Forecasting

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Supply Chain Planning and
Scheduling

Supply Chain
Planning and
Scheduling

What is the first step in
establishing priorities?

Forecasting

Demand Management
The primary goal for an organization is to serve
and satisfy the customer

Demand Management
The interface between manufacturing
planning and control and the marketplace

Therefore, it is necessary to recognize andmanage customer demand for all products
This includes 4 major activities:
Forecasting
Order processing
Making delivery promises
Interfacing between planning, control and the
marketplace

Production
Planning
Marketplace

Demand
Management
Master
Production
Schedule

J.R. Tony Arnold, Introduction to Materials Management, 4th edition, Prentice-Hall, 2004, p.217

Demand ForecastingSo, demand
forecasting is the first
step… then, what is
forecasting?

Forecasting

A projection of past information and/or
experience into expectation of demand in
the future.
Underlying basis for all business decisions
Production
Inventory
Personnel
Facilities

1

Supply Chain Planning and
Scheduling

Demand Forecasting

Demand Forecasting

Demand forecasting takesplace at different
levels of the production planning process
Period

Time frame Planning phase

Object of forecast

Long term

2 to 10 years Strategic Business
Plan

Markets, technologies
and capacity

Medium
term

1 to 3 years

Sales and
Operations Plan

Product lines and
families

Short term

Months

Master Production
Schedule

End items and options

All sourcesof demand must be identified:
Customers
Spare parts
Promotions
Intracompany
Other

Demand Forecasting
Factors influencing demand

What are the
characteristics of
demand?

General business and economic conditions
Competitive factors
Market trends
The firm’s own plans for advertising, promotions,
pricing and product changes
Other factors:

Characteristics of Demand
Dependent vs.Independent
Independent
Independent demand is not related to the
demand for any other product

Characteristics of Demand
Demand patterns
Stable
Stable demand retains same general shape
over time
Dynamic
Dynamic demand tends to be erratic
Dynamic

Dependent
Dependent demand occurs when the demand
for an item is derived from that of another item

Stable
Demand

TimeForecasting

2

Supply Chain Planning and
Scheduling

Characteristics of Demand
Trend
Seasonality
Random
Variation

How do we forecast
demand?

Cyclical
Variation

Forecasting Methods
Qualitative
Based on judgment, intuition, and informed
opinions

Quantitative
Extrinsic – based on external indicators that
relate to demand
Intrinsic – the use of historical data to createforecast

Forecasting Methods
Qualitative
Jury of executive opinion
Pool opinions of high-level experts, sometimes augment by
statistical models

Delphi method
Panel of experts, queried iteratively

Sales force composite
Estimates from individual salespersons are reviewed for
reasonableness, then aggregated

Consumer Market Survey
Ask the customer

Forecasting

Forecasting MethodsQualitative
Are based on intuition and informed opinion
Tend to be subjective
Are used for business planning and
forecasting for new products and technologies
Are used for medium-term to long-term
forecasting

Forecasting Methods
Quantitative
Assume that factors influencing past and present will
continue influence in future
Use sets of evenly spaced numerical data (yearly,
quarterly,monthly, weekly, daily)
Data is available in the company and is obtained by
observing a variable at regular time periods,
Forecasts are based only on past values, no other
variables are considered important (except when
using an associative method)

3

Supply Chain Planning and
Scheduling

Forecasting Methods
Quantitative

The Forecasting Process
1.

Determine the use of the...
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