumbai
Flip card use to hire 3rd party, now has network in 37
major cities

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 Definition
 According to Council of Supply Chain Management
Professionals, supply chain management is defined as “ the
integrated management of all linkages and value added
activities from the supplier’s to the customer’s in such a way
that enhanced customer value is achieved at lower cost.

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 Traditional Supply Chain
Example :
Traditional Tier 2 Suppliers
supply chain
management:
Amul Milk Tier 1 Suppliers
( Night 2am
truck comes) Manufacturing plant
Organization
has come
Online : Finished Goods warehouse
Zomato,
Swiggy,
Distributors/ Dealers
Amway direct
selling

Retail Outlets

Customers
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 Participants of Supply Chain

Manufacturer Distributors Customers

Suppliers s

Organization that These are the Middleman that These are final
supply raw organizations who purchase goods buyer or end
materials to are engaged in the from manufacturer receiver/Users of the
purchasing production of with the intentions products or service.
organization who goods and of reselling them in They are the most
needs this for services supply chain important part of
manufacturing of supply chain
products

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 Objectives of Supply Chain Management
1. To Maximize overall Profitability: The supply chain
profitability is the difference between the amount paid by
customers to purchase the product and the supply cost
incurred by the organization to produce and supply the
product to customer at right time.
2. Enhancing Customer Service – Avoiding any kind of
service failure
3. Reduce Inventory Cost: Due to efficient supply chain
management, there is a greater coordination and coperation
among the members which helps to reduce inventory
thereby reducing inventory cost.
4. Reduce Warehousing Cost: Less inventory cost leads to
reduced warehousing cost.
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5. Reduce Transportation Cost: It is possible through proper
planning and network and by using economies of scale
6. Reduced Lead Time:
7. Minimizing Variance: Supply chain management through
standardization of activities and processes helps to reduce
variance between actual results and perceived results.
8. Reducing Working Capital: Effective supply chain
management will help to reduce various costs such as
inventory cost, warehousing cost, transportation cost etc
ultimately reducing working capital.

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 Functions of Supply Chain Management
1. Defining Business Boundaries and Relationships : It
involves decisions on what to be produced in house and what
should be outsourced, this will help to clearly defined members
involved in the chain, role of each member and relationship
among the channel members.
2. Managing Demand and Supply: The basic demand is the
demand for the product or service from the end-user. to meet
this demand, different links in the supply chain need to supply
some goods or services by following link in the chain.
3. Logistics : Refers to all processes involved in storing, moving,
transporting or in any other way handling material. role of
logistics in SCM starts from purchase of raw material till
transportation of finished products to end users.
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4. Purchasing: It involves procurement of raw material required
for manufacturing of products. The company should select the
right vendor in order to make the raw materials available at
right time, right place and in right quantity.
5. Selling: Products are sold to customers directly or through a
distribution network. This function is responsible to help
customer with – Know, select, buy, pay for and take away
company’s product.
6. Manufacturing: It represents the core of internal operations
of a company. Manufacturing supports SCM in ways like
reducing manufacturing lead times and supplying materials
closely matched to customers requirements.
7. Product Design: Basic quality of finished product sold to the
end user can be improved by better collaboration among
channel partners 39
Role of Logistics in Supply Chain
Management
 Logistics is concerned with making goods available from the
point of origin to point of consumption at right time, right
place and right quantity.
 Logistics is viewed as a process that bridges the gap

between point of demand ( Customers) and point of

supply( Suppliers)
There always exists a gap between point of demand and
point of supply.
 The success of supply chain will largely depend upon the

success of logistics management. Integration of the supply

chain management is not possible without efficient and
effective logistics manangement 40
 Extended Enterprise
Traditional View: Manufacturing organization wanted to
maximize the profitability.
Modern View: Business activities are becoming boundary
less. Now a days there is a greater coordination and
integration between manufacturing organization, suppliers
and entire distribution channel members. This concept is
known as extended enterprise. In extended enterprise,
instead of individual profitability, emphasis shifts on
maximizing the profitability of entire supply chain

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 Chapter 3
Customer Service: Key Element of Logistics

Customer Service is the sum total of all necessary

activities that need to be performed to give the customer
an experience of satisfaction after he interacts with the
organization or its representative.

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 Objectives of CUSTOMER SERVICE
1. Ensuring perfect order: Performing order processing with the
goal of achieving 100% Customer satisfaction, to do
everything right at very first time.
2. To improve Customer Satisfaction: Customers today are not
only interested in product but all related elements of service
3. To increase Sales: A positive word of mouth will increase sales
4. To retain existing Customers:
5. Improve Market Position: Efficient customer service will
increase customers confidence, satisfaction and competitive
edge to the company.
6. To retain Customer Loyalty: Customers will repeatedly do
business with companies who provide exceptional customer
service 43
 Elements of Customer Service
1. Time:
2. Dependability:
a. Lead Time : Time gap between order placement and order
delivery
b. Safe Delivery: Damaged products are useless for
customers
c. Correct Orders: If suppliers makes errors in filing of orders,
it gives rise to customer dissatisfaction.

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3. Communication: perfect order processing depends upon
the good flow of communication which binds the entire
system together.
4. Convenience/Flexibility: Customer service required to
be flexible, because customer’s expectation of service
differ from case to case.
Ex - Customer X may require delivery by road transport i.e.
by trucks where as customer Y require delivery in railway
coaches/ wagons.

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 Levels of Customer Service
1. Customer Service as an Activity: This level treats
customer service as an activity performed to satisfy
customer’s needs. Ex - Oder processing and invoicing
2. Customer Service as a performance measure: This
level treats customer service as logistical performance
measure making such measurements as perfect orders
delivered.
3. Customer Service as philosophy : This level views
customer service as a commitment of the company.
Customer service is included in company’s policy to deliver
customer service through superior performance.

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 Rights of Customers – 7 R’s
1. Right Product: Should satisfy customers needs, wants,
tastes and preferences.
2. Right Quantity: As per this principle product should be
available in right quantity, this will helps in avoiding stock
outs.
3. Right Condition: Product should be available in damage
free condition.
4. Right Place: Product should be available at right place
which is easily accessible to the customer.

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5. Right Time : Product should be available at the need of
an hour. Timely supply of product is essential for higher
customer satisfaction
6. Right Price : Product should be available at a fair price to
the customer. Product should not be overpriced or
underpriced.
7. Right Customer: This principle states that firm must
focus on the right customers who can be best served with
available products. Firm must target appropriate market
segments.

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 Demand Forecasting
“ Forecasting is a projection\prediction made, on the
basis of relevant logical assumptions, of the volume
likely to be produced, transported and sold”

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 Objectives Of Demand Forecasting
1. Sales planning: Demand forecasting helps in an estimation
of future sales. On the basis of estimation, all sales related
activities can be carried out more effectively and efficiently
2. Production planning: On the basis of demand estimation,
all production related activities can be planned. It helps to
avoid the situation of under production or over production
3. Adequate Purchasing of Materials: Buying too much or
too little inventory can be a serious disaster.
4. Framing proper Policies: Effective demand forecasting
helps in framing proper policies with respect to various fields
such as production, sales, purchasing, warehousing, inventory
distribution etc
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5. Reducing Inventory and warehousing cost :
Forecasting helps to predict how much inventory should
be in hand at given point of time. This help to reduce
inventory cost. Ultimately proper inventory management
ensures proper warehouse management and reduced
warehouse cost.
6. Tracking overall performance: Demand forecasting
helps to compare actual demand with firm’s expectations
and helps to keep a check on overall performance where
business is doing well or where it is lagging behind.
7. Effective Labor Management: Demand forecasting
helps in labor management. It estimates number of
workers required and plans its training program.
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 Forecasting Approaches
1. Top Down Approach – Process of forecasting starts at
the top. A national level forecast is developed for each
SKU. After that on the basis of historical data and patterns,
national level forecast is developed into region wise
forecast.

2. Bottom Up Approach – This approach is decentralized

because each distribution center forecast is developed
independently. Then all region wise or state wise forecast
are added to arrive at the national level forecast.

An organization can use either of the approach depending

upon the nature and profitability of the product. 52
 Forecasting Methods/Techniques
1. Qualitative Forecasting Methods: These are judgmental
methods where expert opinion is used to make forecast.
Suitable to use when past data is unavailable. However
these methods are time consuming.
2. Quantitative Methods of Forecasting : Quantitative
methods are based on analysis of historical data. It is
objective in nature. This method is further divided into
Casual methods and Time series methods.

53
 Qualitative Forecasting Methods
1. Jury of executive opinion method: Here opinion of
small group of high level executives are taken and than all
the opinions are pooled together and final estimates is the
consensus of the entire group.
2. Consumer survey or Market research method: This
direct method of demand forecasting. Here information is
collected directly from consumers by interviews or written
survey. It is very time consuming method so used
occasionally.
Ex : New product launch, Improvement in existing product
design etc.
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3. Sales force assessment: Under this method, the sales
representative gives estimate of expected sales of their area. A
thorough review is done of this estimates so as to ensure
whether they are realistic or not and than they are combined at
district and national level to arrive at overall forecast
4. Naïve Approach: It is assumed that demand in the next
period is the same as demand in the most recent period.
Assumption underlying this approach is there will be no
significant changes in the demand pattern in the absence of
significant external event. Ex- War situation, Covid etc
5. Delphi Method : This is a interactive group process where
forecast is developed through “group consensus”. This
technique relies on panel of experts. There are 3 types of
participants in Delphi process. i.e. Decision makers, staff
personnel and respondents.
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 Quantitative Methods of Forecasting
Quantitative techniques are further divided into Casual methods
and Time series analysis.
1. Casual Methods: Casual methods are suitable for medium to
long term forecasts. These methods are based on the
hypothesis that future demand of the product depends on the
past or current values of some variables. They try to develop
correlation between the future demand of some products and
past value of some casual variables.
Ex: Sale of ice cream (dependent variable) , Sale of
Umbrella(dependent variable)
Demonetization(Independent) and sale of residential
property(Dependent)
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 Casual methods includes regression analysis, econometric
models, computer simulations models, input output models etc.
Most of these methods are practically very difficult to implement.
For logistics planning and control only single/simple or
multiple regression methods are used in large organization.
 Simple Regression: In simple regression, there exist two
variables X and Y. “X” is independent variable and “Y” is
dependent variable.
Ex: Locality of college and printing business
 Multiple Regression: In multiple regression, there are more

than one independent variables which determine the value of

the dependent variable.
Ex - Success rate of movie on box office – independent variable,
acting of casting crew, direction, quality of direction, script,
songs
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2. Time Series method: These are statistical method where
in historical data is used to established trend line between
past, present and future. This method is based on the
assumption that future will be same as past. This
assumption is reasonably correct in short term hence this
method is appropriate for short range forecasting. This
analysis is used to identify systematic variations in the data
resulting from:
a. Seasonality
b. Cyclic Patterns &
c. Trends

58
Time series includes four types of techniques:
a) Moving Average: This techniques uses an average of the
most recent sales figure. The average may contain any number
of periods. Three, four, and five periods are most commonly
used. This kind of averages are easy to calculate but requires
large historical data to be maintained and updated and they
are unresponsive to sudden market changes.
N
Formula : Ft = ∑ Si- 1
i=1 N
Where, Ft = Moving average forecast for period t
si-1 = Sales for time period (i-1)
N = Total number of time periods.
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b. Exponential Smoothing: Exponential smoothing states that
future sales can be forecasted on the basis of weighted
average of the actual demand for the previous year and
forecasts for previous year.

FORECASTING COMPONENTS

Ft = ɑ.(dt-1) + (1-ɑ) (Ft-1)

Where,
Ft = Forecasted Sales for time period t
Ft-1 = Forecast for time period t-1
Dt-1 = Actual demand for the time period t-1
ɑ = Smoothing constant\alpha factor
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 Examples of Moving Average
Three period Moving Average

Months Actual Demand Forecast

(in 000)
January 100

February 250

March 310

April 220

Forecast for April = 100+250+310 = 220

3
61
 Examples of Moving Average
Four –period Moving Average

Months Actual Demand Forecast

January 100
February 250
March 300
April 350
May 250

Forecast for May = 100+250+300+350 = 250

4

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