Mbpfc7 - Managing Flow Variability: Safety Inventory:...

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1 Managing Flow Variability: Safety Inventory: Chapter 7 Managing the Supply Chain Economies of Scale (Chapter 6) Managing Flow Variability: Safety Inventory (Chapter 7) Characteristics of Forecasts Continuous Review System (Reorder Point Policy) Inventory Pooling Accurate Response (News vendor model) Postponement / Delayed Differentiation Service level depends on flow rate variability Operational levers to reduce flow variability
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2 Demand uncertainty and forecasting Forecasts depend on historical data “market intelligence” Forecasts are always wrong. A good forecast has at least 2 numbers Point forecast Forecast error Demand = 250 +/- 65 units Aggregate forecasts tend to be more accurate. The longer the forecast horizon, the less accurate the forecast. Forecast models Time-series analysis Causal models
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Time Series Models Predict future as a function of the past Based on a series of evenly spaced (weeks, months etc.) data points Break data into components and project the components forward Trend (T) Seasonality (S) Cycle (C) Random (R)
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Time Series Models Naive demand in next period = demand this period Moving Averages Assumes Market demand is fairly steady Average Demand of n most recent time periods Moving average = Demand in n periods)/ n
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Naïve Example @ Bob’s Hardware Month (t) Actual Mower Sales Forecast (t+1) = Demand (t) Jan 10 Feb 10 March 13 12 April 16 May 19 June 23 July 26
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Example: Moving Average @ Bob’s Hardware Month (t) Actual Mower Sales Forecast (t+1) Jan 10 Feb 12 March 13 April 16 (10 + 12 + 13)/3 = 11 2/3 = 12 May 19 (12 + 13 + 16)/3 = 13 2/3 =14 June 23 (13 + 16 + 19)/3 = 16 July 26 (16 + 19 + 23)/3 = 19 1/3 = 19 August
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What is the 3 month moving average for August? A. 16 B. 23 C. 26 D. 30 Month (t) Actual Mower Sales Jan 10 Feb 12 March 13 April 16 (10 + 12 + 13)/3 = 11 2/3 = 12 May 19 (12 + 13 + 16)/3 = 13 2/3 =14 June 23 July 26 (16 + 19 + 23)/3 = 19 1/3 = 19 August
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What is the 3 month moving average for August? A.16 B. 23 C. 26 D. 30 F August = (19+23+26)/3 = 22 2/3 = 23 Month (t) Actual Mower Sales Jan 10 Feb 12 March 13 April 16 (10 + 12 + 13)/3 = 11 2/3 = 12 May 19 (12 + 13 + 16)/3 = 13 2/3 =14 June 23 July 26 (16 + 19 + 23)/3 = 19 1/3 = 19 August
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Weighted Moving Average (WMA) Useful with long-run trend in demand Weight most recent demand the heaviest
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Mbpfc7 - Managing Flow Variability: Safety Inventory:...

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