Demand Planning: Forecasting and Demand Management
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1 CHAPTER TWELVE Demand Planning: orecasing and Demand Managemen McGraw-Hill/Irwin Copyrigh 2011 by he McGraw-Hill Companies, Inc. All righs reserved. Where We Are Now Relaionships Susainabiliy Globalizaion Organizaional Culure/Ehics Change Managemen Chaper Par 1 Supply Chain: A perspecive for Operaions Managemen 1. Inroducion o Managing Operaions Across he Supply Chain X X X 2. Operaions and Supply Chain Sraegy X X X X X X Par 2 oundaions of Operaions Managemen 3. Managing Processes and Capabiliies X X 4. Produc/Process Innovaion X X X X 5. Manufacuring and Service Process Srucures X X X X 6. Managing Qualiy X X X X X X 7. Undersanding Invenory undamenals X X X 8 Lean Sysems X X X X X Par 3 Inegraing Relaionships Across he Supply Chain 9. Cusomer Managemen X X 10. Supplier Managemen X X X X X 11. Logisics Managemen X X X Par 4 Planning of inegraed Operaions Across he Supply chain X 12. Demand Planning: orecasing and Demand Managemen X X X 13. Sales and Operaions Planning X X X 14. Independen Demand Invenory Planning X X 15. Maerials and Resource Requiremens Planning X X X Par 5 Managing Change in Supply Chain Operaions 16. Projec Managemen X X X X X X 17. Evolving Business Models and Change Drivers in he Supply Chain X X X X X Measuremen
2 Learning Objecives 1. Explain role of demand managemen 2. Differeniae beween demand managemen and forecasing 3. Describe various forecasing procedures 4. Develop forecas various models 5. Describe forecas measures 6. Explain how improvemens make demand planning easier 12 3 Demand Planning Demand Planning: boh forecasing and managing cusomer demand o reach operaional and financial goals Demand orecasing: predicing fuure cusomer demand Demand Managemen: influencing eiher paern or consisency of demand
3 Demand Planning and OM igure Planning Aciviies Time Horizon/ Type of Planning Long Term 1-5 years Sraegic Demand Planning Unis Dollar or uni sales by business uni across sales nework Use of orecas and Demand Planning SC nework design Technology invesmen Capaciy plans Types of Decisions Involved Sources of supply Open/close faciliies Transporaion Medium Term 6-18 monhs Tacical Dollar or uni sales by produc family in a region Sales & operaions plan Porfolio plans Aggregae plans Workforce plans New produc launches Shor Term 1-12 weeks Operaional Dollar or uni sales by iem or service a a given locaion Invenory plans Purchasing Labor scheduling Daily producion Purchase orders Table
4 Demand orecasing Componens of Demand: paerns of demand over ime Sable Seasonal Trend Sep Change Auocorrelaion: relaionship of pas and curren demand orecas error: unexplained componen of demand igure orecasing Process igure
5 Judgmen Based orecasing Grassroos: inpu from hose close o producs or cusomers Execuive Judgmen: inpu from hose wih experience Hisorical Analogy: assume pas demand is a good predicor of fuure demand Markeing Research: examine paerns of curren cusomers Delphi Mehod: inpu for panel of expers 12 9 Saisical Based orecasing Time Series Analysis: uses hisorical daa arranged in order of occurrence Naïve Model: omorrow's demand will be same as oday s demand
6 Saisical Based orecasing con d Moving Average: simple average of demand from some number of pas periods + 1 = d + d 1 + d n d n Saisical Based orecasing con d Sales (lbs) Sunday Monday Tuesday Wednesday 160 Thursday ri = = lbs 4 If acual riday sales urn ou o be Sa = = lbs 4 Example
7 Saisical Based orecasing con d Weighed Moving Average: assigns differen weighs o each period s demand based upon is imporance + 1 = ad + a 1d 1 + a 2d a n d n Weighed Moving Average Sales (lbs) Day Weigh Sunday Monday days ago 0.1 Tuesday days ago 0.2 Wednesday days ago 0.2 Thursday yeserday 0.5 oal = 1.0 ri Sa = (. 1) (. 2) (. 2) (. 5) = lbs = (. 1) (. 2) (. 2) (. 5) = lbs Example
8 Saisical Based orecasing con d igure Saisical Based orecasing con d Exponenial Smoohing: a moving average approach ha pu less weigh on furher back in ime daa Smoohing Coefficien: weigh given o mos recen demand = α d = or + (1 α) + α( d )
9 Saisical Based orecasing con d The forecas of a produc was 110 lbs and acual demand was 115 lbs. Wha is he nex period forecas wih a smoohing consan of 0.10? +1 = (0.1)( ) = lbs Example Saisical Based orecasing con d Regression Analysis: fis an equaion o a se of daa Sales forecas = B + b ( D) + b ( A) + b ( ) b ( S) d a f + s B = Base sales (compued y inercep) D = Disposable personal income A = Adverising expendiures = uel prices S = Sales from prior year
10 Saisical Based orecasing con d Simulaion Models: sophisicaed echniques ha allow for he evaluaion of muliple business scenarios ocused orecasing: combinaion of compuer simulaion and inpu from knowledgeable individuals orecas Process Performance orecas Accuracy: measure of how closely forecas aligns wih demand Bias: endency o over or under predic fuure demand (forecas error) Bias = Mean orecas n Σ= 1 ( d n ) Error ( ME) =
11 orecas Process Performance Mean Absolue Deviaion (MAD): average of forecas errors, irrespecive of direc n Σ= 1 d n orecas Process Performance 1. Shor erm forecass are more accurae han long erm forecass 2. Aggregae forecass are more accurae han deailed forecass 3. Informaion from more sources yields a more accurae forecas
12 Demand Planning lucuaing cusomer demand cause operaional inefficiencies, such as: 1. Need for exra capaciy resources 2. Backlog 3. Cusomer dissaisfacion 4. Sysem buffering (safey sock, safey lead ime, capaciy cushions, ec.) Demand Planning Try o manage demand by: 1. Use pricing, promoions or incenives o influence iming or quaniy of demand 2. Manage iming of order fulfillmen 3. Encourage shifing o alernae producs
13 Improving Planning Managemen Improving informaion accuracy and imeliness Reducing lead ime Redesigning he produc Collaboraing and sharing informaion Improving Demand Planning Collaboraive, planning, forecasing and replenishmen (CPR): supply chain parners share forecas, and demand and resource plans o reduce risk - Marke Planning: changes o producs, locaions, pricing and promoions - Demand and resource planning: forecasing - Execuion: order fulfillmen - Analysis: daa on key performance merics
14 Improving Demand Planning igure Demand Planning Summary 1. orecasing process choice is influenced by a variey of facors 2. orecass are judgmen or saisical model based 3. Boh accuracy and bias should be considered 4. Demand managemen involves influencing cusomer demand 5. Supply chains can be made more responsive o changes in cusomer demand
Objectives of Chapters 7,8
Objecives of Chapers 7,8 Planning Demand and Supply in a SC: (Ch7, 8, 9) Ch7 Describes mehodologies ha can be used o forecas fuure demand based on hisorical daa. Ch8 Describes he aggregae planning mehodology
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