Topics: Forecasting, Regression analysis, Future Pages: 19 (903 words) Published: January 4, 2013
Module 2
ITC

Ed. 2002

Unit 1

Unit 2

Unit 3

Unit 4

Unit 5

Introduction

What Needs
to be
Specified

Specifying
the Product
or Service

Quantity,
Delivery &
Service

the
Process

Learning Objectives
By the end of this Unit, you should be able to:
 Describe different types of demand patterns and explain the difference between dependent and independent demand.
 Explain the main different ways of forecasting demand.
 Describe the main issues to consider when specifying delivery and supplier service/responsiveness.
 Outline other types of information important to the supplier that should be included in a specification.
ITC

M2:U4:1

Purchase
Purchase
Specification

Specifying
the required
product/
service
Specifying
the quantity

ITC

Specifying
the delivery
requirements

Other
information
needed by the
supplier

Specifying
supplier service/
responsiveness

M2:U4:4.2-1

Action Point

4.2-1

The importance of good demand information
“Component Z: quantity: 1200 units at \$10.00 each
= \$ 12,000 total”
What other information do you need?

ITC

M2:U4:4.2-2

 Dependent demand
depends on demand
for something else
(e.g., steering wheels
for motor cars)

 Independent
demand relates to
standalone
requirements (e.g.,
capital purchases)

ITC

 Occasional
demand
 Continuous
demand
M2:U4:4.2-3

Characteristics of Demand
 Trend: constant, increasing or reducing. But may
change over the long-term.
 Cyclical fluctuations: Demand tends to increase or
decrease over extended periods of time due to
 Seasonality: influenced by weather, regular events
such as holidays, festivals, or the end or beginning
of financial years, etc.
 Random variations: when demand varies from the
underlying pattern due to unforeseen reasons.
ITC

M2:U4:4.2-3a

Demand characteristics
1. Trend:
a)

c)

b)

PAST

FUTURE

2. Cyclical fluctuations

PAST

FUTURE

3. Seasonality

PAST

FUTURE

4. Random variations

?
PAST

ITC

FUTURE

PAST

FUTURE

PAST

FUTURE

M2:U4:4.2-3b

Action Point

4.2-2

The characteristics of demand in your company
List two items purchased by your company where each of the
demand characteristics listed in the Coursebook applies. Explain your decision.
Item 1:

Item 2:

ITC

M2:U4:4.2-3c

Several methods of forecasting demand
Expert Opinion
Market Testing
Quantitative Analysis
Using Computer-based Materials Planning
System
ITC

M2:U4:4.2-4

 Expert opinion:
 Scenarios (best,
worst and likely)
 Delphi technique

 Market testing
 Sample of
population
 Trial sales
ITC

M2:U4:4.2-5

 Quantitative analysis:
 Time series analysis: use past demand data to
generate a forecast - works well for shortterm forecasts.
 Causal methods:establishing a cause-effect
relationship between independent variables and
the demand for a product. Linear regression!

ITC

M2:U4:4.2-6

 Using computer-based materials
planning systems:

ITC

MPR (Material Requirements Planning)
MPRII (Manufacturing Resource Planning)
DRP (Distributed Resource Planning)
ERP (Enterprise Resource Planning)

M2:U4:4.2-7

Action Point

4.2-3

Demand forecast - How would you do this for:
a) Photocopy paper
b) Spare part
c) Component
d) Software
e) Raw material
ITC

M2:U4:4.2-8

Forecasting techniques:
quantitative analysis
Time series analysis
Drawing the “best fit” trend line
Moving straight average
Moving weighted average
Moving exponentially weighted forecasts

Causal methods
Simple linear regression
Multiple linear regression
ITC

M2:U4:4.2-9

Projection techniques
Reviewing past demand data
DEMAND

Demand Data

80
60

50

40

30

35

25

20
0

10

0

-4

-3

-2

PAST
ITC

-1

0...