Professional Documents
Culture Documents
Managing Demand
Thro capacity reservation by shifting excess demand to a future period without losing it by doing advance booking or appointments for future times Thro differential pricing to reduce peak demands( higher prices e.g. movie tickets) or build demand in off-season by lowering prices/special discounts) Thro advertising and sales promotions to even out demand patterns at different times( lower telecom rates for night use) Thro complementary products to even out seasonal demand products e.g. woolen and cotton garments; winter creams and suntan lotions; lawn mowers and snow ploughs
Managing Supply
Thro inventory based alternatives by building excess inventory during periods of lean demand and consuming them during peak demand times; or by shifting production to a future period beyond demand period; or deliberately inducing stock-outs leaving customers to wait longer; final choice depends on required customer service levels Thro capacity adjustment alternatives by hiring/laying of workers; working extra hours and shifts; use of part time workers Thro capacity augmentation means by outsourcing and/or subcontracting, rescheduling maintenance programs and by debottlenecking projects
Managing demand
Capacity reservation
Influencing demand
Managing supply
Build inventory
Backlog/backorder/ stock-out
Overtime/under-time Varying shifts Hiring/layoff workers Subcontract/outsource Debottlenecking/adding new capacity
Shortage/loss of goodwill
Overtime costs, Loss of productivity Shift change costs Training/hiring costs, employee morale Transaction costs Investment, debottlenecking costs
Forecasting Factors
Time required in future Availability of historical data Relevance of historical data into future Demand and sales variability patterns Required forecasting accuracy and likely errors Planning horizon/lead time for operational moves
Types of Forecasts
Economic Forecasts- projections of economic growth, inflation rates, money supply based on economic and fiscal data trends along with policy interventions Demographic Forecasts- projections of population in aggregate and disaggregate form forecasts using birth and death rates in each case Technological Forecasts- predicting technological change e.g. in cloud computing or electronics sectors et al Other Forecasts- weather, earthquakes, tsunami et al
Business Forecasts- involving demand and sales forecasts our primary interest in this DPF course
Forecasting Characteristics
By its very nature, forecasting always has errors; forecasts rarely match actual demand/sales; forecast accuracy and errors are real issues Their chosen time horizon also determines accuracy with shorter periods having higher accuracy; the constant need to reduce lead times also puts focus on shorter planning horizons( as in lean manufacturing/JIT environments) Aggregate demand forecasts are more accurate than market segmental forecasts( e.g. all Maruti 800 cars versus red Maruti 800s; all paints versus blue color paints; all toothpastes versus herbal toothpastes); these have implications at different levels/stages of the supply chain
Forecasting Horizon-focus
Short term forecasts say for next 1-2 months for current production planning and scheduling; for specific products, machine capacities and deployment, labor skills and usage, cash inventories ; operational focus Medium term forecasts say for next 3-12 months for plant level planning for product/volume changes requiring redeployment of resources; for product groups, departmental capacities, work force management, purchased materials and inventories; tactical focus Long term forecasts 1 year to 3 years for planning a new plant or facility requiring major investments and other resources for both new and old product lines; strategic focus
Sales Forecasting
Within overall demand, firm needs to establish its sales forecast to help operations Basis of sales forecasting is assessment of market share that firm can carve out of the total market given its past sales as also current marketing strategies Firming up of sales forecasts is a function of available capacity, plant performance, plant resources and stocks Sales forecasting is essentially an inward/internal process Forecasting from now is seen from operational context
be first identified
These factors could be both price and non-price determinants of demand( including consideration of substitutes and complementary products)
Prepare such forecasts to assist both long term and short term decision-making needs of an organization
All of these decisions are interrelated and part of aggregate production planning(APP)
7-30
Forecasting Problems
Lack of understanding of integrated market and supply realities by key decision makers within an organization Lack of trust and transparency amongst supply chain elements and partner organizations Lack of proper communication, coordination and collaboration amongst supply chain partners Lack of metrics for measuring total supply chain performance Lack of IT tools, processes, professional competencies to achieve accurate forecasts
Planned Performance
Forecasts
Managers
Operations
Updated Forecasts
Actual Performance
Resources
Economic Outlook
Business Cycle Status Leading Indicators-Stock Prices, Bond Yields, Material Prices, Business Failures, money Supply, Unemployment
Outputs Estimated Demands for each Product in each Time Period Other Outputs
Management Team
Production Capacity Available Resources Risk Aversion Experience Personal Values and Motives Social and Cultural Values Other Factors
Other Factors
Legal, Political, Sociological, Cultural
Processor
Sales Forecast Forecast and Demand for Each Product In Each Time Period
Sales Forecast Forecast and Demand for Each Product In Each Time Period
Processor
Business Strategy Marketing Plan- Advertising Sales Effort, Price, Past Sales Production Plans- Quality Levels, Customer Service, Capacity Costs Finance Plan Credit Policies, Billing Policies
Procedure for Translating Sales Forecast into Production Resource Forecast Production Resource Forecasts Long Range Factory capacities Capital Funds Facility Needs Other Medium Range Work Force Department Capacities Purchased Material Inventories Others Short Range Labor by Skill Class Machine Capacities Cash Inventories Other