Forecasting and Demand Planning
Integrated Planning – Module 2
1
Agenda
• Forecasting, • Factors influencing Demand • Basic Demand Patterns • Basic Principles of Forecasting • Principles of Data Collection • Basic Forecasting Techniques, Seasonality • Sources & Types of Forecasting Errors
Forecasting can be conducted at various levels
Strategic Required for • Product life cycle • Long-term capacity planning • Capital asset/equipment/ human resource management Examples • Product line transitions • Annual volume out 3-5 years • Buy/build/lease decisions
Financial
• Budgeting • Financial reporting • Working capital management • Production scheduling • Purchasing • Resource planning • Customer service management (product allocations)
• Total annual/monthly volume • Projected product mix
Operational
• Weekly/monthly SKUlevel demand • Order size and frequency
3
Role of Forecasting in Supply Chain,
• Basis for Strategic & Planning Decisions in SCM • Decisions needing Forecast as Base • Production
- Scheduling -Inventory Control -- Aggregate Planning - Purchasing
• Marketing
-Allocation of Sales-Force -- Promotion Activities -- New Product Launching
• Finance
-Plant & Equipment Investment -- Budgetary Planning
• HR
-Workforce Planning -- Recruitment - Lay-Offs
3
Forecasting Impact
Demand management
Sales history/ orders Forecasting Demand planning Sales and operations planning
Directly impacted by demand management
Production management Aggregate planning
Distribution management Inventory management Master production scheduling (MPS) BOM inventory routing
Materials requirement planning (MRP)
Distribution/transport network Shop floor scheduling and control
Capacity requirements planning (CRP)
Purchasing
Production
5
Higher forecast accuracy improves service levels at lower inventory
Percent
100 99 98 97 96 95
0 94 Monthly average forecast error Excellent Far Poor 20% 40% 50% 3 1 2 Reducing forecast error will permit
1
Agenda
• Forecasting, • Factors influencing Demand • Basic Demand Patterns • Basic Principles of Forecasting • Principles of Data Collection • Basic Forecasting Techniques, Seasonality • Sources & Types of Forecasting Errors
Forecasting can be conducted at various levels
Strategic Required for • Product life cycle • Long-term capacity planning • Capital asset/equipment/ human resource management Examples • Product line transitions • Annual volume out 3-5 years • Buy/build/lease decisions
Financial
• Budgeting • Financial reporting • Working capital management • Production scheduling • Purchasing • Resource planning • Customer service management (product allocations)
• Total annual/monthly volume • Projected product mix
Operational
• Weekly/monthly SKUlevel demand • Order size and frequency
3
Role of Forecasting in Supply Chain,
• Basis for Strategic & Planning Decisions in SCM • Decisions needing Forecast as Base • Production
- Scheduling -Inventory Control -- Aggregate Planning - Purchasing
• Marketing
-Allocation of Sales-Force -- Promotion Activities -- New Product Launching
• Finance
-Plant & Equipment Investment -- Budgetary Planning
• HR
-Workforce Planning -- Recruitment - Lay-Offs
3
Forecasting Impact
Demand management
Sales history/ orders Forecasting Demand planning Sales and operations planning
Directly impacted by demand management
Production management Aggregate planning
Distribution management Inventory management Master production scheduling (MPS) BOM inventory routing
Materials requirement planning (MRP)
Distribution/transport network Shop floor scheduling and control
Capacity requirements planning (CRP)
Purchasing
Production
5
Higher forecast accuracy improves service levels at lower inventory
Percent
100 99 98 97 96 95
0 94 Monthly average forecast error Excellent Far Poor 20% 40% 50% 3 1 2 Reducing forecast error will permit