TME351: Spare Parts and Storage

Management
Part II: Spare Parts Demand Forecasting
(Lecture 6 – 15th October, 2018)
Dr. Sameer Al-Dahidi
Assistant Professor, Exchange Coordinator
Mechanical and Maintenance Engineering Department
German Jordanian University

Dr. Sameer Al-Dahidi

 Context of the Course

Maintenance in brief

Part I
Spare Parts

Spare Parts
Maintenance &
Classifications of Spare Parts

Dr. Sameer Al-Dahidi

SPs Demand Patterns

Forecasting Key Decisions

Forecasting Techniques
Part II

Forecasting

Forecast Error and TS

Spare Parts Demand

Forecasting as a Process

Inventory and Supply Chains

TME351

Inventory Costs

Exercises Sessions
Economic Order Quantity
Part III

Types of Inventory/Measures
TME351 Course Tree Plan

Inventory Control Systems

Managing Inventories

Special Inventory Models

Part IV
Spare Parts
Management
 Part II: Spare Parts Demand Forecasting

• Spare Parts Demand Patterns

• Forecasting Key Decisions

• Forecasting Techniques

• Forecast Error

• Tracking Signals

• Forecasting as a process

Dr. Sameer Al-Dahidi

 Linear Regression
Example

• The supply chain manager seeks a better way to forecast the demand for door hinges
and believes that the demand is related to advertising expenditures. The following are
sales and advertising data for the past 5 months:

Month Sales (Thousands of units) Advertising (Thousands of dollars)

1 264 2.5
2 116 1.3
3 165 1.4
4 101 1.0
5 209 2.0

 The company will spend 1,750 dollars next month on advertising for the product. Use
linear regression to develop an equation and a forecast for this product.

Dr. Sameer Al-Dahidi

 Linear Regression
Solution

300 —

250 —
Sales Advertising
Month (000 units) (000 $)
Sales) units)

200 — a = – 8.136
1 264 2.5 b = 109.229
2—
150 116 1.3
3 165 1.4
4—
100 101 1.0
5 209 2.0
50 | | | |
1.0 1.5 2.0 2.5
Advertising

Dr. Sameer Al-Dahidi

 Linear Regression
Solution

300 —

250 —
Sales Advertising
Month (000 units) (000 $)
Sales) units)

200 — a = – 8.136
1 264 2.5 b = 109.229
2—
150 116 1.3
3 165 1.4
4—
100 101 1.0
5 Y = – 8.136 + 109.229X
209 2.0
50 | | | |
1.0 1.5 2.0 2.5
Advertising

Dr. Sameer Al-Dahidi

 Linear Regression
Solution

300 —

250 —
Sales Advertising
Month (000 units) (000 $)
Sales) units)

200 — a = – 8.136
1 264 2.5 b = 109.229
2—
150 116 1.3
3 165 1.4
4 101 1.0
100 —
5 Y = – 8.136 + 109.229X
209 2.0
50 | | | |
1.0 1.5 2.0 2.5
Advertising

Dr. Sameer Al-Dahidi

 Linear Regression
Solution

300 —

250 —
Sales Advertising
Month (000 units) (000 $)
Sales) units)

200 — a = – 8.136
1 264 2.5 b = 109.229
2—
150 116 1.3
3 165 1.4
4—
100 101 1.0
5 Y = – 8.136 + 109.229X
209 2.0
50 | | | |
Forecast
1.0 for
1.5Month 2.0
6 2.5
Advertising = – 8.136 +of109.229(1.75)
X = 1.75, Y(thousands dollars)

Dr. Sameer Al-Dahidi

 Linear Regression
Solution

300 —

250 —
Sales Advertising
Month (000 units) (000 $)
Sales) units)

200 — a = – 8.136
1 264 2.5 b = 109.229
2—
150 116 1.3
3 165 1.4
4—
100 101 1.0
5 Y = – 8.136 + 109.229X
209 2.0
50 | | | |
Forecast
1.0 for
1.5Month 2.0
6 2.5
Advertising
X = 1.75, (thousands of dollars)
Y = 183 units

Dr. Sameer Al-Dahidi

 Linear Regression
Suggested Problems

• Demand for a spare part required in a factory has been as follows:

Month Number of Spare Parts (Demand)
January 41
February 46
March 57
April 52
May 59
June 51
July 60
August 62

1. Use the linear regression analysis to develop a forecasting model for estimating
monthly demand.
2. Once the forecasting model has been developed, use it to forecast the demand for
September, October, and November.
Dr. Sameer Al-Dahidi
 Quantitative Forecasting Techniques
2.2) Time-series Analysis methods

• A statistical approach that relies heavily on historical demand data to project the future
size of demand and recognizes trends and seasonal patterns.

• Rather than using independent variables for the forecast as regression models do, time-
series methods use historical information regarding only the dependent variable.

• These methods are based on the assumption that the dependent variable’s past pattern
will continue in the future.

• Time-series analysis identifies the underlying patterns of demand that combine to

produce an observed historical pattern of the dependent variable and then develops a
model to replicate it.

Dr. Sameer Al-Dahidi

 Quantitative Forecasting Techniques
2.2) Time-series Analysis methods

• In this part, we focus on time-series methods that address the horizontal, trend, and
seasonal patterns of demand.

• There are different time-series techniques:

 Simple moving average method
 Weighted moving average method
 Exponential smoothing method

• Before we discuss these techniques, let us look at the simplest time-series method for
addressing all patterns of demand, the so called Naïve forecast method.

Dr. Sameer Al-Dahidi

 2.2) Time-series Analysis methods
Naïve method

1. A method often used in practice, whereby the forecast for the next period (𝐹𝑡+𝑖 ) equals
the demand for the current period (𝐷𝑡 ). So if the actual demand for Wednesday is 35
customers, the forecasted demand for Thursday is 35 customers.

𝐹𝑡+1 = 𝐷𝑡
…
𝐹𝑡+𝑛 = 𝐷𝑡

𝐹𝑡+𝑖 = 𝐷𝑡 , 𝑖 = 1, … , 𝑛

Dr. Sameer Al-Dahidi

 2.2) Time-series Analysis methods
Naïve method

1. A method often used in practice, whereby the forecast for the next period (𝐹𝑡+𝑖 ) equals
the demand for the current period (𝐷𝑡 ). So if the actual demand for Wednesday is 35
customers, the forecasted demand for Thursday is 35 customers.
2. The naïve forecast method may be adapted to take into account a demand trend.
• The increase (or decrease) in demand observed between the last two periods is
used to adjust the current demand to arrive at a forecast.
• Suppose that the last week the demand was 120 units and the week before it was
108 units. Demand increased 12 units in 1 week, so the forecast for next week
would be 120+12=132 units.

𝐹𝑡+1 = 𝐷𝑡 + 𝑇𝑡
𝑇𝑡 = 𝐷𝑡 − 𝐷𝑡−1

𝐹𝑡+𝑛 = 𝐷𝑡 + 𝑛 ∗ 𝑇𝑡

Dr. Sameer Al-Dahidi

 2.2) Time-series Analysis methods
Naïve method

1. A method often used in practice, whereby the forecast for the next period (𝐹𝑡+𝑖 ) equals
the demand for the current period (𝐷𝑡 ). So if the actual demand for Wednesday is 35
customers, the forecasted demand for Thursday is 35 customers.
2. The naïve forecast method may be adapted to take into account a demand trend.
• The increase (or decrease) in demand observed between the last two periods is
used to adjust the current demand to arrive at a forecast.
• Suppose that the last week the demand was 120 units and the week before it was
108 units. Demand increased 12 units in 1 week, so the forecast for next week
would be 120+12=132 units.
3. The naïve forecast method also may be used to account for seasonal patterns. If the
demand last July was 50,000 units, and assuming no underlying trend from one year to
the next, the forecast for this July would be 50,000 units.
𝐹𝐽𝑢𝑙𝑦,𝑌𝑒𝑎𝑟2 = 𝐷𝐽𝑢𝑙𝑦,𝑌𝑒𝑎𝑟1
And also seasonality with trend
𝐹𝐽𝑢𝑙𝑦,𝑌𝑒𝑎𝑟2 = 𝐷𝐽𝑢𝑙𝑦,𝑌𝑒𝑎𝑟1 + 𝑇𝐽𝑢𝑙𝑦

Dr. Sameer Al-Dahidi

 2.2) Time-series Analysis methods
Naïve method

1. A method often used in practice, whereby the forecast for the next period (𝐹𝑡+𝑖 ) equals
the demand for the current period (𝐷𝑡 ). So if the actual demand for Wednesday is 35
customers, the forecasted demand for Thursday is 35 customers.
2. The naïve forecast method may be adapted to take into account a demand trend.
• The increase (or decrease) in demand observed between the last two periods is
used to adjust the current demand to arrive at a forecast.
• Suppose that the last week the demand was 120 units and the week before it was
108 units. Demand increased 12 units in 1 week, so the forecast for next week
would be 120+12=132 units.
3. The naïve forecast method also may be used to account for seasonal patterns. If the
demand last July was 50,000 units, and assuming no underlying trend from one year to
the next, the forecast for this July would be 50,000 units.
4. The method works best when the horizontal, trend, or seasonal patterns are stable and
random variation is small.
5. Naïve forecast is used only for comparison with the forecasts generated by the
better (sophisticated) techniques.

Dr. Sameer Al-Dahidi

 References

[1] NPTEL, Operations and Supply Chain Management by Prof. G. Srinivasan,

Department of Management Studies, IIT Madras.

[2] Spare Parts and Storage Management, Winter 2017/2018, Eng. Dina, German
Jordanian University.

[3] Search in www.google.com

[4] Text Book – Part 3 (Designing and Managing Supply Chains), Chapter 14
(Forecasting Demand).

Dr. Sameer Al-Dahidi

 Thank You
Dr. Sameer Al-Dahidi
Assistant Professor, Exchange Coordinator
Mechanical and Maintenance Engineering Department
GJU
sameer.aldahidi@gju.edu.jo

18
Dr. Sameer Al-Dahidi