LESSON 2

SUPPLY CHAIN FORECASTING

TECHNIQUES

What are the forecasting techniques that work

best in every supply chain?
 MARKETER'S TAKE

Never forget this simple

truism: Forecasting is
marketing, plain and simple.
BARRY RITHOLTZ
WHAT IS SUPPLY
CHAIN
FORECASTING?

Supply chain forecasting refers to the

process of predicting demand, supply
or pricing for a product — or a range
of products — in a particular industry.
 END USER'S SIDE
The simplest way to look at
supply chain forecasting - also
IN OTHER known as demand forecasting -
WORDS! is that it's the act of knowing
when you will receive a product
from a supplier.

Cheese Please Pizza | Business Plan 2020

 MANUFACTURER'S SIDE
- is that it's the act of knowing
when you will receive the
IN OTHER deliveries of raw materials,
WORDS! especially if you can't commence
production until you have all the
parts at your disposal.

Cheese Please Pizza | Business Plan 2020

IN ADDITION, VARIOUS FACTORS
MIGHT INFLUENCE HOW YOU NEED
TO USE SUPPLY CHAIN
FORECASTING. THESE INCLUDE:

Product turnover and how this affects general

inventory management
Lead times
Seasonal fluctuations in sales
Warehousing processes and costs
Geopolitical and socioeconomic events
WHAT FACTORS CAN
MAKE SUPPLY CHAIN
FORECASTING
DIFFICULT?

40

CHALLENGES
30

1. Changing regulations
2. Product returns.
20
3. Trends
4. Seasonality
10
5. Lead times
6. Distributed data sets
0
Item 1 Item 2 Item 3 Item 4
5 REASONS WHY FORECASTING IS VITAL
IN SUPPLY CHAIN MANAGEMENT

1. It aids planning and decision making

2. It helps you deal with seasonality
3. It helps you predict consumer demand
4. Knowing lead times can improve customer
satisfaction
5. You improve your supplier relationships
WHAT ARE THE
DIFFERENT DEMAND
FORECASTING
TECHNIQUES?

WE CAN BREAK DOWN DEMAND

FORECASTING INTO TWO TYPES:

1. Quantitative forecasting
2. Qualitative forecasting
40

QUANTITATIVE
30

FORECASTING
20

using historical data to

produce future projections.
10

0
Item 1 Item 2 Item 3 Item 4
 Item 5 Item 1 Item 5 Item 1 Item 5 Item 1
20% 20% 20% 20% 20% 20%

Item 4 Item 2 Item 4 Item 2 Item 4 Item 2

20% 20% 20% 20% 20% 20%

Item 3 Item 3 Item 3

20% 20% 20%

EXPECTED PROFITS INCOME PROJECTION CASH FLOW

Graphs and charts are visual aids that Graphs and charts are visual aids that Graphs and charts are visual aids that
help add more context. help add more context. help add more context.

QUALITATIVE FORECASTING
WHICH BUSINESSES MAY USE FOR NEW PRODUCTS OR RANGES WHEN HISTORICAL DATA DOESN'T EXIST.


TO BE
CONTINUED

5 QUANTITATIVE
FORECASTING
METHODS
 5 QUANTITATIVE FORECASTING
METHODS

1. MOVING 2. EXPONENTIAL 3. ADAPTIVE 4. REGRESSION 5. LIFE CYCLE

AVERAGE SMOOTHING SMOOTHING ANALYSIS MODELLING

1. MOVING This is probably the simplest

AVERAGE statistical forecasting method you
could use. In essence, taking the
moving average means using
historical data to make sales
predictions for an upcoming period
of time.
2. EXPONENTIAL
SMOOTHING

Exponential smoothing is similar

to moving average forecasting
but puts greater weight on the
most recent data sets.
‍

3. ADAPTIVE
SMOOTHING

Adaptive smoothing provides a deeper

analysis of your sales trends, building on
exponential smoothing by considering
seasonality.

If you use adaptive smoothing in your

forecasting, you will likely be using
automation and machine learning to identify
patterns to ensure you can make intelligent
decisions all year round.
4. REGRESSION Regression analysis is a relatively
ANALYSIS simple statistical method for

forecasting, but one that you'll need
technology to perform for you.

This is because this method makes

assumptions through algorithms that
look at the relationship between
several variables.
5. LIFE CYCLE
MODELLING

You would use life cycle

modeling when projecting long-
term demand for a new
product.
5 QUALITATIVE
FORECASTING
METHODS

1. DELPHI METHOD

The Delphi method relies heavily on

expert insight and opinion and is widely
considered one of the most effective
long-term supply chain forecasting
approaches.
 2. HISTORICAL DATA
ANALYSIS

Expanding on the example we gave under life cycle modelling above;

it's historical data analysis that Apple uses to help inform its
projections for new iPhones and other products.
Market research is one of the most
tried and tested techniques you have
3. MARKET
at your fingertips. Initially, you might
RESEARCH
conduct market research to ascertain
whether there is consumer demand
for a new product at all.
 4. SALES FORCE
COMPOSITION

This method is essentially an internal consultation, using

stakeholders from various departments in your business to
give their own opinions and forecasts based on their
knowledge and potentially using some historical data, too.
5. FOCUS
GROUPS

An extension of market research, focus groups involve

bringing together up to a dozen people from your
target market to engage in an open-ended discussion.

The idea of running a focus group is to get a more in-

depth level of research and insight into the likely
demand for new products.


THANK
YOU!