INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

FORCASTING
MIDTERMS- LECTURE NOTES

BY: R E N Z PAT R I C K M . S A N T O S , L C B . , M C A.
OBJECTIVE:
 To discuss the diferent types of Demand
Forecastng and its importance in
Manufacturing Process.
Course Content:
PART 1: MANUFACTURING METHODOLOGIES
PUSH V. PULL
JUST-IN-TIME

PART 2: DEMAND FORECASTING METHODS

JUDGEMENT METHODS
TIME-SERIES ANALYSIS
MARKET RESEARCH ANALYSIS
CAUSAL ANALYSIS
Manufacturing
PUSH VS. PULL
MTO (Make to Order)
is a manufacturing process in which manufacturing starts only afer a customer's order is
received.
Forms of MTO vary, for example, an assembly process starts when demand actually occurs or
manufacturing starts with development planning.
Manufacturing afer receiving customer's orders means to start a pull-type supply chain
operaton because manufacturing is performed when demand is confrmed, i.e. being pulled by
demand.

PULL TYPE PRODUCTION

MTS (Make to Stock)
The model is to manufacture products for stock

PUSH Type Producton

 PUSH
• Classical manufacturing supply chain strategy

• Manufacturing forecasts are long-range

◦ • Orders from retailers’ warehouses

• Longer response tme to react to marketplace changes

◦ • Unable to meet changing demand paterns
◦ • Supply chain inventory becomes obsolete as demand for certain products disappears

• Increased variability (Bullwhip efect) leading to:

◦ • Large inventory safety stocks
◦ • Larger and more variably sized producton batches
◦ • Unacceptable service levels
◦ • Inventory obsolescence

• Inefficient use of producton facilites (factories)

◦ • How is demand determined? Peak? Average?
◦ • How is transportaton capacity determined?

• Examples: Auto industry, large appliances, others?

PULL
• Producton and distributon are demand-driven
◦ •Coordinated with true customer demand

•None or litle inventory held

◦ •Only in response to specifc orders

•Fast informaton fow mechanisms

◦ •POS data

•Decreased lead tmes

•Decreased retailer inventory
•Decreased variability in the supply chain and especially at manufacturers
•Decreased manufacturer inventory
•More efficient use of resources
•More difficult to take advantage of scale opportunites
•Examples: Dell, Amazon
PUSH vs. PULL Production
Hybrid PUSH-PULL
Overcome the disadvantage of each
Early stages of product assembly are done in a “push” manner
Partal assembly of product based on aggregate demand forecasts (which are more accurate than
individual product demand forecasts)
Uncertainty is reduced so safety stock inventory is lower

Final product assembly is done based on customer demand for specifc product confguratons
Supply chain tmeline determines “push-pull boundary”
Characteristics of Push, Pull and
Push/Pull Strategies
PUSH PULL
Objectve Minimize Cost Maximize Service Level

Complexity High Low

Focus Resource Allocaton Responsiveness

Lead Time Long Short

Processes Supply Chain Planning Order Fulfllment

Manufacturing
JUST-IN-TIME
JUST-IN-TIME
 Also known as just-in-tme producton or the Toyota
Producton System (TPS)
 Methodology aimed primarily at reducing tmes within
producton system as well as response tmes from suppliers
and to customers.
 Its origin and development was in Japan, largely in the
1960s and 1970s and partcularly at Toyota.
Alternatives to JIT
Motorola's choice was short-cycle manufacturing (SCM).
IBM's was contnuous-fow manufacturing (CFM) and demand-fow
manufacturing (DFM), a term handed down from consultant John Constanza
at his Insttute of Technology in Colorado
Toyota Producton System is ofen mistakenly referred to as the 'Kanban
System', and pointed out that kanban is but one element of TPS, as well as JIT
producton.
But the wide use of the term JIT manufacturing throughout the 1980s faded
fast in the 1990s, as the new term lean manufacturing became established
Producton Actvity KPI
Housekeeping physical organizaton and discipline
Make it right the frst tme eliminaton of defects
Setup reducton flexible changeover approaches
Lot sizes of one the ultmate lot size and flexibility
Uniform plant load leveling as a control mechanism
Balanced flow organizing flow scheduling throughput
Skill diversifcaton mult-functonal workers.
Producton Actvity KPI
Control by visibility communicaton media for actvity.
Preventve maintenance flawless running, no defects
Fitness for use producibility, design for process
Compact plant layout product-oriented design.
Streamlining movements smoothing materials handling.
Supplier networks extensions of the factory.
Worker involvement small group improvement actvites.
Cellular manufacturing producton methods for flow.
Pull system signal [kanban] replenishment/resupply
systems.
Forecasting
METHODS FOR IMPROVING FORECASTS
Forecasting
is the process of making predictons of the future
based on past and present data and most commonly
by analysis of trends.
Importance of
Forecasting
 Increasing Customer
Satisfaction
In order to keep your customers satsfed you need to provide them with the product, they want
when they want it.
This advantage of forecastng in business will help predict product demand.
So that enough product is available to fulfll customer orders with short lead tme and on-tme.
The importance of Demand Forecastng is much higher in Made-to-Stock (MTS) , Assemble-to-
Order (ATO) or JIT Supply Business.
Reducing Inventory Stockouts
The interestng thing is you need realize the Importance of Demand Forecastng even if you are
working in JIT System or with long lead tme suppliers like India or China.
If you are buying from long lead tme suppliers then you need to send a demand forecast so that
suppliers can arrange raw materials in antcipaton of actual customer orders.
In the case of JIT Systems, demand forecastng helps you to tme your purchases to correspond
to when sales need to be fulflled. The less tme inventory spends in the warehouse, the less
money you’re paying to let it just sit there waitng to be sold.
You can further refer to these 18 Targeted Inventory Reducton Strategies.
 Scheduling Production More
Efectively
Forecastng is ofen compared to driving a car whilst looking in the rear-view mirror. The past
gives a few clues about the future, but not enough to stop you from driving of a clif. But in my
opinion this is the best view you’ve got! If you look into the 5 Levels of Planning Hierarches most
business should need robust SIOP and Master Scheduling to schedule producton more
efectvely.
But I must emphasis the soluton is not complex analytcal sofware. The answer is this: Master
the present before trying to predict the future. There are signals everywhere that point to how
demand is changing. Adaptve manufacturers are watching and listening closely to the way
customers consume their product. Respond and adapt to these changes, and you will depend
less on predicton.
Lowering Safety Stock
Requirement
A good demand forecastng process will have a direct impact in the planning of inventory levels,
Link:
◦ Developing producton reeuests to manufacturing operatons
◦ Planning for new product launches
◦ Planning for promotonal actvity
◦ Planning for seasonal variatons in demand.

If a business is using forecastng to plan any of the above scenarios then you don’t need to carry
high safety stocks to manage those events.
Reducing Product Obsolescence
costs
By identfying, repurposing or removing obsolete inventory the volume of inventory on hand will
decrease. With this, both direct and indirect costs of keeping the obsolete inventory will be
reduced. This closely links to reduced order sizes as a smaller volume of the inventory will be in
stock and demand forecast accuracy. Having a standardized reliable way of forecastng demand
will mean that excess stock is not ordered and this will reduce the chance of obsolete stock.
Managing Shipping Better
Nothing annoys me more than doing everything you can to make or buy a product so that it’s
available to ship on-tme yet the warehouse guys won’t ship, as they don’t have enough people.
This drives me absolutely bonkers! For that reason the logistcs guys are now part of the SIOP
process and they have to tell me how many people they need in the following 3 months. To
ensure we have enough capacity to ship material on tme. This is one of the classic examples to
demonstrate the importance of demand forecastng.
Improving Pricing and Promotion
Management
In some businesses, multple promotons running concurrently may result in the cannibalizaton
of both promoted and non-promoted SKUs. Integratng distributor-level promotons and related
forecasts will allow you to improve the flow of goods. It also achieves beter results in terms of
availability and stock fll rates. Similarly, improving the ability to forecast the impact price
changes will have on both revenue and gross margin dollars, when tmed well!
Negotiating Superior Terms with
Suppliers
This blog explains 7 Tips for Negotatng the Best Deal With Your Suppliers, even though I don’t
agree with heading “Sell Yourself as Someone Who Will Give Them a Lot of Business”, I do agree
with the point that, “When negotatng with suppliers, make sure they know you are someone
who will give them repeat business, over the long term”. And “And if you’re just startng out,
provide them with a sales projectons plan that is based on logic and research”. By doing that
you are positoning yourself as a credible customer who wants to have a long-term relatonship
rather than one-of spot buy.
Plan Sales Strategies
If you can use demand forecastng to get a handle on either future revenue, plan producton
capacites or manage stockouts, you can also use the same informaton to help functons like
Product Management, Marketng and Product Design. This will enable them to make decisions
on promotons, pricing and purchasing. When working concurrently each will influences your
company’s results positvely.
FORCASTING
METHODS
 Methods in Forecasting
1. Judgment Methods
a) Internal experts
b) External experts
c) Domain experts
d) Delphi technique

2. Market Research Analysis

a) Market testng
b) Market surveys
c) Focus groups

3. Time-Series Methods
a) Moving average
b) Exponental smoothing
c) Trend analysis
d) Seasonality analysis

4. Causal Analysis
a) Relies on data other than
that being predicted
b) Economic data,
commodity data, etc.
Judgment Methods
Judgment Methods
Judgmental forecastng methods incorporate
intuitve judgment, opinions and subjectve
probability estmates.
Judgmental forecastng is used in cases where there
is lack of historical data or during completely new
and unieue market conditons.
Internal & External Experts
Expert Judgment is a term that refers a specifcally to a
technieue in which judgment is made based upon a specifc
set of criteria and/or expertse that has been aceuired in a
specifc knowledge area, or product area, a partcular
discipline, an industry, etc.
This knowledge base can be provided by a member of the
project team, or multple members of the project team, or by
a team leader or team leaders.
Internal Experts
External Experts
Domain Experts
A domain expert is a person with special knowledge or skills in a
partcular area of endeavor.
An accountant is an expert in the domain of accountancy,
For example: The development of accountng sofware reeuires
knowledge in two diferent domains, namely accountng and
sofware.
Delphi Method
Is a structured communicaton technieue or method,
originally developed as a systematc, interactve forecastng
method which relies on a panel of experts.
The technieue can also be adapted for use in face-to-face
meetngs, and is then called mini-Delphi or Estmate-Talk-
Estmate (ETE).
Delphi Method
Delphi is based on the principle that forecasts (or decisions)
from a structured group of individuals are more accurate than
those from unstructured groups.
The experts answer euestonnaires in two or more rounds.
Afer each round, a facilitator or change agent provides an
anonymous summary of the experts' forecasts from the previous
round as well as the reasons they provided for their judgments.
Delphi Method
Thus, experts are encouraged to
revise their earlier answers in light of
the replies of other members of their
panel.
It is believed that during this process
the range of the answers will decrease
and the group will converge towards
the "correct" answer.
Market Research
Analysis
Market Testing
The test marketng is the most reliable method of sales forecastng
wherein the product is launched in a few selected cites/town to
check the response of customers towards the product.
On the basis of such response, the frm decides whether to
commercialize the product on a large scale or not.
The test marketng is the most reliable method of sales forecastng
wherein the product is launched in a few selected cites/town to
check the response of customers towards the product.
Market Testing Benefts
It helps the frms to test and try the product beforehand.
Test marketng enables the frms to look at the pros and
cons of the product at the early stage and make decisions
on whether to contnue with the product or drop the
product idea very much before the commercializaton.
Market Survey Limitations
It is a tme-consuming process as it is reeuired to be
carried out for a long period of tme in order to obtain the
reasonable results.
Due to such a long tme gap, the compettors may
manipulate the test marketng process and make the results
unreliable.
There are chances of the wrong selecton of the
geographical areas that might not represent the true picture
of the whole market.
Market Survey Process
Market Surveys
Market Surveys
Is the survey research and analysis of the market for a partcular
product/service which includes the investgaton into customer
inclinatons.
A study of various customer capabilites such as investment
atributes and buying potental.
Are tools to directly collect feedback from the target audience to
understand their characteristcs, expectatons, and reeuirements.
 Purpose of Market Survey
1. Gain critcal customer feedback:
◦ The main purpose of the market survey is to ofer marketng and business managers a platorm to obtain critcal
informaton about their consumers so that existng customers can be retained and new ones can be got onboard.

2. Understand customer inclinaton towards purchasing products:

◦ Details such as whether the customers will spend a certain amount of money for their products/services, inclinaton levels
among customers about upcoming features or products, what are their thoughts about the compettor products etc.

3. Enhance existng products and services:

◦ A market survey can also be implemented with the purpose of improving existng products, analyze customer satsfacton
levels along with getng data about their percepton of the market and build a buyer persona using informaton from
existng clientele database.

4. Make well-informed business decisions:

◦ Data gathered using market surveys is instrumental in making major changes in the business which reduces the degree of
risks involved in taking important business decisions.
Market Survey Templates
Product Surveys
◦ New products/concept testng survey templates ofer euestons to
obtain insights about products and concepts. These survey
euestons are curated by market research experts and can help in
analyzing which kind of products or features will work in a market.
Market Survey Templates
Conference Feedback Surveys:
◦ Conference feedback survey templates provide euestons that can
be asked to partcipants of a conference. An organizaton
can organize beter conferences by implementng feedback
received from these surveys such as enhancing overall conference
management, improved IT infrastructure, beter content coverage
or other such factors.
Market Survey Templates
Focus Group Surveys:
◦ Focus group survey templates can be implemented during and
afer the recruitment of the focus group. Gaining insights from a
dedicated group of 8-10 people can be done easily with this
existent survey template.
Market Survey Templates
Hardware And Sofware Surveys
◦ Hardware and sofware survey templates ofer editable euestons about
sofware product evaluaton, hardware product evaluaton, pre-
installaton procedure, technical documentaton euality and other such
factors.
Market Survey Templates
Website Surveys
◦ Website survey templates are customizable as per applicaton and
consist of euestons pertaining to website customer feedback, visitor
profle informaton, online retail informaton etc.
Focus Group
A focus group is a market research method that brings together 6-
10 people in a room to provide feedback regarding a product,
service, concept, or marketng campaign.
A trained moderator leads a 30-90-minute discussion within the
group that is designed to gather helpful informaton.
The moderator arrives with a set list of 10-12 euestons that will be
shared with the group during their tme together that are designed
to elicit thoughtul responses from all the partcipants.
Focus Group
The moderator’s goal is to hear from everyone
and to encourage many diferent opinions and
ideas to be shared.
Focus group partcipants are recruited based on
their purchase history, demographics,
psychographics, or behavior and typically do not
know each other.
To ensure that the maximum number of
diferent ideas or reactons have been captured
from partcipants, companies typically hold
several focus groups, ofen in diferent cites; 3-4
is common.
Focus Group
To be continued…