ForecastingandAggregatePlanning-The.pptVIP

8/29/00 S. Chopra / Demand Planning Planning Demand and Supply in a Supply Chain Forecasting and Aggregate Planning Chapters 8 and 9 Learning Objectives Overview of forecasting Forecast errors Aggregate planning in the supply chain Managing demand Managing capacity Phases of Supply Chain Decisions Strategy or design: Forecast Planning: Forecast Operation/Execution Actual demand Since actual demands differ from the forecasts, … so does the execution from the plans. E.g. Supply Chain degree plans for 40 students per year whereas the actual is ?? Characteristics of forecasts Forecasts are always wrong. Include expected value and measure of error. Long-term forecasts are less accurate than short-term forecasts. Too long term forecasts are useless: Forecast horizon Forecasting to determine Raw material purchases for the next week; Ericsson Annual electricity generation capacity in TX for the next 30 years; Texas Utilities Boat traffic intensity in the upper Mississippi until year 2100; Army Corps of Engineers Aggregate forecasts are more accurate than disaggregate forecasts Variance of aggregate is smaller because extremes cancel out Two samples: {3,5} and {2,6}. Averages: 4 and 4. Totals : 8 and 8. Variance of sample averages/totals=0 Variance of {3,5,2,6}=5/2 Several ways to aggregate Products into product groups; Telecom switch boxes Demand by location; Texas region Demand by time; April demand Forecasting Methods Qualitative Expert opinion E.g. Why do you listen to Wall Street stock analysts? What if we all listen to the same analyst? S/He becomes right! Time Series Static Adaptive Causal: Linear regression Forecast Simulation for planning purposes Components of an observation Observed demand (O) = Systematic component (S) + Random component (R) A touch of philosophy: Is the world random or everything is pre-determined? Pragmatic answer: Everything we cannot afford to study in detail is random!