Forecasting, Demand management and Managing Supply Chain Inventories

A Synthesis Paper
Presented to
Ms. Letecia Bañez
WESTERN LEYTE COLLEGE
A Bonifacio Street, Ormoc City

In partial fulfillment of the requirements in

IMPLEMENTATION I AND DISTRIBUTORSHIP STRUCTURE

Sayre, Allyza M.
 December 10 ,2023
CHAPTER 5. FORECASTING IN THE SUPPLY CHAIN ENVIRONMENT
As a small business owner as myself, I know how forecasting plays an important role in
business planning, significantly impacting supply chain operations by enhancing profitability,
efficiency, and customer service. Effective forecasting minimizes financial and material wastage,
optimizes inventory, and facilitates efficient resource allocation across labor, equipment, and
transportation. When one does not forecast or plan ahead in terms of inventory etc., the business
is prone to mismanaging assets such as finances and labor resulting in major mistakes leading to
not breaking even or shutting down operations entirely.

There exist three primary types of forecasting models: qualitative, quantitative, and
associative. Qualitative models incorporate human judgment and limited data, suitable for
scenarios with sparse historical data or when developing aggregate forecasts. Quantitative models
rely on statistical tools and stable historical patterns. Associative models focus on long-term
predictions by integrating qualitative and quantitative macro measures such as political or
technological changes.

Now personally what stood out to me out of this chapter was the computations on how to
forecast the demand for next year. I recommend researching and using excel for a faster process.
In this section, I will be summarizing and showing examples of the major quantitative forecasting
techniques. Mainly:

• Naïve or Simple Approach. in a naive forecasting approach, if a company wants to predict

sales for the next month, they might simply use the sales figure from the current month as
the forecast for the following month. This method assumes that sales patterns will remain
consistent without considering any other influencing factors or trends.

Ft + i =Xt

where Ft + i is the forecast for period t + i, t is the present period, i is the number of periods

ahead to be forecasted, and Xt is the latest actual value (for period t).
• Moving Average. Moving averages are commonly used to forecast future trends or
behavior based on past data. For instance, a 10-day moving average in stock market
analysis considers the average closing price of the last 10 days, helping traders identify
trends and potential price movements.

• Weighted Moving Average. Like other moving average methods, the Weighted Moving
Average is used to forecast future values based on historical data. It is applied in scenarios
where different weights are assigned to reflect the changing importance of data points over
time.

• Exponential smoothing. widely used in various business applications, including sales

forecasting, demand planning, inventory control, and financial analysis. Its flexibility in
adapting to changing trends and ability to provide relatively accurate short-term forecasts
make it a valuable tool for businesses aiming for more responsive and adaptable forecasting
models.

The process of creating a forecast involves several key steps. It commences with
defining the forecast's purpose and selecting appropriate methods and data sources.
Ensuring data accuracy and gaining consensus within the management team precedes the
execution of the forecast. Various methods, including simple averages, trend analysis, and
 regression, aid in making these forecasts. Continuous monitoring and adjustments are
crucial to maintaining forecast control.

CHAPTER 6. DEMAND MANAGEMENT

Demand management refers to the strategic processes and activities within a company that
focus on understanding, influencing, and effectively fulfilling customer demand for products or
services. It involves various techniques, strategies, and systems designed to forecast, shape, and
manage customer demand while aligning it with a company's capabilities and resources.

Key components of demand management include:

1. Demand Forecasting: Predicting future customer demand based on historical data, market
trends, and other relevant factors.
2. Demand Planning: Creating strategies and plans to meet anticipated demand by adjusting
production, inventory, and supply chain processes.
3. Demand Sensing: Detecting and responding to real-time changes in customer demand
within the supply chain.
4. Marketing and Sales Alignment: Coordinating marketing efforts and sales strategies to
influence and meet customer demand effectively.
5. Inventory Management: Optimizing inventory levels to meet demand without excess
stock or shortages, minimizing carrying costs.
6. Customer Relationship Management (CRM): Building and maintaining relationships
with customers to understand their preferences and anticipate future needs.

Planning needs a good balance between what customers want and what resources are
available. When these plans don't match up, it causes problems like wrong production, too much
inventory, and what customers want not being available. Sales and Operations Planning (S&OP)
helps fix this by having regular meetings where managers talk, fix differences, and agree on plans
until the next meeting.
 S&OP has a big meeting each month, but first, teams need to be formed, roles defined, and
plans made. Then, the meetings start.

The monthly process has a few steps:

7. Getting Data: Checking and updating important files about sales, production, and
inventory.
8. Planning for Demand: Looking at past results and forecasts to make a plan for what
customers will want.
9. Planning for Supply: Changing production plans based on what customers want, which
affects how much stuff we keep and make.
10. Meeting Before the Big Meeting: Teams check and adjust plans before the final meeting.
11. Big Meeting: Led by top bosses, they approve or change plans based on earlier discussions,
which affects how everyone works.
This process takes a few weeks and decides what everyone does next. It's helpful because
it matches plans with what the business wants, keeps plans updated, gets different teams working
together, and makes sure we can actually do what we plan to.

The primary goal of demand management is to ensure that a company produces and
delivers the right quantity and quality of products or services at the right time to meet customer
demand while optimizing resources, reducing costs, and enhancing customer satisfaction.
Effective demand management helps businesses adapt to market changes, improve operational
efficiency, and maintain a competitive edge in the marketplace.
 CHAPTER 7. MANAGING SUPPLY CHAIN INVENTORIES

Inventory management has changed a lot in how it's seen and used. It's not just about
ordering and delivering things quickly anymore. Now, it's a big part of being a leader in the market
and planning for success. It's about making sure there's enough stuff for everyone in the supply
chain and keeping customers happy.

To understand inventory better, it's important to know what it includes: raw materials, parts
used to make things, and finished goods. Inventory helps manage how much customers want and
what suppliers can deliver. Keeping inventory costs under control is important for running a
business well.

If inventory isn't managed properly, it can lead to higher costs and bad service for
customers. Companies can use different tools to improve inventory control. It's important to track
inventory as it moves through the supply chain to avoid losses or mistakes.

We’ve also learned the Five general functions of inventory which are

• Cycle Stock: Buying or making more than needed to save money. It's like buying in bulk
for a discount.
• Safety Stock: Keeping extra items in case things change suddenly. It's like having a backup
plan for unexpected changes in what people want or when supplies are late.
• Anticipation Inventory: Getting ready for expected changes. For example, buying winter
stuff in summer for better deals and being ready when winter comes.
• Transportation Inventory: Having extra goods while they're on the move. It's like making
sure there's enough while things are being shipped or moved around.
• Hedge Inventory: Buying lots when prices are low or when there might be problems later.
It's like getting ready for unexpected events or getting good deals when available.
 In this section I will be explaining a summary of Inventory valuation methods. These are
ways to determine the monetary value of inventory on hand, impacting financial statements and
taxes. Here are some common inventory valuation methods:

12. FIFO (First-In, First-Out): This method assumes that the first items purchased or
produced are the first ones sold. The cost of goods sold (COGS) is based on the oldest
inventory, leaving the newest inventory as the remaining balance.
13. LIFO (Last-In, First-Out): LIFO assumes the opposite—recently acquired or produced
items are the first ones sold. This method attributes the latest costs to COGS, leaving the
oldest costs for the remaining inventory.
14. Weighted Average Cost: This method calculates the average cost of all units available for
sale during the accounting period. The average cost per unit is used to value both COGS
and the remaining inventory.
15. Specific Identification: This approach directly identifies and values each item in inventory
separately. It's commonly used for unique or high-value items where the cost of each
individual unit is known.
16. Lower of Cost or Market (LCM): Inventory is valued at either its cost or its market value,
whichever is lower. If the market value drops below the original cost, the inventory is
written down to the lower value.
Each method has its pros and cons and can significantly impact a company's financial statements,
taxes, and profitability. The choice of method depends on factors like the nature of the business,
tax implications, and regulations.

The main goal of inventory is to have the right products available for customers when they
want them, while spending the least on inventory. This means balancing what customers want and
what the supply chain can provide. Customer service and inventory performance go hand in hand
and need to be thought about together.