05-Forecasting_Slide-1

05-Forecasting_Slide-1 - Demand Management and Forecasting...

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Demand Management and Forecasting Ronald S. Lau, Ph.D. HKUST ISOM
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Introduction Forecasting in Demand Management Quality Management Strategic Design Time Series Forecasting Models Manufacturing System Design Issues Best Practices and Improvement Service System Design Issues Project Management Corporate Social Responsibility and Sustainability Direct and Design Plan and Control Develop Demand Management and Forecasting Capacity and Revenue Management Inventory Management Resource Planning and Control
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Intended learning outcomes Forecasting in demand management Describe the role of forecasts in demand management Describe the bullwhip effect and how to alleviate the problem List the major principles of demand forecasting methodology Identify the trend and seasonal patterns in a time series List the major types of forecasting techniques and their limitations Know how to evaluate the accuracy of forecasting errors by computing MAD, MSE, and MAPE Use tracking signals to monitor a forecasting model’s performance 3
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Demand management Demand management is a process for optimizing the customer demand with available capacity to maximize a company’s profit Revenue: How much to sell and at what price? Cost: How much capacity to maintain and at what cost? Common approaches and tactics Take a passive role to forecast and respond to customer demand Take an active role to influence or prioritize customer demand 4
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Demand management process model Planning Demand Communicating Demand Influencing Demand Prioritizing Demand Source: Oliver Wight International 5
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Bullwhip effect Bullwhip effect: Increasing variability of orders up the supply chain The term has been coined by managers of Procter and Gamble when examining the demand for Pampers disposal diapers 6
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Counteracting the bullwhip effect (1) Avoid multiple demand forecast updates Ordering decisions should always be based on ultimate customer demand and not on the ordering behavior of an immediate downstream partner Use point-of-sale (POS) data and better forecasting techniques Implement vendor managed inventory (VMI) Break order batches Large order batches usually save transportation costs but also create more fluctuation More frequent and smaller orders (with assortment) should be applied whenever they are economically feasible 7
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Counteracting the bullwhip effect (2) Eliminate gaming in shortage situations Problem: Customers often order additional, non-required amounts as they expect to have only a portion of their orders filled in shortage situation Impose more stringent cancellation policies Accept only orders in proportion to past sales records Sharing of capacity and inventory information Stabilize prices and demand Coordinate more carefully any promotional activities Use “every - day low price” policy 8
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Beer Game Origin of the Beer Game A role-
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05-Forecasting_Slide-1 - Demand Management and Forecasting...

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