Customer orders, Forecasting processes

Question 1

What does a Customer Order represent?

Answer 1

A commitment from a customer to purchase certain quantities of a company’s products at a certain point in time.

The steps that the customer goes through to place an order for a product/service.

Question 2

What is the goal of the Customer Order Process?

Answer 2

To ensure that the customer receives the product/service they want in a timely & satisfactory manner while minimizing errors & delays in the ordering & delivery process.

Question 3

What is “tacit acceptance”?

Answer 3

A procedure used in some cases instead of order confirmation.

The customer order may automatically be considered as confirmed if the supplier has not been in contact within a certain time period.

Question 4

What must be included in the information about demand?

Answer 4

• A quantity dimension (quantities to be
  delivered)
• A time dimension (the times at which
  deliveries will take place

Question 5

Define “Available quantities” (determining a delivery plan).

Answer 5

The quantity which at a given point in time can be delivered from stocks without negatively impacting on other customers’ deliveries.

Question 6

How do you determine the delivery time for standard products?

Answer 6

By calculating the earliest time at which there are available quantities to promise for delivery.

Question 7

What is ATP?

Answer 7

“Available to promise”, calculation of what is available for delivery.

Question 8

What is a reservation?

Answer 8

A booking of a certain quantity for delivery at a later date.

Question 9

How could you determine the delivery time for a customer-order-specific product?

Answer 9

By continuously updating current production capacity as orders are received. Real-time information is obtained on how much capacity is available for further customer orders.
When a new order is received, a calculation of the number of hours required to manufacture the product ordered is made & when they will earliest be available in the production groups used for the manufacture.

Question 10

When can the customer order be delivered with respect to materials availability?

Answer 10

The time when the items incorporated which are last available will determine when the work order attached to the customer order can be started, plus the lead-time for manufacturing.

Question 11

What is the disadvantage and advantage of fixed delivery time?

Answer 11

Disadvantage: They must always be sufficiently long to work when the workload is temporarily higher than normal.

Advantage: The principle is simple to apply & the delivery times can be very quickly given to potential customers.

Question 12

When is the picking list printed?

Answer 12

When the delivery time for a customer order arrives & products ordered are in stock ready for delivery.

Question 13

What does “Part delivery” mean?

Answer 13

A certain proportion of the quantities promised are noted as back-orders & delivered at a later date, while the quantity available is delivered immediately

Question 14

What does a “delivery plan” consist of?

Answer 14

1. A “call-off” for delivery & may be considered as a clear order from the customer.
   
   • A fixed part of the delivery plan & may not
     be changed by the customer (not without
     good reason) from 1 delivery plan to the
     next.
   • A type of unfilled order (may be seen as a
     reservation).
   • Defines delivery times for the supplier.
2. “Expected call-offs”: Material supply commitment
   
   • Not a full & fixed commitment from the
     customer for actual sub-orders.
3. “Forecast” of needs for future deliveries based on customers’ assessments.
   
   • No commitment

Question 15

What are some common reasons for low forecast accuracy?

Answer 15

• Ineffective forecasting methods
• Misleading forecast data
• Not sufficiently combining automatic
  forecasting & manual assessments
• Unrealistic expectations
• Low acceptance level
• Conflicting interests
• Lack of forecast responsibility & “forecast
  monitoring”

Question 16

How could you achieve higher forecast accuraccy?

Answer 16

By combining manual future assessments.
Ex: At the product group level: with automatic calculations based on historic facts.

Question 17

Name a few demand patterns.

Answer 17

• Random variations around a mainly
  unchanging demand
• Trend variation: when demand
  increases/decreases period by period
• Seasonal variation: the demand varies
  regularly at different times of the year

When forecasting several years ahead:
- Cyclical demand variation: depends more on general changes in the business circle

Question 18

Explain “Qualitative methods”.

Answer 18

Qualitative methods:
- Generally based on individuals’ experiences
& well-considered personal assessments of
future demand
- Characterised by few/no formal calculations
on the basis of demand statistics & other
data
Ex: Simple intuitive estimates by a sales manager or detailed formal procedures & approaches with many individuals involved

Question 19

When is Qualitative methods prefered?

Answer 19

• Small number of products & periods to be
  forecasted
• If it’s necessary to make them far in advance
• Demand is influenced to a large extent by
  the company’s various marketing activities

In general: For products being introduced on the market or being discontinued.

Question 20

What is the difference between “intrinsic” & “extrinsic” Quantitive methods.

Answer 20

Intrinsic: expressed in the same variable as the time series calculations are based. Ex: both refer to sales of a certain product.

Extrinsic: based on rime series that refer to some other explanatory variable than the one to be forecast. Ex: demand for electric cable is dependent on housing construction while demand for ice cream is dependent on weather.

Question 21

What are 2 commonly occurring intrinsic quantitative methods for operative forecasting? Explain them.

Answer 21

Moving average: Calculating the average value of demand during a number of periods as a measurement of demand in future periods.
- Demand values based on many periods will
provide better stability but also poorer
sensitivity to trends etc.
- Longer forecast periods => Fewer periods
need to be included
- “Successive replacement of the oldest
period’s demand value with that of the
latest”
- All demand values are assigned the same
weight in calculations

Exponential smoothing:

Question 22

Explain the customer order process for “standard products”?

Answer 22

1. The supplier registers the sales order directly in its business system
2. Upon registration, the products time/quantity are reserved for the order
3. Picking + delivery or manufacturing/assembly + delivery

Question 23

Explain the customer order process for “customer-specific products”?

Answer 23

1. They must be specified by the customer (“Product configurators”)
2. Production orders are created
3. Manufacturing order created => Incoming semi-finished products & components are reserved
4. Manufacturing + Delivery