Supply Chain Management

Chapter 3 : Demand Forecasting in a Supply Chain

Forecast Components Forecasting Approaches

Steps Involved in Demand Forecasting Process

Understand the Objectives of Forecasting
Integrate Demand Planning and Forecasting
Identify the Major Factors that Influence Demand Forecast
Understand and Identify Customer Segments
Determine the Appropriate Forecasting Technique

Forecasting Techniques

Time Series Forecasting Methods

Static Forecasting Method
Adaptive Forecasting

Measures of Forecast Error

Mean Absolute Deviation
Mean Squared Error Mean Absolute Percentage Error.

Chapter Summary

Demand forecasting is critical to the efficient functioning of the supply chain process. It forms the basis for the planning activities in the supply chain. An accurate forecast optimizes the inventory level and improves the supply chain's responsiveness. In this chapter, we understood the concept and process of forecasting.

First we studied key components that are involved in a forecast: base demand, seasonal factors, trends, cyclical factors, promotions, and irregular quantities. After this, we examined two types of forecasting approaches: top-down and bottom-up. Later, we explored in depth the process of forecasting in a supply chain.

Thereafter, we examined the three types of forecasting methods: .Qualitative, quantitative and causal. Then, we examined the two time series forecasting techniques, (static as well as adaptive) in detail. With the help of examples, we studied the three key adaptive forecasting techniques, namely, moving averages, simple exponential smoothing technique, and trend-adjusted exponential smoothing Finally, we examined the forecasting errors that are used to measure the effectiveness of forecasting methods, that is, mean squared error(MSE), mean absolute deviation (MAD), and mean absolute percentage error (MAPE).

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