33:799:301 Lecture 4: Week 3 - 02_04_2019
Forecasting and Demand Planning
●Forecasting and Demand Planning
○The key building blocks from which all supply chain activities are
derived
■First step is forecasting which uses data analysis and
judgement
■Second step is demand planning where forecast is reviewed
to ensure it aligns with company strategy
●Key Terms
○Forecast is an estimate of future demand
○Forecasting estimates future demand for products so they can be
purchased or made in appropriate quantities
○Demand is the need for a particular product or component
○Demand Planning is process of combining statistical forecasting
techniques and judgement to construct demand estimates
○Independent Demand is demand for item that is unrelated to other
items, this is forecasted
○Dependent Demand is directly related to other items, this is
calculated
●Forecasting
○Forecast will be inaccurate, but still very useful
○Basis for most “downstream” supply chain planning decisions,
critical to be as accurate as possible
■Good forecasting can benefit a company by facilitating more
effective planning which can lead to reduced inventories,
reduced costs, reduced stockouts, and improved customer
service
■Bad forecasting can be root cause for opposite effects of
good forecasting; garbage in = garbage out; everything
based on bad forecast will be bad
○The farther into the future you forecast, the greater the deviation
will be - Doppler Effect
○Likely to be wrong, must try to be consistently accurate
○Goal of forecasting and demand planning is to minimize forecast
error
○The factors that influence demand must also be considered when
forecasting:
■Market changes
■Seasonality
Document Summary
The key building blocks from which all supply chain activities are derived. First step is forecasting which uses data analysis and judgement. Second step is demand planning where forecast is reviewed to ensure it aligns with company strategy. Forecast is an estimate of future demand. Forecasting estimates future demand for products so they can be purchased or made in appropriate quantities. Demand is the need for a particular product or component. Demand planning is process of combining statistical forecasting techniques and judgement to construct demand estimates. Independent demand is demand for item that is unrelated to other items, this is forecasted. Dependent demand is directly related to other items, this is calculated. Forecast will be inaccurate, but still very useful. Basis for most downstream supply chain planning decisions, critical to be as accurate as possible. Good forecasting can benefit a company by facilitating more effective planning which can lead to reduced inventories, reduced costs, reduced stockouts, and improved customer service.