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?
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?
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?
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:
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Which forecasting method relies exclusively on historical demand data?
Which forecasting method relies exclusively on historical demand data?
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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?
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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?
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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?
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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?
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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?
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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?
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In adaptive forecasting, how are estimates of level, trend, and seasonality updated?
In adaptive forecasting, how are estimates of level, trend, and seasonality updated?
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When should a moving average method be used for forecasting?
When should a moving average method be used for forecasting?
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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?
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What does the forecast error represent?
What does the forecast error represent?
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Why is it important to analyze forecast errors?
Why is it important to analyze forecast errors?
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Which is a potential benefit of using software tools in forecasting?
Which is a potential benefit of using software tools in forecasting?
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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?
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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.
