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Demand Forecasting in Supply Chain Management

Presented By: Amith M. Chetan C.S Sanjay Bagriya Yogeshkumar Joshi

Supply Chain Management

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the provision of product and service packages required by the end customers in a supply chain. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.

Supply-Demand Nexus
To have an effective supply chain management framework; organizations must have a clear understanding of the supply - demand nexus and its implications for strategy and implementation. There is an interdependent relationship between supply and demand; organizations need to understand customer demand so that they can manage it, create future demand and, of course, meet the level of desired customer satisfaction. Demand defines the supply chain target, while supply side capabilities support, shape and sustain demand.

SCM Framework
Strategic: On the strategic level it is important to know how SCM can contribute to the enterprises basic value proposition to the customers. Structural: After the strategic issues are dealt with, the next level question(s) that should be asked are: Should the organization market directly or should it use distributors or other intermediaries to reach the customers?

Functional: This is the level where operational details are decided upon. Functional excellence requires that the optimal operating practices for transportation management, warehouse operations, and materials management (which includes forecasting, inventory management, production scheduling, and purchasing) are designed.

Factors determining SCM Structure

Geographical Cultural Government Legislation Time

Demand Forecasting
Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting

may be used in making pricing decisions, in

assessing future capacity requirements, or in making decisions on whether to enter a new market.

demand forecasting is done through the following steps:

Determine the use of the forecast Select the items to be forecast Determine the time horizon of the forecast Select the forecasting model(s) Gather the data Make the forecast Validate and implement results

Objectives of Demand Forecasting

Helping for continuous production Regular supply of commodities Formulation of price policy Arrangement of finance Labour requirement

Factors Involved In demand Forecasting

Time period Levels of forecasting-- International level-Macro level-- Industry level-- Firm level Purpose - General or Specific Methods Of Forecasting Nature Of Commodity Nature Of Competition

Need for Demand Forecasting

Demand forecasting is essential for a firm because it must plan its output to meet the forecasted demand according to the quantities demanded and the time at which these are demanded. The forecasting demand helps a firm to arrange for the supplies of the necessary inputs without any wastage of materials and time and also helps a firm to diversify its output to stabilize its income overtime.

Challenges Faced in Demand Forecasting

Scale of forecast (how many goods to include in the forecast?) sporadic demand (erratic sales for many items in the store) introduction of new goods changing prices and promotions

Forecasting Methods
Qualitative Forecasting Method Jury of executive opinion Sales force composite Delphi method Consumer market survey Quantitative Forecasting Methods Nave Approach Moving Averages (MA) Exponential Smoothing Time Series Decomposition

Forecast Accuracy and Key Performance Indicators (KPIs)

Forecast accuracy can be calculated using a formula called MAPE Mean Absolute Percent Error. The equation is as follows: Error % = |Actual Forecast|/Actual Forecast accuracy is a metric that is inversely related to MAPE (as MAPE increases, FA decreases). The equation for forecast accuracy is: FA = 100 MAPE (expressed as a percentage)

SCM Disaster at Nike

In 1999, profits dropped by 50 percent Birth of NSC i2 forecasting technology By 2004, Nike had an integrated and efficient supply chain with i2 technologies forecasting system, SAPs ERP system, and Siebels CRM systems. Nike spent 6 years and $800 million on the project.

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