Planning Demand and Supply in a Supply Chain

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Planning Demand and Supply in a Supply Chain

• Forecasting

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Learning Objectives

• Overview of forecasting
• Forecast errors
• Aggregate planning in the supply chain
• Managing demand
• Managing capacity

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Phases of Supply Chain Decisions

• Strategy or design Forecast
• Planning Forecast
• Operation/Execution Actual demand
• Since actual demands differ from the forecasts,
  
• so does the execution from the plans.
• E.g. Supply Chain degree plans for 40 students
  per year whereas the actual is ??

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Characteristics of forecasts

• Forecasts are always wrong. Include expected
  value and measure of error.
• Long-term forecasts are less accurate than
  short-term forecasts.
• Too long term forecasts are useless Forecast
  horizon
• Forecasting to determine
• Raw material purchases for the next week
  Ericsson
• Annual electricity generation capacity in TX for
  the next 30 years Texas Utilities
• Boat traffic intensity in the upper Mississippi
  until year 2100 Army Corps of Engineers
• Aggregate forecasts are more accurate than
  disaggregate forecasts
• Variance of aggregate is smaller because extremes
  cancel out
• Two samples 3,5 and 2,6.
• Averages 4 and 4.
• Totals 8 and 8.
• Variance of sample averages/totals0
• Variance of 3,5,2,65/2
• Several ways to aggregate
• Products into product groups Telecom switch
  boxes
• Demand by location Texas region
• Demand by time April demand

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Forecasting Methods

• Qualitative
• Expert opinion
• E.g. Why do you listen to Wall Street stock
  analysts?
• What if we all listen to the same analyst? S/He
  becomes right!
• Time Series
• Static
• Adaptive
• Causal Linear regression
• Forecast Simulation for planning purposes

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Components of an observation

• Observed demand (O)
• Systematic component (S) Random component (R)
• A touch of philosophy
• Is the world random or everything is
  pre-determined?
• Pragmatic answer
• Everything we cannot afford to study in detail
  is random!

Level (current deseasonalized demand)
Trend (growth or decline in demand)
Seasonality (predictable seasonal fluctuation)
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Time Series Forecasting
Forecast demand for the next four quarters.
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Time Series Forecasting
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Master Production Schedule (MPS)

• MPS is a schedule of future deliveries. A
  combination of forecasts and firm orders.

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Summary

• Aggregate forecasts are more accurate