Podcast
Questions and Answers
What is the primary role of forecasting in a supply chain?
What is the primary role of forecasting in a supply chain?
- To manage transportation and logistics effectively.
- To determine optimal pricing strategies for different products.
- To serve as a foundation for all planning decisions. (correct)
- To control inventory levels and minimize stockouts.
Which of the following best describes how forecast accuracy changes with the forecast horizon?
Which of the following best describes how forecast accuracy changes with the forecast horizon?
- Forecast accuracy is not dependent on the forecast horizon.
- Long-term forecasts are usually less accurate than short-term forecasts. (correct)
- Short-term forecasts are usually less accurate than long-term forecasts.
- Long-term forecasts are generally more accurate than short-term forecasts.
Which of the following is NOT a factor that companies should consider when forecasting demand?
Which of the following is NOT a factor that companies should consider when forecasting demand?
- Lead time of product replenishment.
- Planned price discounts.
- Past demand.
- Competitors' stock prices. (correct)
A company trying to forecast demand for individual product SKUs would most likely encounter forecasts that are:
A company trying to forecast demand for individual product SKUs would most likely encounter forecasts that are:
Which forecasting method relies exclusively on historical demand data?
Which forecasting method relies exclusively on historical demand data?
Which forecasting method is best suited for situations when demand has remained relatively stable over time?
Which forecasting method is best suited for situations when demand has remained relatively stable over time?
Which forecasting method would be most appropriate when a company introduces a new product and has no significant historical demand data?
Which forecasting method would be most appropriate when a company introduces a new product and has no significant historical demand data?
What does the text suggest about information distortion as you move up the supply chain?
What does the text suggest about information distortion as you move up the supply chain?
In time-series forecasting, what does the systematic component of observed demand NOT include?
In time-series forecasting, what does the systematic component of observed demand NOT include?
According to the material, which of the following is a key consideration when setting up a forecasting process?
According to the material, which of the following is a key consideration when setting up a forecasting process?
A mixed method to calculate the systematic component in time-series forecasting would be represented by which of the following formulas?
A mixed method to calculate the systematic component in time-series forecasting would be represented by which of the following formulas?
In adaptive forecasting, how are estimates of level, trend, and seasonality updated?
In adaptive forecasting, how are estimates of level, trend, and seasonality updated?
When should a moving average method be used for forecasting?
When should a moving average method be used for forecasting?
Which forecasting method is most appropriate when you have a level and trend, but no seasonality?
Which forecasting method is most appropriate when you have a level and trend, but no seasonality?
What does the forecast error represent?
What does the forecast error represent?
Why is it important to analyze forecast errors?
Why is it important to analyze forecast errors?
Which is a potential benefit of using software tools in forecasting?
Which is a potential benefit of using software tools in forecasting?
What is the initial estimate of the level ($L_0$) assumed to be in Simple Exponential Smoothing?
What is the initial estimate of the level ($L_0$) assumed to be in Simple Exponential Smoothing?
Flashcards
Role of Forecasting in a Supply Chain
Role of Forecasting in a Supply Chain
Forecasting is crucial for making informed decisions about production, inventory, sales, and other supply chain operations.
Forecasts are Inaccurate
Forecasts are Inaccurate
Forecasts are never perfect, so they should always include an expected value and a measure of uncertainty.
Long-Term Forecasts are Less Accurate
Long-Term Forecasts are Less Accurate
Predicting demand further into the future is more challenging and less reliable.
Aggregate Forecasts are More Accurate
Aggregate Forecasts are More Accurate
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Supply Chain Distortion
Supply Chain Distortion
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Qualitative Forecasting
Qualitative Forecasting
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Time Series Forecasting
Time Series Forecasting
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Causal Forecasting
Causal Forecasting
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What is observed demand?
What is observed demand?
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What is the systematic component?
What is the systematic component?
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What is the random component?
What is the random component?
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What is forecast error?
What is forecast error?
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Why is understanding the forecast objective important?
Why is understanding the forecast objective important?
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Why is integration across the supply chain important for forecasting?
Why is integration across the supply chain important for forecasting?
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Why is identifying key demand influencers crucial?
Why is identifying key demand influencers crucial?
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Why is choosing the right level of aggregation important?
Why is choosing the right level of aggregation important?
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Why are performance and error measures essential for forecasting?
Why are performance and error measures essential for forecasting?
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What are static forecasting methods?
What are static forecasting methods?
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Study Notes
Demand Forecasting in Supply Chains
- Forecasting is foundational for all supply chain planning decisions.
- It's used in both push and pull systems (e.g., production scheduling, inventory, aggregate planning; sales force allocation, promotions, new product introductions).
- Forecasting decisions directly impact plant/equipment investment, budgeting, workforce planning, hiring, and layoffs. All these decisions are inter-related.
Characteristics of Forecasts
- Forecasts are inherently inaccurate, needing both an expected value and an error measure.
- Long-term forecasts are less accurate than short-term ones.
- Aggregate forecasts are usually more accurate than disaggregate (individual product) forecasts.
- Data distortion increases the further up the supply chain one goes.
Forecasting Components and Methods
- To forecast, identify factors impacting demand (past demand, lead times, marketing, prices, economic conditions, competitor actions).
- Forecasting methods include:
- Qualitative (subjective, judgment-based).
- Time Series (historical data only, best for stable demand).
- Causal (relationships between demand and other factors).
- Simulation (mimicking consumer choices).
Components of Observed Demand
- Observed demand equals systematic component (expected demand) plus random component.
- Systematic component includes:
- Level (deseasonalized current demand).
- Trend (growth or decline in demand).
- Seasonality (predictable seasonal fluctuations).
- Random component is the unpredictable portion.
- Forecast error is the difference between forecast and actual demand.
Five Key Forecasting Process Points
- Define the forecasting objective.
- Integrate demand planning and forecasting throughout the supply chain.
- Identify significant factors influencing demand.
- Forecast at the appropriate level of aggregation.
- Establish forecast performance and error measures.
Time-Series Forecasting Methods
- Calculate the systematic component using:
- Multiplicative (S = Level * Trend * Seasonal Factor).
- Additive (S = Level + Trend + Seasonal Factor).
- Mixed (S = (Level + Trend) * Seasonal Factor).
Static Forecasting Methods
- Systematic component calculation = (Level + Trend) * Seasonal Factor
- L (level at t = 0), T (trend), St (seasonal factor for t), Dt (observed demand t), Ft (forecast for t)
Adaptive Forecasting
- Continuously update level, trend, and seasonality estimations using new data.
Moving Average
- Used when demand shows no trend or seasonality.
- The level in a period is the average demand over recent periods.
Simple Exponential Smoothing
- Used for trendless, seasonal demand.
- Initial level estimate (L0) is the historical average.
Trend-Corrected Exponential Smoothing (Holt's Model)
- Appropriate for demand with level and trend but no seasonality.
Trend-and-Seasonality Corrected Exponential Smoothing
- Used when demand has level, trend, and seasonal components.
Forecast Error Measures
- Analyze error to assess forecasting accuracy.
- All contingency plans must consider forecast error.
Software Tools in Forecasting
- Crucial for large datasets and frequent forecasts.
- Enables forecasting by product and market.
- Real-time updates enable quick response to market changes.
- Automates demand planning.
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Description
Explore the critical role of forecasting in supply chain management. This quiz delves into the characteristics, components, and methods of demand forecasting, highlighting its impact on various operational decisions. Understand how different forecasting techniques can optimize planning in both push and pull systems.
