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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/totals=0» Variance of {3,5,2,6}=5/2

– 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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Master Production Schedule (MPS)

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

Volume

Time

Firm Orders Forecasts

Frozen Zone Flexible Zone

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Summary

Aggregate forecasts are more accurate