Supply Chain (Chapter 12)

What is a disadvantage of Grassroots Forecasting?

-"Experts" may unconsciously base their forecasts on their most recent experiences, rather than the entire set of experiences -also may adjust their forecasts bc of their motivation

When is Judgment-Based Forecasting useful?

-For when there is lack of quantitative historical information: when a new product is about to be launched -when information about the past may not support good decisions for the future: historical sales patterns could not forecast the drop in demand for SUV's when gasoline prices rose dramatically

Grassroots Forecasting vs Executive Judgment

-Grassroots Forecasting: used for SHORT-TERM forecasts for individual products -Executive Judgment: used for long-term sales or business patterns

What are 4 ways to improve planning management?

-Improving information accuracy and timeliness: fashion-driven clothing companies -Reducing lead time -Redesigning the product- postponable product -Collaborating and sharing information

What are 2 costs of Demand Planning forecasting?

-Losing sales if the forecasts are too low -Money lost in holding inventory when the forecasts are too high

What 3 places does forecasting integrate and gather information from?

-Market -Internal Operations -Larger business environment

The CPFR typically consists of what 4 collaborative activities?

-Market Planning -Demand and Resource Planning -Execution -Analysis

Fluctuating demand can cause what 4 operational inefficiencies?

-Need for extra capacity resources -Backlogging -Customer dissatisfaction -System buffering (safety stocks, safety lead time, or safety capacity)

What are the 4 patterns of demand?

-Seasonality and Cycles -Shift/Step Change -Stable Pattern -Trend

What are the 3 drivers of Forecast Accuracy?

-Short-term forecasts are more accurate than long-term forecasts -Aggregate forecasts are more accurate than detailed forecasts -Information from more sources yields a more accurate forecast

Forecasting should be...? (3)

-Sophisticated process -Simple -Continually improved

To identify the users and decision-making processes that the forecast will support, the designer needs to keep what 4 users characteristics in mind?

-Time Horizon -Level of Detail -Accuracy versus Cost -Firm with Existing Business Products

What are the 3 methods for statistical model based forecasting?

-Time Series Analyses -Causal Studies -Simulation Models

What 3 tactics managers use to try and manage demand?

-Use pricing, promotions, or incentives to influence timing or quantity of demand -Manage timing of order fulfillment -Encourage shifting to alternate products

4 common demand patterns

-stable, no trend -seasonal, cycle -trend, probably linear -step change

5 steps that help managers achieve forecasts that are usable, timely, and accurate?

1. define users and processes 2. identify data sources 3/4. select and document forecasting techniques 5. monitor and continuously improve the process

5 judgement- based forecasting techniques

1. grassroots forecasting 2. executive judgement 3. historical analogy 4. marketing research 5. delphi method

The correlation of current demand values with past demand values

Autocorrelation

What does Demand Planning help operations managers do?

Better effectively plan for the amount of productive capacity their businesses will need and help them determine which customers to serve

This approach reduces risks associated with forecasting error, reduces inventories that supply chain players typically hold to guard against such risks, and improves customer service levels by reducing lead times

Collaborating and Sharing Information

A method by which supply chain partners periodically share forecasts, demand plans, and resource plans in order to reduce uncertainty and risk in meeting customer demand

Collaborative Planning, Forecasting, and Replacement (CPFR)

What is the best way to improve Demand Planning?

Collaborative Planning, Forecasting, and Repleacement

What is it important to have quick data sales collection?

Current data is more relevant for forecasting future sales and decreases a firm's reliance on forecasting

Forecasts developed by asking a panel of experts to individually and repeatedly respond to a series of questions

Delphi Method

A decision process in which managers predict demand patterns

Demand Forecasting

A proactive approach in which managers attempt to influence patterns of demand

Demand Management

The combined process of forecasting and managing customer demands to create a planned pattern of demand that meets the firm's operational and financial goals

Demand Planning

Forecasting techniques that use input from high-level experienced managers

Executive Judgment

True/False: Averages constructed from larger data sets are MORE responsive to sudden changes.

False (Less responsive)

What does reducing lead time improve?

Forecast Accuracy

The difference between a forecast and the actual demand

Forecast Error

A technique that seeks inputs from people who are in close contact with customers and products

Grassroots Forecasting

A forecasting technique that uses data and experience from similar products to forecast the demand for a new product

Historical Analogy

when color tv sets were first introduced, managers used sales patterns for black&white tv sets to predict life cycle stages for new TVs this is an example of?

Historical Analogy

As the time horizon for forecasting _________, more and more potentially unknown factors can affect demand.

Increases

These are built upon the estimates and opinions of people, most often experts who have related sales or operational experience

Judgment-Based Forecasting

For ______-term planning, situations usually require multiple inputs including judgments, historical data, and leading indicator data

Long

A forecasting technique that bases forecasts on the purchasing patterns and attitudes of current or potential customers

Marketing Research

example that exhibits a stable pattern?

Mature consumer products, for example shampoo or milk

A forecasting model that computes a forecast as the average of demands over a number of immediate past periods

Moving Average

A simple forecasting approach that assumes that recent history is a good predictor of the near future

Naive Model

A product designed so that it can be configured to its final form quick and inexpensively once actual customer demand is known

Postponable Product

A mathematical approach for fitting an equation to a set of data

Regression Analysis

Regular demand patterns of repeating highs and lows

Seasonality and cycles

A one-time change in demand, usually due to some external influence on demand

Shift or Step Change

For _______-term planning, forecasters can usually create suitable forecasts using only simply statistical models based on historical demand.

Short

mathematically simulate representations of previous events to evaluate future outcomes

Simulation Models

A _________ n value makes forecasts more sensitive to changes in demand, while __________ values tend to smooth out demand changes.

Smaller; larger

Why does a forecasting process attempt to understand the various components of demand?

So that it can convert data inputs into reliable predictions of future events

A consistent horizontal stream of demands

Stable Pattern

What must the forecaster do to use the Moving Average Forecasting Model?

The forecaster must decide upon the number of periods (n) to use

Forecasting models that compute forecasts using historical data arranged in the order of occurrence

Time Series Analyses Models

What is the primary goal in designing a forecasting process?

To generate forecasts that are usable, timely, and accurate

What is the purpose of Demand Management?

To influence product demand

What is Averaging used for?

To remove random fluctuations in historical data

The general sloping tendency of demand, either upward or downward, in a linear or nonlinear fashion

Trend

True/False: Fluctuations in demand are mostly outside of the firm's control.

True

True/False: More weight is given to more recent demand.

True

A forecasting model that assigns a different weight to each period's demand according to its importance

Weighted Moving Average

example of Shift or Step Change

a major product promotional campaign

looking for cause and effect relationships among variables

casual studies

example that exhibits an upward, nonlinear trend?

new products in the growth phase

example that exhibits a seasonal pattern?

restaurants experience seasonal patterns during the day with peaks for breakfast, lunch, and dinner

extrapolates forecasts from past demand data

time series analyses