UNIT – I

Demand Management in Supply Chain

Management, Demand Planning & Forecasting

COURSE NAME: SUPPLY CHAIN MANAGEMEMT

COURSE CODE : 18IBP13 PROGRAMME : I M. Com ( IB)
UNIT :I
HOUR :4
NAME OF THE FACULTY: Dr. T.
SHENBHAGAVADIVU
Department of Commerce CA, BA &
M.Com(IB)
TOPIC FOR TODAY’S SESSION
Demand Planning & Forecasting
Types of Demand
Forecasting
Characteristics of Forecasts

1
 Demand Planning and
Forecasting
Demand planning is an important process
in the segment of the supply chain
management.

Demand planning involves forecasting

and also other activities such as
promotions planning.
 Types of Demand
Demand can be two types:

• Independent demand

• Dependent demand
 Independent demand
The items under independent demand
are generally finished goods .

The demand items are forecasted

since the future requirement are
unknown.
 Dependent demand

The items of dependent demands are

generally components or
subassemblies.

The dependent demand item

requirements can be derived based on
demand for finished goods.
 Forecasting
As manufacturers, retailers and distribution
companies move towards integrating their supply
chains, they realise that an accurate representation of
future demand is necessary to reduce costs and
prevent customer dissatisfaction.

In order to achieve this level of understanding, many

companies have implemented sales and demand
forecasting applications to help them model future
demand for their resources and products.
Benefits of Accurate forecasts
Any business can benefit from accurate
forecasts to:
• Optimise the business for reducing the
costs of operations

• Increase sales opportunities for maximising

profits

• Provide accurate information for making

better decisions
 Forecasting effects
Poor data visibility

Skewing of
sales
Low forecast Long planning
accuracy cycle
High
inventory and
stockouts
Unreliable and
unresponsing production High delivery
and distribution cost

High Low attention

Poor response to
inventory and to smaller
market dynamic
stockouts brands
 Need for forecasting
• Prevention of unforeseen changes to production
schedules that can result in higher production costs.
• Accurate projections for correct quantities of raw
materials and finished products on hand in order to
better manage inventory levels, save shipping costs,
prevent transshipping of products between locations
and meet customer demand.
• Management of just – in – time inbound materials to
prevent the cost of expediting raw materials not ordered
on time and the cost of storing raw materials not
immediately required.
Cont...
 Cont...
• Complete production cycle planning for
scheduling and allocation of machinery,
logistics, shipping and warehousing to meet
dynamic market requirements.
• Integration within collaborative operational
planning.
• Accurate forecasts support the decision –
making process by providing baseline metrics
to support, track and measure the performance
of an initiative. Cont...
 Cont...
• With better demand forecast management, the costs
of storing raw materials and finished goods that are
not immediately required can be greatly reduced.
• To inventory management, out – of – stocks.
• Products can lead to lost sales and customer
dissatisfaction, and overstocking can lead to products
being sold at a loss / discount or becoming outdated.
• With solid demand forecasts, companies can be more
efficient at delivering products while reducing
overall operational costs.
 Characteristics of Forecasts
• Forecasts are always wrong – should include
both the expected values and the measures of
forecasting error.
• Long – term forecasts are usually less accurate
than short – term forecasts – long term forecasts
have a higher standard deviation of error relative
to the mean then short – term forecasts.
• Aggregate forecasts are usually less accurate
than disaggregate forecasts – it have lower
standard deviation of error relative to the mean.
Factors related to Demand Forecasts
• Past demand
• Planned advertising and marking
efforts
• Display position in a catalog
• State of the economy
• Planned price discounts
• Actions competitors have taken
 Keywords
• Meaning, definition of SCM
• Network of SCM
• Goal of SCM
• Benefits of SCM
• Importance of SCM

1
 MCQ
1. In terms of operations management the forecast which projects a
company’s sales is called: 
a)  Economic forecast Technological forecast
b)  Demand forecast
c)  Associative model

2. _____________________ is the activity of estimating the quantity of

a product or service that consumers will purchase.
Demand forecasting 
3. Which of the following method(s) is(are) suitable for
forecasting the demand of a product?
a) Delphi method  
b) Market research  
c) Judgmental methods  
d) Delphi method and judgmental method  Market
research and judgmental method
4. What is the measure of forecast error which
calculates the average forecast error over n time
periods known as?
a) Mean absolute percentage error  
b) Mean-square error  
c) Mean error  
d) Mean absolute deviation
5. The measure of forecast error which
calculates the average of absolute
differences between the actual and the
forecast demand over n time periods is
known as:
a) mean absolute deviation  
b) mean absolute percentage error 
c)  mean error  
d) mean-square error
TOPIC FOR NEXT SESSION

Forecasting Methods, Approaches