UNIVERSITY OF TRANSPORT HOCHIMINH CITY
CHAPTER 2:
SUPPLY CHAIN OPERATIONS: PLANNING AND
SOURCING
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CHAPTER 2
2.1. SUPPLY CHAIN OPERATIONS: PLANNING AND SOURCING
2.2. PLANNING
2.3. SOURCING
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CHAPTER 2 OBJECTIVES
After completing this chapter, students should achieve the following objectives:
✓ Presents an overview of planning and sourcing activities
✓ Using combine different methods to Demand Forecasting
✓ Analyzing Supply Chain Planning Activities
✓ Practicing Supply Chain Planning
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2.1 INTRODUCTION
PLANNING
• Demand Forecasting
• Product Pricing
• Inventory
Management
DISTRIBUTION SOURCING
• Order • Purchasing
Management • Payment
• Schedule Delivery
• Return Process
MANUFACTURING
• Product Design
• Production Process
• Facilities
Management
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2.2 PLANNING
- This is the process of planning a product from raw materials until it reaches the consumer.
- Includes:
+ Demand Forecasting
+ Supply Planning
+ Demand Planning
+ Manufacturing Planning
+ S&OP Planning
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2.2.1 Demand forecasting activities
- Demand forecasting is the basis for supply chain planning
- The accuracy of forecasts allows the supply chain to respond more quickly and efficiently
to customer needs
- Before selecting an appropriate forecasting method, businesses need to consider the
following issues:
• Past Demand
• Product Replenishment Timing
• Marketing or Advertising Plans
• Price Reduction Plans
• State of the Economy
• Competitor Activities
2. 3. 4.
1. Short-term forecasts are often Aggregate forecasts are often The farther from the customer,
Forecasts are always more accurate than long-term more accurate than individual the more distorted the
inaccurate forecasts. forecasts. information about their needs
becomes.
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Levels of demand forecasting
• Time: years
• Application: capacity forecasting, investment
Strategic
Forecast strategies, …
• Time: week, month, quarter
• Application: Sales planning, short-term budgeting,
Tactical
Forecast inventory planning, etc.
• Time: hours, days
• Application: decisions about production,
Operational transportation, replenishment of goods in the
Forecast warehouse
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Demand Forecasting Methods
Name Main content Advantages Disadvantages
- Effective with little historical data
Get opinions from experts, sales - Opinions may be subjective
Qualitative - Analyze diverse opinions
team, customers, etc. as a basis or limited to the participant's
- Suitable for new
for making forecasts. industries/products
level of understanding.
- Suitable with demand data
Based on historical customer does not vary greatly over - Not suitable for
Time series Analysis forecasting demand for
demand data to make forecasts. time
- Simple, easy to implement new products
Based on the correlation - Effective when the - Difficulty in finding factors
Causal between demand and external correlation is clear and stable that correlate with
factors to make forecasts demand
Combining causal and time series
methods to simulate consumer - High precision - High implementation
Simulation
behavior under different
costs
hypothetical scenarios
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Demand Forecasting Methods
Name Main content Advantages Disadvantages
- Effective with little historical data
Get opinions from experts, sales - Opinions may be subjective
Qualitative - Analyze diverse opinions
team, customers, etc. as a basis or limited to the participant's
- Suitable for new
for making forecasts. industries/products
level of understanding.
- Suitable with demand data
Based on historical customer does not vary greatly over - Not suitable for
Time series Analysis forecasting demand for
demand data to make forecasts. time
- Simple, easy to implement new products
Based on the correlation - Effective when the - Difficulty in finding factors
Causal between demand and external correlation is clear and stable that correlate with
factors to make forecasts demand
Combining causal and time series
methods to simulate consumer - High precision - High implementation
Simulation
behavior under different
costs
hypothetical scenarios
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Time series Analysis Methos
- Time series analysis is a widely used forecasting technique for forecasting demand for activities
with historical data.
- Common time series analysis methods include:
+ Naive method
+ Moving average method
+ Exponential smoothing method
+ Holt model method
+ Winter model method
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Components of a time series
(b) Trend (c) Seasonality
(a) Level
- Data fluctuates around a
value (average) - Data moves in a certain - Data increases and
- This is a fixed value if the data direction decreases in a repeating
does not contain the cycle over a period of
remaining factors time.
(d) Random factor (𝜺)
- Unable to determine displacement direction
- Predict size and variation to estimate error
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Steps to perform time series forecasting
Step 1: Data Analysis
From the recorded demand data, draw a demand-time correlation chart to find out the demand
characteristics based on the system components of the time series.
Step 2: Make the forecast
Make forecast for period t+1 with available data at period t using the following formula:
Ft+1 = Lt + lTt ∗ St
Step 3: Estimate the forecast deviation
Record the actual demand level in period t+1 (Dt+1 ) and compare it with the forecast level of
period t+1 (Ft+1 ) to determine the forecast deviation Et+1 , formula as below:
Et+1 = Ft+1 − Dt+1
Step 4: Calibration
Adjust the data and components of the time series in period t+1 after determining the forecast
deviation in period t+1. The adjusted data in period t+1 are used as the basis for making the
forecast for period t+2.
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Moving Average Model
- Used with the observed data has no trend or seasonal factors
- The forecast value is determined as the moving average of the observed data with a
predetermined number of calculation periods.
Formula:
Dt + Dt−1 + ⋯ + Dt−n+1
Ft+1 = Lt =
n
𝐹𝑡+1 : forecast for period t+1
Lt : demand level in period t
𝐷𝑡−i : 𝑜𝑏𝑠𝑒𝑟𝑣𝑒𝑑 𝑑𝑒𝑚𝑎𝑛𝑑 𝑙𝑒𝑣𝑒𝑙 𝑖𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 t-i
n: number of observation periods
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Example
A milk tea shop reported weekly sales in August 2021 of 3Q oolong milk tea as follows:
Month Week Period (t) Demand (cup)
1 1 150
2 2 250
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3 3 173
4 4 155
a, Use the moving average model with n = 4 to calculate the forecast demand for milk tea for the
first week of September.
b, If the sales in week 1 of September are 170 cups, what is the forecast deviation?
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Exercise 1
Weekly air conditioner sales in July and August 2022 of an electronics center are shown in the table
below:
Month Week Period (t) Demand (Unit)
7 4 1 98
1 2 143
2 3 115
8
3 4 125
4 5 100
a, Use the moving average model with n = 3 to calculate the forecast demand for air conditioners in the first
week of September.
b, If the number of air conditioners sold in the first week of September is 100 units, what is the forecast
deviation?
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Simple exponential smoothing model
- Used:
- The impact of data on customer demand increases over time → newer data has a higher value share
- Time series data has no trend or seasonality
- Leveling factor 𝛼 (0< 𝛼< 1) is used to represent the value of new data compared to old data
Formula:
Ft+1 = 𝛼. Dt + 1 − 𝛼 . Ft
Trong đó:
𝐹𝑡+1 : Forecast period t+1
𝐷𝑡 : Actual level observed in the period t
F𝑡 : Forecast period t
𝛼: Smoothing coefficient satisfies the condition 0< 𝛼< 1
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Example
A milk tea shop reported weekly sales in August 2021 of 3Q oolong milk tea as follows:
Month Week Demand (cup)
1 150
2 250
8
3 173
4 155
Using a simple exponential smoothing model with 𝛼 = 0.1 to forecast the demand of milk tea
for the first week of September. Knowing F1=182
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Exercise 2
Weekly air conditioner sales in July and August 2022 of an electronics center are shown in the table
below:
Demand
Month Week Period (t)
Forecast (unit)
7 4 1 98
1 2 143
2 3 115
8
3 4 125
4 5 100
a, Use a simple exponential smoothing model with 𝛼 = 0.2 to calculate the forecast of air conditioner
demand in the first week of September.
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Holt Model
- Using the trend-adjusted exponential smoothing method
- Applicable when demand is trending but not seasonal
+ The trend and demand level estimates at period 0 are calculated using linear regression
(Dt=at+b), in which the demand level L0=b, trend factor T0 = a
+ Trend estimation in period t: Tt = 𝛽 ∗ Lt − Lt−1 + 1 − 𝛽 ∗ Tt−1
+ Estimated demand level in period t: Lt = 𝛼 ∗ Dt + 1 − 𝛼 ∗ (Lt−1 + Tt−1 )
+ The demand forecast for period t+1:
Ft+1 = Lt + Tt
𝐹𝑡+1 : Forecast of the period t+1
𝐷𝑡 : Actual demand level in the period t
L𝑡 : Stable demand level in the period t
T𝑡 : Trend level of the period t
𝛼: Smoothing coefficientsatisfies the condition 0< 𝛼< 1
𝛽: Smoothing coefficient tends to satisfy the condition 0<𝛽< 1
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Example
A milk tea shop reported weekly sales in August 2021 of 3Q oolong milk tea as follows:
Month Week Demand (cup)
1 150
2 170
8
3 200
4 250
Use Holt model with 𝛼 = 0.1, 𝛽=0.2 to forecast demand for bubble tea for the first week of
September
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Exercise 3
Weekly air conditioner sales in July and August 2022 of an electronics center are shown in the table
below:
Month Week Period (t) Demand (unit)
7 4 1 98
1 2 143
2 3 140
8
3 4 150
4 5 160
a, Use the Holt model with 𝛼 = 0.1, 𝛽 = 0.2 to calculate the forecast of air conditioner demand in the first
week of September.
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Winter Model
- Used with demand is both trending and seasonal
+ Estimate the stability of demand in the period t+1: Lt+1 = 𝛼 ∗ (Dt+1 ΤSt+1 + 1 − 𝛼 ∗ (Lt + Tt )
+ Estimate the trend of demand in the period t+1: Tt+1 = 𝛽 ∗ Lt+1 − Lt + 1 − 𝛽 ∗ Tt
+ Estimated seasonality of demand in the period t+1: St+p+1 = 𝛾 ∗ Dt+1 /Lt+1 + 1 − 𝛾 ∗ St+1
+ Demand forecast for period t+1 is:
Ft+1 = (Lt +Tt ) ∗ St+1
𝐹𝑡+1 : Level forecast in period t+1
𝐷𝑡 : Actual demand level in the period t
L𝑡 : Stable demand level in the period t
T𝑡 : Trend level of the period t
𝛼: Smoothing coefficient (0< 𝛼< 1)
𝛽: Trend smoothing coefficient (0<𝛽< 1)
𝛾: Seasonal smoothing coefficient (0 < 𝛾<1)
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Choosing the right forecasting model
Method 1: Based on the characteristics of the needs
Forecasting method Applicable cases
Moving average Demand is not seasonal or trend-driven.
Simple exponential smoothing Demand is not seasonal or trend-driven.
Holt Model Demand is trending but not seasonal.
Winter Model Demand is both trend and seasonality.
Method 2: Based on comparing the deviation of forecasting methods
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Measuring forecast deviation (Et = Ft − Dt )
Why do we need measure forecast deviation?
+ Determine the accuracy of the forecasting method and adjust the method when necessary
+ Basis for contingency plans
Measurement index Formula Application
Mean square deviation σnt=1 Et2 Measurement when deviation
MSEn =
- MSE n are symmetrically distributed
σnt=1 At
MADn = Measuring deviation when
Mean absolute deviation - MAD n error has asymmetric
distribution
(𝐴𝑡 = 𝐸𝑡 )
Et Measure forecast deviation
σnt=1 100
Dt effectively when forecasts are
Average absolute percent error - MAPE MAPEn =
n seasonal and demand varies
significantly across periods
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Exercise 4
Weekly air conditioner sales in July and August 2022 of an electronics center are shown in the table below:
Month Week Period Demand Forecast
7 4 1 98 112
1 2 143 123
2 3 140 139
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3 4 150 152
4 5 160 165
Calculate MSE, MAD and MAPE in above case.
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Exercise 5
Weekly demand at Hot Pizza is shown in the Questions:
table below:
a. Forecast demand for the next 4 weeks using a moving
Month Demand ($) average model with n=4 and a simple exponential
smoothing model with smoothing factor 𝛼 = 0.1
1 110
2 118 b. b. Calculate MAD, MAPE, MSE in any single case.
3 119 c. In your opinion, which of the two forecasting models above
4 134 gives more accurate results in this case? Why?
5 92
6 115
7 90
8 106
9 118
10 106
11 95
12 93
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Exercise 6
Monthly demand for flat panel TVs at A&D Questions:
Electronics is shown in the table below:
a. Forecast the demand for the next 2 weeks using the simple
exponential smoothing model with coefficient 𝛼 = 0.3 and
Month Demand (Unit) the Holt model with coefficient 𝛼 = 0.05 and coefficient 𝛽 =
1 1,000 0.1
2 1,113
b. Note:
3 1,271
• With the simple exponential smoothing model, the
4 1,445
demand level at time t0 (L0): 1,659 unit (average demand
5 1,558 for 12 months)
6 1,648
• With the Holt model, the demand level at time t=0 (L0):
7 1,724
948 unit and the trend factor of demand at the time t=0
8 1,850 (T0): 109 unit.
9 1,864
b. Calculate MAD, MAPE, MSE in any single case.
10 2,076
11 2,167
c. In your opinion, which of the two forecasting models above
gives more accurate results in this case? Why?
12 2,191
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