Planning Demand and Supply in a Supply Chain

1. Planning Demand and Supply in a Supply Chain Forecasting

2. Learning Objectives • Overview of forecasting • Forecast errors • Aggregate planning in the supply chain • Managing demand • Managing capacity

3. Phases of Supply Chain Decisions • Strategy or design: Forecast • Planning: Forecast • Operation/ExecutionActual demand • Since actual demands differ from the forecasts, … so does the execution from the plans. • E.g. Supply Chain degree plans for 40 students per year whereas the actual is ??

4. Characteristics of forecasts • Forecasts are always wrong. Include expected value and measure of error. • Long-term forecasts are less accurate than short-term forecasts. Too long term forecasts are useless: Forecast horizon • Forecasting to determine • Raw material purchases for the next week; Ericsson • Annual electricity generation capacity in TX for the next 30 years; Texas Utilities • Boat traffic intensity in the upper Mississippi until year 2100; Army Corps of Engineers • Aggregate forecasts are more accurate than disaggregate forecasts • Variance of aggregate is smaller because extremes cancel out • Two samples: {3,5} and {2,6}. Averages: 4 and 4. Totals : 8 and 8. • Variance of sample averages/totals=0 • Variance of {3,5,2,6}=5/2 • Several ways to aggregate • Products into product groups; Telecom switch boxes • Demand by location; Texas region • Demand by time; April demand

5. Forecasting Methods • Qualitative • Expert opinion • E.g. Why do you listen to Wall Street stock analysts? • What if we all listen to the same analyst? S/He becomes right! • Time Series • Static • Adaptive • Causal: Linear regression • Forecast Simulation for planning purposes

6. Master Production Schedule (MPS) • MPS is a schedule of future deliveries. A combination of forecasts and firm orders.

7. Summary • Aggregate forecasts are more accurate