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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
business cycles, product life-cycles, etc.
 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
Trend- and seasonality-adjusted 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...
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