Demand Forecasting Flashcards
What is a forecast?
A prediction of what will occur in the future
When are forecasts used for planning?
In situations where demand is uncertain (push situations)
Used to predict demand to schedule inventory, production, ordering etc.
What is the Bullwhip Effect and how can it be related to demand forecasting?
A phenomenon where small fluctuations in customer demand cause increasingly larger fluctuations of orders upstream in the supply chain
- Ordering is amplified for each upstream supplier as they try to match the demand
- It is therefore important to have good demand forecasting strategies in order to prevent the bullwhip effect from occurring
What are the 3 laws of forecasting?
- Forecasts are always wrong
- Detailed forecasts are worse than aggregate
- The further into the future, the less reliable forecast
What are the 5 basic patterns of demand in terms of time?
- Horizontal: Data fluctuates around a constant mean/average
- Trend: Systematic increase/decrease of average demand over time
- Seasonal Regular, repeatable variations in demand
- Cyclical: less predictable, long term fluctuations in demand
- Irregular, unpredictable variations in data that cannot be forecasted
How can you control or change demand patterns? Name 4 out of 6 options
- Complementary products: even out the load on resources by producing products with different demand cycles
- Promotional pricing: Campaigns used to increase sales –> increased demand
- Prescheduled appointments: Encouraging customers to schedule their purchases or services, demand can be spread over time
- Reservations: Similar to prescheduled appointment:
- Manage demand and plan resources - Backlogs:
- Backorders: Allow orders even if stockout occurs, fulfilled once stock is replenished
What types of forecasting methods can be used?
Either
- Qualititative/judgment methods or quantitative methods
What are qualitative forecasting methods? Name 4 different techniques
- Often used when historical data on demand is unavailable or unreliable
- Expert judgment: Experts estimates demand
- Delphi Method: Several stakeholders collaborate iteratively to predict demand
- Sales person estimate what sales will be in the region
- Market Survey: Input from potential customers via market survey
What are quantitative forecasting methods? Name 3 different techniques?
Methods that rely on historical data and mathematical models to predict demand
- Time series forecasting: Statistical approach that relies on historical demand: recognize trends
- Casual method: Collect historical data on independent variables like campaigns, competitors actions etc
- Linear regression: combo os both methods: Identify trendlines by analyzing demand
What is primary and secondary demand? And what is the difference?
Primary demand: The demand which comes from the market. (Independent demand)
Secondary demand: The demand for component and parts generated from the primary demand. (Dependent demand)
What is independent demand?
Demand for products that are not influence by the demand of other products
What is dependent demand?
Demand for products that are related to the production of finished goods/the demand for a finished product.
Tires for cars
What are positive and negative errors when it comes to demand forecasting?
Postivite errors: Too low forecast
Negative forecast: Too high forecast
What methods/indicators can be used to measure the accuracy of forecasts?
- Mean Square Error (MSE)
- Mean Absolute Deviation (MAD)
- Mean absolute percent error (MAPE)
What is direct and indirect demand?
Direct demand: The demand from end customer
Indirect demand: Demand by operators in the supply chain (not end customer involved)
