Page 85 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes provide answers on the impact on product demand if prices are increased or if disposable
income decreases. In many cases, firms require to evaluate these types of sensitivities so as
to have a more robust forecast.
The method used should adequately meet the objectives of the forecasting model required.
More than one method may be used to provide the types of outputs desired. For example, the
method used for short-term forecasts could be different than the one used for long-term forecasts.

4.1.2 Accuracy and Validation Assessments

All models need to be validated and verified. Validation is concerned with the question “Are we
building the right system?” Verification, on the other hand, seeks to answer the question “Are
we building the system right?”
Since validation is used for the purpose of establishing a model’s credibility, it is important that
the method used for the validation is, itself, credible. Features of time series, which might be
revealed by examining its graph, with the forecasted values, and the residuals behaviour,
condition forecasting modelling.
An effective approach to modelling forecasting validation is to hold out a specific number of
data points for estimation validation (i.e., estimation period), and a specific number of data
points for forecasting accuracy (i.e., validation period). The data, which are not held out, are
used to estimate the parameters of the model, the model is then tested on data in the validation
period, if the results are satisfactory, then the forecasts are generated beyond the end of the
estimation and validation periods.
A good model should have small error measures in both the estimation and validation periods
and its validation period statistics should be similar to its own estimation period statistics.
Holding data out for validation purposes is probably the single most important diagnostic test
of a model; it gives the best indication of the accuracy that can be expected when forecasting the
future. It is a rule that one should hold out at least 20 per cent of data for validation purposes.

Task Find out the difference between demand planning and forecasting.



Caselet Gillette Company

illette is one of the best practitioners of demand management in the consumer
goods space. With manufacturing plants in 51 locations in 20 countries, Gillette
Gcaters to the need of more than 200 countries around the world. Globally, Gillette’s
portfolio of brands is organized into five business units: Blades and Razors, Personal
Care, Oral Care, Duracell, and Braun.

The Gillette Company entered the Indian market in 1984 through a joint venture as a
minority shareholder with the Kolkata based Poddars in 1984. The venture was called the
Indian Shaving Products Limited (ISPL). ISPL marketed products under the 7 O’Clock
brand. In 1996, the Gillette Company started Gillette Diversified Operations Private Limited
(GDOPL) in India to market the electrical and kitchen appliance brand, Braun. The merger
of ISPL, Duracell India Limited and Wilkinson Sword India Ltd in 2000 resulted in the
formation of GIL.
Contd...

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