Demand Forecasting

CHAPTER?

DEMAND FORECASTING IN A
S UPPLY CHAIN

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Learning Objectives
After reading this chapter, you will be able to:

1. Understand the role of forecasting for both an enterprise and a supply chain. 2. Identify the components of a demand forecast. 3. Forecast demand in a supply chain given historical demand data using time-series methodologies. 4. Analyze demand forecasts to estimate forecast error.

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7.1

orecasts of future demand are essential for making supply chain decisions. In this chapter, we explain how historical demand information can be used to forecast future demand and how these forecasts affect the supply chain. We describe several methods to forecast demand and estimate a forecast's accuracy. We then discuss how these methods can be implemented using Microsoft Excel.

THE ROLE OF FORECASTING IN A SUPPLY CHAIN

Demand forecasts form the basis of all supply chain planning. Consider the push/pull view of the supply chain discussed in Chapter 1. All push processes in the supply chain are performed in anticipation of customer demand, whereas all pull processes are per­ formed in response to customer demand. For push processes, a manager must plan the level of activity, be it production, transportation, or any other planned activity. For pull processes, a manager must plan the level of available capacity and inventory but not the actual amount to be executed. In both instances, the first step a manager must take is to forecast what customer demand will be. \ For example, Dell orders PC components in anticipation of customer orders, whereas it performs assembly in response to customer orders. Dell uses a forecast of future demand to determine the quantity of components to have on hand (a push process) and to determine the capacity needed in its plants (for pull production). Farther up the supply chain, Intel also needs forecasts to determine its own produc­ tion and inventory levels. Intel's suppliers also need forecasts for the... [continues]

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