Planning and

forecasting in SCM
NGUYỄN THỊ BÍCH TRÂM, PHD
TRAM.NTB@OU.EDU.VN
Main contents

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DEMAND AGGREGATE PLANNING
FORECASTING PLANNING IN A SUPPLY AND
SUPPLY CHAIN DEMAND IN A
SUPPLY CHAIN
 EXPLAIN THE ROLE OF DEMAND IDENTIFY THE COMPONENTS OF A COMPARE AND CONTRAST
FORECASTING IN A SUPPLY CHAIN. FORECAST. QUALITATIVE AND QUANTITATIVE
FORECASTING TECHNIQUES.

1. Demand forecasting
 Average for
the period

A trend
Autocorrelation

Components of Demand
demand
Random Seasonal
variation element

Cyclical
elements
Trend pattern
 Purchasing
department
to order the
right amount
of products
The role of forecasting

Forecasting provides an Accurate

estimate of future demand, demand
the basis for planning and forecasts
sound business decisions.
Logistics Operations
department department to
to deliver the produce the
right amount right amount of
of products products
The focus of
demand
management
and planning
 • Qualitative forecasting methods are:
• Based on intuition or judgmental evaluation
• Generally used when data are limited,
Forecasting unavailable, or not currently relevant
• Quantitative forecasting models use
techniques mathematical techniques that are based on
historical data and can include causal
variables to forecast demand.
Qualitative methods
Jury of executive
opinion

Delphi method

Sales force
composite

Consumer survey
Time series forecasting is based on the
assumption that the future is an extension
of the past; thus, historical data can be
used to predict future demand.
Quantitative
Trend variations
methods
Components of time Cyclical variations
series: Seasonal variations
Random variations
Time series forecasting models

Simple moving average

Weighted moving average

Exponential smoothing

Linear trend forecast

Simple moving average
Weighted moving average
A department store may
find that, in a four-month
period, the best forecast is
derived by using 40 percent
of the actual sales for the
most recent month, 30
percent of two months ago,
20 percent of three months
ago, and 10 percent of four
months ago.
 Exponential smoothing forecast
Exponential smoothing techniques have become
well accepted for six major reasons:
• Exponential models are surprisingly accurate.
• Formulating an exponential model is relatively
easy.
• The user can understand how the model works.
• Little computation is required to use the
model.
• Computer storage requirements are small
because of the limited use of historical data.
• Tests for accuracy as to how well the model is
performing are easy to compute.
Exponential
forecasts versus
actual demand for
units of a product
over time showing
the forecast lag
Linear Trend Forecasting

A linear trend forecast can be estimated using simple linear regression to fit a line to a
series of data occurring over time. This model is also referred to as the simple trend
model. The trend line is determined using the least squares method, which minimizes the
sum of the squared deviations to determine the characteristics of the linear equation.
The trend line equation is expressed as: Ŷ = b0 + b1x
Where Ŷ = forecast or dependent variable; x = time variable; b0 = intercept of the
vertical axis; b1 = slope of the trend line.
Quantitative methods (cont.)
Cause-and-effect forecasting assumes that
one or more factors (independent variables)
are related to demand and, therefore, can
be used to predict future demand.
◦Simple linear regression forecast
◦Multiple regression forecast
Simple linear regression forecast
x variable is no longer time but instead an explanatory variable of demand. For
example, demand could be dependent on the size of the advertising budget. The
regression equation is expressed as:
Ŷ = b0 + b1 x
Where Ŷ = forecast or dependent variable;
x = explanatory or independent variable;
b0 = intercept of the vertical axis; b1 = slope of the regression line
Multiple regression forecast
When several explanatory variables are used to predict the dependent variable, a
multiple regression forecast is applicable. Multiple regression analysis works well when
the relationships between demand (dependent variable) and several other factors
(independent or explanatory variables) impacting demand are strong and stable over
time.
The multiple regression equation is expressed as: Ŷ = b0 + b1x1 + b2x2 + … + bkxk
Where Ŷ = forecast or dependent variable; xk = kth explanatory or independent
variable; b0 = constant; bk = regression coefficient of the independent variable xk.
2. Aggregate
planning in a
supply chain
A process by which a company
determines planned levels of
capacity, production, subcontracting,
inventory, stockouts, and even pricing
over a specified time horizon (3 to 18
months).

The goal is to build a plan that Aggregate

satisfies demand while maximizing
profit. planning

Aggregate planning solves problems

involving aggregate decisions rather
than stock-keeping unit (SKU)–level
decisions.
Production Rate: the number of units to be completed per
unit time (such as per week or per month)
Workforce: the number of workers/units of capacity
needed for production

Overtime: the amount of overtime production planned

Operational
Machine Capacity Level: the number of units of machine parameters in
capacity needed for production
aggregate
Subcontracting: the subcontracted capacity required over
the planning horizon
planning
Backlog: demand not satisfied in the period in which it
arises but carried over to future periods
Inventory on Hand: the planned inventory carried over the
various periods in the planning horizon
Required inputs to the production planning system
 CAPACITY (REGULAR TIME, INVENTORY BACKLOG/LOST SALES
OVERTIME, SUBCONTRACTED) BECAUSE OF DELAY

Trade-off in aggregate planning

Chase strategy—using capacity as the lever: the production rate is
synchronized with the demand rate by varying machine capacity or hiring
and laying off employees as the demand rate varies
Flexibility strategy—using utilization as the lever: Vary the output by
varying the number of hours worked through flexible work schedules or
overtime.
Level strategy—using inventory as the lever: a stable machine capacity
and workforce are maintained with a constant output rate

Production planning strategies

 Basic production costs: the fixed and variable
costs incurred in producing a given product type
in a given time period.
Costs associated with changes in the
production rate: Typical costs in this category
are those involved in hiring, training, and laying
Relevant costs off personnel.
Inventory holding costs: A major component is
the cost of capital tied up in inventory.
Backordering costs: very hard to measure and
include costs of expediting, loss of customer
goodwill, and loss of sales revenues resulting
from backordering.
3. Sales and operations
planning:
Planning supply and
demand in a supply chain
Sales and operations
planning
The goal of sales and operations planning is to
appropriately combine two broad options to
handle predictable variability:
1. Manage supply using capacity, inventory,
subcontracting, and backlogs.
2. Manage demand using short-term price
discounts and promotions.
Managing supply

Production capacity Inventory

Time flexibility from workforce Using common components across multiple
products
Use of seasonal workforce
Build inventory of high-demand or predictable-
Use of subcontracting
demand products
Use of dual facilities—specialized and flexible
Designing product flexibility into the production
processes
Managing
demand
SA L E PROMOTION –
WH EN A N D ITS IMPAC T?
Four key factors influence the timing of a
promotion

Impact of the Cost of holding Cost of changing Product margins

promotion on inventory the level of
demand capacity
 Market growth: An increase in
consumption of the product occurs
either from new or existing customers

Impact of Stealing share: Customers substitute

promotion on the firm’s product for a competitor’s
demand product

Forward buying: Customers move up

future purchases to the present.
Implementing sales and operations planning in
practice
•Coordinate planning across enterprises in the
supply chain
•Take predictable variability into account when
making strategic decisions enterprises in the
supply chain
•Design S&OP to understand and manage the
drivers of demand usage
•Ensure that the S&OP process modifies plans as
the reality or forecasts change
Collaborative Planning Forecasting and Replenishment
Benefits of CPFR model

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Reduce capital Decrease costs Increase revenue
invested • Inventory • Better availability
• Optimise production • Wastage • Improved consumer
• Reduce storage • Overtime satisfaction
capacity • Transportation cost