Page 83 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes ensure that things do not go out of hand. To do so, we require a variety of tools. Forecasting
tools help in the analysis of the environment and provide inputs on how the organization can
use its resources for maximum leverage. This unit will explore some of these forecasting
techniques.
An analysis of the factors that influence future values determines how future values are estimated.
One way to characterize different kinds of forecasting can be based on how far into the future
they focus. Detailed forecasts for individual items are generally short-term forecasting. Such
forecasts are used to plan the short-run decisions which are used for inventory control, order
sizing, or transport scheduling, etc.

Did u know? Medium-term forecasts are used to plan for capacity, location and layout
over a much longer time span. Long-term forecasts are used for strategic decision-making.
Forecasting demand levels is a part of medium-term forecasts. This is vital to the firm as a
whole, as it provides the basic inputs for the planning and control of all functional areas including
the supply chain. The need for demand projections is a general need throughout the planning
and control process. Demand planning tries to answer the questions raised by these concerns.
Some such broad basic questions are the following:
 How to determine which new products or services to introduce or discontinue; which
markets to enter or exit; and which products to promote?

 What sales plans to make, since sales quotas are generally based on estimates of future
sales?
 How to absorb the fluctuations in demand that will occur over the next 6 to 18 months;
how to make production, procurement, and logistical plans?
 What should be our financial plans; how can demand fluctuations be absorbed through
inventory, workforce, work hours, supplier’s activity, etc. and what is their impact on
earnings expectations?
 Will the organization lose orders if it does not meet all demands? What policy should the
firm adopt?
Each of these choices determines the tactical moves (medium term policy) of the organization.
Once decided upon, the policy drives the activities of the organization. A successful policy needs
to be based on a fundamental understanding of what customers’ value. For example, if a policy
of not meeting all demands shifts customers to a competitive product, the company may find it
difficult to wean them back when demand falls.
Demand levels and their timing greatly affect capacity levels, financial needs, and general
structure of the business. Each functional area has its special forecasting problems.

!
Caution Forecasting demand is also a critical component of supply and demand
management.

Supply chain forecasting concerns the spatial as well as variation of demand with time, the
extent of its variability, and its degree of randomness. Planning and controlling supply chain
activities require accurate estimates of the product and service volumes to be handled by the
chain. These estimates are typically in the form of forecasts and predictions. The supply chain
professional often finds it necessary to take it upon him or herself to produce forecasts for short-
term planning such as inventory control, order sizing, or transport scheduling. For longer-term
decisions, demand planning becomes necessary.

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