Transcript Chapter 10
Demand Management and Forecasting 1. 2. 3. 4. Understand the role of forecasting as a basis for supply chain planning. Compare the differences between independent and dependent demand. Identify the basic components of independent demand: average, trend, seasonal, and random variation. Show how to make a time series forecast using moving averages and exponential smoothing. The purpose of demand management is to coordinate and control all sources of demand Two basic sources of demand ◦ Dependent demand: the demand for a product or service caused by the demand for other products or services ◦ Independent demand: the demand for a product or service that cannot be derived directly from that of other products LO 2 Not much a firm can do about dependent demand ◦ It is demand that must be met There is a lot a firm can do about independent demand 1. Take an active role to influence demand 2. Take a passive role and respond to demand LO 1 Time series analysis is based on the idea that data relating to past demand can be used to predict future demand Components of demand ◦ ◦ ◦ ◦ ◦ LO 3 Average demand for a period of time Trend Seasonal element Cyclical elements Random variation The simple moving average model assumes an average is a good estimator of future behavior The formula for the simple moving average is: A t-1 + A t-2 + A t-3 +...+A t- n Ft = n Ft = Forecast for the coming period N = Number of periods to be averaged A t-1 = Actual occurrence in the past period for up to “n” periods If N=1 we have the “naïve forecast” – the forecast equals the current period’s actual LO 4 Week 1 2 3 4 5 6 7 8 9 10 11 12 LO 4 Demand 650 678 720 785 859 920 850 758 892 920 789 844 A t-1 + A t-2 + A t-3 +...+A t- n Ft = n Question: What are the 3week and 6-week moving average forecasts for demand? Assume you only have 3 weeks and 6 weeks of actual demand data for the respective forecasts 8 Calculating the moving averages gives us: Week Demand 3-Week 6-Week 1 2 3 4 5 6 7 8 9 10 11 12 650 F4=(650+678+720)/3 678 =682.67 720 F7=(650+678+720 +785+859+920)/6 785 682.67 859 727.67 =768.67 920 788.00 850 854.67 768.67 758 876.33 802.00 892 842.67 815.33 920 833.33 844.00 789 856.67 866.50 844 867.00 854.83 LO 4 ©The McGraw-Hill Companies, Inc., 2004 Demand Plotting the moving averages and comparing them shows how the lines smooth out to reveal the overall upward trend in this example 950 900 850 800 750 700 650 600 550 500 Demand 3-Week 6-Week 1 2 3 4 5 6 7 Week LO 4 8 9 10 11 12 Note how the 3Week is smoother than the Demand, and 6-Week is even smoother Week 1 2 3 4 5 6 7 LO 4 Demand 820 775 680 655 620 600 575 Question: What is the 3 week moving average forecast for this data? Assume you only have 3 weeks and 5 weeks of actual demand data for the respective forecasts Week 1 2 3 4 5 6 7 LO 4 Demand 820 775 680 655 620 600 575 3-Week 5-Week F4=(820+775+680)/3 =758.33 758.33 703.33 651.67 625.00 F6=(820+775+680 +655+620)/5 =710.00 710.00 666.00 Ft = Ft-1 + a(At-1 - Ft-1) Where: Ft Forcast value for thecomingt timeperiod Ft - 1 Forecast value in 1 past timeperiod At - 1 Actualoccurancein thepast t time period a Alphasmoothingconstant LO 4 Premise: The most recent observations might have the highest predictive value Therefore, we should give more weight to the more recent time periods when forecasting Week 1 2 3 4 5 6 7 8 9 10 LO 4 Demand 820 775 680 655 750 802 798 689 775 Question: Given the weekly demand data, what are the exponential smoothing forecasts for periods 2-10 using a=0.10 and a=0.60? Assume F1=D1 Answer: The respective alphas columns denote the forecast values. Note that you can only forecast one time period into the future. Week 1 2 3 4 5 6 7 8 9 10 LO 4 Demand 820 775 680 655 750 802 798 689 775 0.1 820.00 820.00 815.50 801.95 787.26 783.53 785.38 786.64 776.88 776.69 0.6 820.00 820.00 793.00 725.20 683.08 723.23 770.49 787.00 728.20 756.28 Note how that the smaller alpha results in a smoother line in this example 850 800 d 750 n 700 a m650 e 600 D 550 500 Demand 0.1 0.6 1 2 3 4 5 6 Week LO 4 7 8 9 10 Week 1 2 3 4 5 LO 4 Question: What are the Demand exponential smoothing 820 forecasts for periods 775 2-5 using a =0.5? 680 655 Assume F1=D1 F1=820+(0.5)(820-820)=820 Week 1 2 3 4 5 LO 4 Demand 820 775 680 655 F3=820+(0.5)(775-820)=797.75 0.5 820.00 820.00 797.50 738.75 696.88 n A MAD = LO 4 t t=1 - Ft 1 MAD 0.8 standard deviation 1 standard deviation 1.25 MAD n The ideal MAD is zero which would mean there is no forecasting error The larger the MAD, the less the accurate the resulting model Question: What is the MAD value given the forecast values in the table below? Month 1 2 3 4 5 LO 4 Sales Forecast 220 n/a 250 255 210 205 300 320 325 315 Month 1 2 3 4 5 Sales 220 250 210 300 325 Forecast Abs Error n/a 255 5 205 5 320 20 315 10 40 n A MAD = LO 4 t t=1 n - Ft 40 = = 10 4 Note that by itself, the MAD only lets us know the mean error in a set of forecasts Mean Absolute Percentage Error (MAPE) is another measure often used to evaluate forecasting accuracy n MAPE 100 i 1 actual i forecast i actual i n A MAPE of under 8% is acceptable for most applications LO 4 Time 1 2 3 4 5 6 7 8 9 10 ACTUAL FORECAST ERROR ABS ERROR APE 820 820.00 ------775 820.00 -45.00 45.00 5.81 680 815.50 -135.50 135.50 19.93 655 801.95 -146.95 146.95 22.44 750 787.26 -37.26 37.26 4.97 802 783.53 18.47 18.47 2.30 798 785.38 12.62 12.62 1.58 689 786.64 -97.64 97.64 14.17 775 776.88 -1.88 1.88 0.24 776.69 61.91 8.93 MAD MAPE