BA 214

LOGISTICS
MANAGEMENT
 CHAPTER 4
DEMAND AND SUPPLY
FORECASTING
“An economist is an expert who
will know tomorrow why the
things he predicted yesterday
didn’t happen today.

-Evan Esar
 Something to think about…

Forecasting is the art of saying what will

happen, and then explaining why it didn’t!
 Forecasting

Forecasting is telling in advance a possible event

that may take place in the future.
 Forecasting

Netter and Wasserman: “Business forecasting

refers to a statistical analysis of the past and
current movements in the given time series so
as to obtain clues about the future pattern of
these movement.”
 Concepts of
Demand Forecasting
 Elements of a Good Forecast

Timely
Reliable
Accurate
Meaningful
Written
Easy to Use
 Planning and Forecasting: 3 Steps
Process
• Planning
• Budgeting
• Forecasting
Why Demand Forecasting
Key Function of Forecasting
Strategic Significance of Forecasting
Objectives of Demand Forecasting
Factors Affecting Demand Forecasting
Types of Forecasts
Forecasting Based on Economy
Forecasting Time Horizons
Scope of Forecasting
 Impact of Forecasts on
Logistics and Supply Chain
Management
Demand Forecasting in Logistics and
Supply Chain
Demand Forecasting
Supply Forecasting
Price Forecasting
Demand Forecasting –analyzes how
much product your customers are likely
to want during a definite period in time.
Supply Forecasting – looks at a pool of
data about your existing suppliers,
dealers, producers and manufacturers. It
tries to seek whether they can actually
have the needed resources available
when needed and if they can provide
completed or parts that are assembled
further down the supply chain.
Price forecasting examines data related
to supply and demand to project how
each factor will affect prices.
 Importance of Demand Forecasting in
Logistics and Supply Chain
• Growing Customer Satisfaction
• Lowering Inventory Stock-outs
• Scheduling Production More Effectively
• Improve Delivery Management
Forecasting Process, Models &
Techniques
 Steps in the Forecasting Process
1. Determine the purpose of the forecast
2. Establish a time horizon
3. Select the variables to be forecasted
4. Obtain and analyze data
5. Select a forecasting model or technique(s)
6. Make the forecast
7. Validate and implement results
8. Monitor the forecast
3. Exponential Smoothing
Exponential smoothing calculates forecasts by giving
more weight to recent demands than to earlier
demands. This is one of the most frequently used
methods because of its often easier to calculate than
a weighted moving average and requires less data.
The information required for exponential smoothing
includes the last period’s forecasts, the last period’s
demand, and the smoothing parameter alpha (α).
This smoothing parameter has a value between 0 and
1.0.
March forecast:
= 1,200 + 0.20 (1,206-1,200)
= 1,200 + 0.20 (6)
= 1,200 + 1.2
= 1201.2

April forecast
= 1,201.20 + 0.2 (1,210-1201.20)
= 1,201.2 + 0.2 (8.78)
= 1,201.2 + 1.756
= 1,202.96

March forecast:
= 1,200 + 0.40 (1,206-1,200)
= 1,200 + 0.40 (6)
= 1,200 + 2.4
= 1202.40

April forecast
= 1,202.40 + 0.4 (1,210-1202.4)
= 1,202.40 + 0.4 (7.6)
= 1,202.40 + 3.04
= 1,205.44
 In a Nutshell
Forecasting reduces the risk related to the most
part of business activities and support in
making competent profession decisions as it
forms a basis for all strategic and planning
decisions.
Certainly, not all forecasting techniques are the
same. It depends on the purpose of the target
forecast.
 In a Nutshell
Every now and then its interest is focused on
how much product your suppliers can
provide. Occasionally, it’s about how much
your customers will demand. Then again,
there are also instance when forecasting must
examine how both supply and demand will
affect prices.
 In a Nutshell
In Supply Chain Management, one of the crucial
issues is keeping the right amount of product in
stock. Holding too little inventory means
running out at the most unexpected and
inappropriate times, triggering customers to
purchase elsewhere. On the other hand, having
too much stocks entails shelling out
unnecessarily excessive costs for storage and
inventory management.
 In a Nutshell
So how can you logically bargain for the census
between such two undesirable boundaries?
In the world of Supply Chain Management,
forecasting is the rejoinder.