CHAPTER 9

Planning demand and

supply in supply chain
COURSE COVERED
 Characteristic and role of forecasting
 Role of IT in forecasting

 Role of aggregate planning with problems in

supply chain
 Role of IT in aggregate Planning

 Inventory Planning with known and uncertain

demand
CHARACTERISTIC AND ROLE OF
FORECASTING

 Role of Forecasting in Supply Chain

 Demand forecasts form the basis of all supply chain
planning.
 All push processes in the supply chain are performed
in anticipation of customer demand, where as pull
process are performed in response to customer
demand.
 In both case, manage has to plan the level of activity
like production, inventory, transportation etc. the
only difference in push or pull is demand is known in
advance in pull but manage still has to forecast what
will customer demand be
CHARACTERISTIC AND ROLE OF
FORECASTING

 Characteristics of Forecasting in Supply Chain

 Forecasts are always inaccurate and should thus
include both the expected value of the forecast and a
measure of forecast error.
 Long term forecast are less accurate than short term
forecast; i.e. long-term forecast has larger standard
deviation.
 Aggregate forecasts are usually more accurate than
disaggregate forecasts, as they tend to have smaller
standard deviation of error relative to mean.
ROLE OF IT IN FORECASTING
 Huge amount of data are involved while forecasting.
 Needs IT System for getting the highest quality
results possible and often called demand planning
module.
 Commercial demand planning module come with a
variety of forecasting algorithm, which can be quite
advanced and sometimes proprietary.
 A good forecasting packages provide forecasts across a
wide rage of products that are updated in real time by
incorporating any new demand information.
 No system is full proof in forecasting and are virtually
inaccurate. A good IT system should help track
historical forecast errors so they can be incorporated
into improve decision making.
ROLE OF AGGREGATE PLANNING WITH
PROBLEMS IN SUPPLY CHAIN
 Role of Aggregate Planning
 Aggregate planning is a process by which a company determines ideal
levels of capacity, production, subcontracting, inventory, stock outs
and even pricing over a specified time horizon.
 The goal of aggregate planning is to satisfy demand while maximizing
profit.
 Aggregate planning solves problems involving aggregate decisions
rather than stock-keeping unit(SKU)-level decisions.
 Aggregate Planning Problem
 Aggregate planning is done for a specific time horizon may be for a
month, quarter, semi annual and annual (3- 18 months)
 Aggregate planning requires information like demand forecast,
production costs, labor/machine hours required per unit, inventory
holding cost, stock out cost and other constraints (OT, layoffs, capital
available etc.)
 Quality of an aggregate plan has significant impact on the
profitability of a firm,
 A poor aggregate plan can result in lost sales and lost profits if the
available inventory and capacity are unable to meet demand.
ROLE OF IT IN AGGREGATE
PLANNING
INVENTORY PLANNING WITH
KNOWN AND UNCERTAIN DEMAND