Demand and Forecast

Dickson K.W. Chiu

PhD, SMIEEE
Text: Ballou - Business Logistics Management, 5/E (Chapter 8)

1
 Learning Objectives
 To understand some basic concept of demand
and forecasting
 To anticipate typical problems involved in
demand and forecasting

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What’s Forecasted in the Supply Chain

 Demand, sales or requirements

 Purchase prices
 Replenishment and delivery times

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Some Forecasting Method Choices
 Historical projection
 Moving average
 Exponential smoothing
 Causal or associative
 Regression analysis
 Qualitative
 Surveys
 Expert systems or rule-based
 Collaborative

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 Typical Time Series Patterns: Random

250

200
Sales

150
Actual sales
100 Average sales

50

0
0 5 10 15 20 25
Time

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Typical Time Series Patterns:
Random with Trend

250

200
Sales

150

100
Actual sales
50 Average sales

0
0 5 10 15 20 25
Time

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 Typical Time Series Patterns:
Random with Trend and Seasonal

800
700
600
500
Sales

400
300
200 Actual sales
Trend in sales
100 Smoothed trend and seasonal sales
0
0 10 20 30 40
Time

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Typical Time Series Patterns: Lumpy
Sales

Time

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Is Time Series Pattern Forecastable?
 Whether a time series can be reasonably
forecasted often depends on the time series’
degree of variability. Forecast a regular time
series, but use other techniques for lumpy
ones. How to tell the difference:
 A time series is lumpy if
X  3
where
X  mean of the series
  standard deviation of series,
regular, otherwise.

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Analysis Details
 See textbook if you are interested
 Moving Average
 Exponential Smoothing Formulas
 Regression Analysis
 Combined Model Forecasting
 Note data requirements and timeliness
requirement
 Tracking signal monitors the fit of the model
to detect when the model no longer
accurately represents the data => events

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 Actions When Forecasting is Inappropriate
 Seek information directly from customers
 Collaborate with other channel members
 Apply forecasting methods with caution (may
work where forecast accuracy is not critical)
 Delay supply response until demand becomes
clear
 Shift demand to other periods for better supply
response
 Develop quick response and flexible supply
systems, e.g., order-to-build of Dell

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Collaborative Forecasting
 Demand is lumpy or highly uncertain
 Involves multiple participants each with a
unique perspective—“two heads are better
than one”
 Goal is to reduce forecast error
 The forecasting process is inherently unstable

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 Collaborative Forecasting Key Steps
 Establish a process champion
 Identify the needed information and collection processes
 Establish methods for processing information from
multiple sources and the weights assigned to multiple
forecasts
 Create methods for translating forecast into form
needed by each party
 Establish process for revising and updating forecast in
real time
 Create methods for appraising the forecast
 Show that the benefits of collaborative forecasting are
obvious and real
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 Summary
 Again much domain knowledge is required.
 Note the data / information requirements and how IT
helps to collect / integrate the data for calculations and
decision making.
 Capture forecasting signals (either determined by a
business analyst or automatically by a sub-system) as
events / exceptions / alerts and forward them to the
appropriate system and personnel for decision / action.
 Collaborative forecasting as well as quick response and
flexible supply systems requires much new IT in the
process and information integration.

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