Introduction To Demand Forecasting Business Essay

Introduction To necessitate Forecasting agate line EssayIntroduction to Demand ForecastingForecasting provides an estimate of in hold on(predicate) adopt and the primer coat for training and sound business decisions. Since all geological formations take aim with an unknown succeeding(a), some wrongdoing between a look and tangible submit is to be expected. Thus, the goal of a good imageing technique is to minimize the deviation between actual accept and prognosticate. Since a look forward to is a prediction of the rising, factors that persuade demand, the impact of these factors, and whether these factors leave continue influence rising demands must be considered in spring uping an accurate announce. In addition, buyers and sellers should shargon all relevant information to generate a atomic number 53 consensus forecast so that the correct decision on the issue and demand dissolve be made. The benefits of a better forecast are cast down(a) inventories, reduce production line outs, smo opposite output curriculums, reduced costs and improve customer service. (Wisner, Tan, Leong, 2008)The impact of a poor communication and inaccurate forecast resonates all a commodious the supply string and results the bull whip do ca employ stock outs, lost sales, high cost of stock list and obsolesce, literal shortages, poor responsiveness to trade dynamics, and poor profitability. (Wisner, Tan, Leong, 2008)Matching Supply And DemandThe concept of matching supply with demand is straightforward. Just strike the repair balance between what your customers want and the ancestry investment require to interpret that demand. Demand foretell may be physical exertiond in reservation determine decisions, in assessing future capacity requirements, or in do decisions on whether to enter a new market. immediately a daylight business scenario is completely convince revived. Demand, supply, logistics, consentaneous supply range of moun tains trouble. Now we have consumer who are more foc utilise demanding. Whole buying air is turn into pull behavior where suppliers are more concern more or less consumers demand. Now a day retailer if supplier do non full fill the tar form requirement of retailer of even out quantity, veracious clock m right price that retailer would not wait long for supplier to fulfill requirement rather prefer to switch supplier. (Wisner, Tan, Leong, 2008) here(predicate) matching supply demand forecast help any companionship to slice the threat of stock out, sales, customer relationship, business loyalities.in holy order to bring home the bacon sound supply twine, supplier must have forecast the future conditions so they empennage meet the expected targets deliver right commodities to its customers in a easy-timed(a) manner cost effective approach. (Wisner, Tan, Leong, 2008)Of course, its not that easy. purchase too much wastes time, m nonpareily and space-and exposes you to potential losses from liquidating everywherestocks. Underestimating demand leads to backorders, cancellations and unsated customers who turn to your competitors. Incorporating SCM successfully leads to a new kind of competition on the global market where competition is no long-term of the familiarity versus company form exclusively rather takes on a supply mountain range versus supply chain form. (decisioncraft.com)The primary objective of supply chain instruction is to fulfill customer demands through and through the most efficient use of resources, including diffusion capacity, inventory and labor. In theory, a supply chain seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the supply chain embroil liaising with suppliers to eliminate bottlenecks sourcing strategically to strike a balance between lowest material cost and transfer of training, implementing JIT (Just In magazine) techniques to optimize manufacturing flow maintaining the right mix and location of factories and warehouses to serve customer markets, and using location/allocation, fomite routing analysis, dynamic programming and, of course, traditional logistics optimization to maximize the efficiency of the distribution side. (decisioncraft.com)The effects that inventory levels have on sales. In the extreme lesson of stock-outs, demand coming into your store is not converted to sales out-of-pocket to a lack of availability. Demand is also untapped when sales for an compass point are decreased due to a poor display location, or because the desired sizes are no longer addressable. (Wisner, Tan, Leong, 2008)Demand for an item will likely rise if a competitor increases the price or if you recruit the item in your weekly circular. The resulting sales increase mulls a change in demand as a result of consumers responding to stimuli that potentially bewilder additional sales. In this case demand presage uses techniques in causa tive moulding. Demand forecast modeling considers the size of the market and the dynamics of market share versus competitors and its effect on firm demand over a period of time.No demand vaticination method is 100% accurate. combine forecasts improve accuracy and reduce the likelihood of large errors. (Wisner, Tan, Leong, 2008)Purposes of ForecastingPurposes of short-run ForecastingAppropriate reapingion scheduling.Reducing costs of purchasing earthy materials.Determining appropriate price policySetting sales targets and establishing controls and incentives.Evolving a suitable advertising and promotional campaign.Forecasting short term financial requirements.Purposes of Long-Term Forecasting prep of a new unit or expansion of an animate unit.Planning long term financial requirements.Planning man-power requirements.(webcache.com)Length of ForecastsShort-term forecasts up to 12 months, e.g., sales quotas, inventory control, occupation schedules, formulation cash flows, bud geting.Medium-term 1-2 years, e.g., rate of maintenance, schedule of operations, and budgetary control over expenses.Long-term 3-10 years, e.g., capital expenditures, personnel requirements, financial requirements, raw material requirements.(Most enigmatical in nature)(webcache.com)Control Demand or tradement ofDemandThe place to management of demand is the effective management of the purchases of last(a) consumers.The management of demand consists in devising a sales strategy for a finicky product. It also consists in grooming a product, or features of a product, most which a sales strategy can be construct. Product design, model change, packaging and even achieveance reflect the regard to provide what are called strong selling points. (webcache.com)Forecasting TechniquesUnderstanding that the forecast is very ofttimes inaccurate does not mean that nothing can be through with(p) to improve e the forecast. Both quantitative and soft forecast can be improved by seeking inputs from merchandise partner in crimes. Qualitative forecasting methods are found on opinions and intuition whereas quantitative forecasting methods use mathematical models and relevant historic data to generate forecast.Qualitative MethodsThe qualitative methods are subdivided into. The four common qualitative forecasting models are,Jury Of executive OpinionQualitative forecasting in which a sort of ripened management executives who are knowledgeable about the market, competitors, and the business environment collectively developed the forecast.Delphi MethodQualitative forecasting in which a group of privileged and external experts are surveyed during several rounds in term of future events and long term forecasts of demand the group members do not physically meet. sales Force CompositeQualitative forecast generated based on the sales forces knowledge of the market and estimates of the customers need.Consumer SurveyA questioner administered through telephone, mail, inter net, or personal interviews that seeks inputs from customers on beta issues such as future buying habits, new product ideas, and opinions about existing products. (Wisner, Tan, Leong, 2008)Quantitative MethodsTime serial publication forecasting is based on the assumptions that the future is an extension of the past, thus, the historical that can be used to predict future demands. The components of time series data are,Trend VariationsEither increasing or decreasing ,movements over many years that are due to factors such as cosmos growth, population shifts, cultural changes, and in become shifts.Cyclical VariationsWave like movements that are longer than a year and influenced by macro economic and political factors. seasonal VariationsPeaks and valleys that repeat over a constant interval such as hours ,days, weeks, months, years, or seasons.Random VariationsRandom peaks and valleys those are due to unexpected or unpredictable events such as natural disasters (hurricanes, tornad oes, fire) strikes, and wars.(Wisner, Tan, Leong, 2008)collaborative Planning, Forecasting and replenishment (CPFR)Voluntary Inter industry Commerce Standards (VICS),a New Jersey based Association restores Collaborative Planning, Forecasting and Replenishment(CPFR) as, a business practice that combines the head of two or more trading partners in planning the slipway to fulfill the customer demand. They also explained the relationship that CPFR links best practices of sales and marketing, such as family line management, to the carrying into action of supply chain planning and completion member, to increase availability while reducing inventory, transportation and logistics costs. essentially CPFR is an approach that deals with the requirements for good demand management. The most involved industries with CPFR are consumer products and sustenance and beverage. (Collaborative Planning,Forecasting Replenishment CPFR)Objective of CPFRThe objective of CPFR is to optimize the sup ply chain act byImproving accuracy of forecasting demandDelivering the right product at the right time to the right locationReducing inventoryAvoiding stock outsImproving customer serviceBut the most important fact on which the achievement of objective and activities of CPFR depend is to have cooperative trading partners who share risk and information sharedly in the whole process.Without Collaborative planning and forecasting between the trading partners will take for the supply chain suboptimal, thus will result in less-than-maximum supply chain profits. (Wisner, Tan, Leong, 2008)Real value of CPFRIt is observed that forecasting developed merely by firm tends to be inaccurate most of the time so on that pointfore in CPFR when both(prenominal) the buyer and seller collaborate in forecasting, thusly it strains manageable to match buyer needs with supplier issue plans, thus ensuring competent replenishment. CPFR also helps in avoiding expensive corrections later on the fact when demand or promotions have changed. (Wisner, Tan, Leong, 2008)Benefits of CPFRStrengthens supply chain partner relationshipsProvides analysis of sales and order forecast which improves the forecast accuracyManage the demand chain and proactively eliminate problems in the lead they appearAllow coaction on future requirements and plansCombine planning, forecasting and logistic activitiesProvides efficient category management and lowstanding of consumer purchasing patterns (Wisner, Tan, Leong, 2008)Example 1West nautical is one of the companies that has peachyly benefited by implementing CPFR.They had CPFR relationships with 200 suppliers, 85 percent forecast accuracy, and 80 percent on-time shipments.For CPFR success collaboration with external part is important, and it is equally important that effective collaboration within the company is emphasized. For example logistics, planning and replenishment personnel must go closely together.Example 2CPFR was also impleme nted by ITTs Jabsco division, West Marines largest customer. During the process they experienced a reduction in cycle time from twenty-five days to trey days, an increase in total sales of 11 percent, and a great improvement in on-time deliveries from 74 to 94 percent.Example 3Wal-Mart is one of the early implementer of CPFR. CPFR enabled Wal-Mart to move into Just-in-Time (JIT) system that resulted in significant savings in inventory carrying costs for Wal-Mart, as well up as its suppliers.Example 4In late 1990s, most of the large American-based multinational companies such as Procter Gamble (PG) and Wal-Mart enter into a system called Collaborative Planning, forecasting and Replenishment. (Williams)Challenges for CPFR carrying outThere are top three difficulties faced by schemes in implementing CPFRMaking internal changes Internal changes must alship canal be tackled by top management as change is always difficult but if the top management is dedicated to the project and in e ducating employees about the benefits of CPFR then there are more chances of getting a successful internal change.Total implementation cost Although cost is an important factor to be considered always but companies must determine whether they are at a competitive disadvantage.Trust is one of the biggest hurdles in general implementation of CPFR as many retailers are unwilling to share the information required to implement CPFR. For example Wal-Mart may be willing to share their reasonable data with the Wal-Mart only as they do not want other suppliers to know their information.(Wisner, Tan, Leong, 2008)Emerging TrendsCompanies are finding new and innovative ways to collaborate. For example, Procter and Gamble has implemented CPFR not only with some of its retail customers, but also with its suppliers, and even inside the company, between functions and divisions. (Sheffi, 2002)Standard CPFR Trading teammate ProcessesSource 2008 Hypatia Research, LLC.(Collaborative Planning,Forecas ting Replenishment CPFR)CPFR Key TenetsThe consumer is the ultimate focus of all effortsBuyers (retailers) and sellers ( shapers) collaborate at every level sum forecasting and order planning reduces surprises in the supply chainThe timing and quantity of physical flows is synchronised across all partiesPromotions no longer serve as disturbances in the supply chainException management is systemized (Edward, 2003)CPFR Process ModelThe CPFR reference book model provides a framework for planning, forecasting and replenishment process. Figure on a lower floor represents the framework components. A buyer and a seller work as Collaboration Partners and work together to satisfy the customer demand which at the centre of the model.http//www.sql-server-performance.com/admin/article_images_new/2008_images/BI_Collaborative_Planning_Forecasting_Replenishment/Image1.jpgThe key CPFR activities to enhance performance of Collaboration partners are 1. schema Planning Establish the rules for col laborative relationship. Determine the product mix and develop event plans for the period.2.Demand and Supply charge Project consumer (POS) demand, as well as order and shipment requirements over the planning period.3.Execution roll orders, prepare and deliver shipments, receive and stock products in retail stores, bear witness sales transactions and educate payments.4.Analysis Monitor planning and murder activities for exception conditions. Aggregate results and calculate KPIs. Share insights and adjust plans for better performance. (www.ncsm.edu)CPFR Tasks in DetailTo understand in greater detail what businesses and their trading partners need to plan as part of their collaboration activities we need to analyze the designates under each of the four place Collaboration Activities. The collaborations tasks and their mapping to collaboration activities is tending(p) in the table below CPFR action mechanism Task MappingCPFR ActivityCPFR TaskTrading PartnersStrategy Plannin gCollaboration Arrangement Joint Business PlanManufacturer, RetailerDemand Supply Management sales Forecasting revisal Planning/ForecastingManufacturer, RetailerExecutionOrder GenerationOrder FulfillmentManufacturer, RetailerAnalysisException ManagementPerformance AssessmentManufacturer, Retailer(www.12manage.com)(www.ncsm.edu)CPFR in ActionOrganizations can get under ones skin with successful CPFR with cooperation and timely plans. This combined approach helps all the trading partners such as retailers and manufacturers to unite in a formal agreement to perform the supply chain processes and establish a correlative business plan. The CPFR softwares enables manufacturers, distributors and retailers to make the right decision about the material, stock and other resources required before placing the final order.CPFR is one of the powerful tools as it supports the whole supply chain process followed by nine meters defined as (Edward, 2003) arrange I PlanningIn this phase, the emph asis is on developing broker of trust between the people so that they go against devoted work at distinguishable stages and processes. All types of barrier should be removed by the companys top management such as cultural barriers so that employees may feel comfortable working with them and will remain motivated towards their task performance.Firstly, the trading partners must clearly share their identities and processes in order to make a stronger bond between them, thus, the strong relationship will later help in setting a standard benchmark with mutual acceptance making more chances to be successful in achieving their organization targets. (Edward, 2003)There are two major steps that make up a front-end agreement and a joint business plan. standard 1 Developing Collaboration AgreementThe Business Intelligence modules allow partners to define and measure specific KPIs. Web Planning hold ins that all partners have introduction to the information simultaneously, while the Porta l makes all the data and information macroscopic across the supply chain. (Edward, 2003)The buyers and sellers must agree on the objectives of collaboration, ground rules, for solution disagreements, confidentiality of information to be shared, sales forecast exception criteria, review cycle, time frame, and frozen time period with acceptable tolerance, financial incentives and success metrics. (Wisner, Tan, Leong, 2008)Step 2 Crafting a Joint Business PlanA joint business plan is developed by sharing the companies business strategies and plans. The plan typically involves developing a joint product category and promotional plan in which the appropriate category strategies inventory policies, promotional activities, and pricing policies are specified. (Wisner, Tan, Leong, 2008)The front-end agreement should produce a long-term pact spanning the emotional state of the business. Obviously, an enormous amount of information will flow between partners. Who should get what? When? Wh ere? How much should they get (Edward, 2003)Phase II ForecastingThe J.D. Edwards CPFR solution begins with a collaborative forecast of end-user demand and continues through all aspects of supply chain planning, providing support for both long-term and day-to-day decisions. In Phase II, an organization creates the sales forecast, which then affords into the order forecast. (Edward, 2003)Step 3 Forecasting SalesUsing the Demand Forecasting application, organizations can build multi-dimensional models, which may include product hierarchies, geographies, railway lines, and specific customers. Causal variables such as pricing, promotions, and new store origins can also be completely integrated. In addition, historical data can be combined with near real time variations in the channel to get the most accurate forecast. (Edward, 2003)Either partner or both partners may generate the sales forecast. The forecasting techniques used can be qualitative or quantitative. When both partners ea ch generate a forcast, middleware is used to highlight the difference, based on predetermined exception criteria previously concord upon by the partners. (Wisner, Tan, Leong, 2008)Steps 4 and 5 Collaborating to Develop a divided ForecastBeginning with Demand Forecastings statistical forecast, users can make changes to an existing forecast or import their own forecast based on the most up-to-date information.Multiple forecasts can be sinkd using a powerful algorithm that takes into account the historical accuracy of different forecast contributors. Exceptions are easily identified and messages are sent to reconcile unusual items.Examples of sales forecast exception criteria are retail in stock is less then 95 %, sales forecast error is greater the 20 %, the difference in sales forecast from the selfsame(prenominal) period of the previous year is greater then 10%, or any changes that have occurred in timing of promotional active stores, The real-time joint decision making reduces the risk increase the confidence in the single forecast. (Wisner, Tan, Leong, 2008)Each contributor (partner, supplier, and customer) becomes an intact part of the real-time collaborative process. The final enterprise forecast is the combination of the most accurate and timely information available.(Edward, 2003)Step 6 Forecasting OrdersThe order forecast relies on point-of-sale (POS) data, causal information, and inventory strategies to generate a specific forecast that supports the shared sales forecast. Actual volume numbers are time-phased and reflect inventory objectives sorted by product and receiving location. The order forecast allows the manufacturer to allocate production capacity against demand while minimizing safety stock.J.D. Edwards supports this process by systematically aligning production capacity and scheduling items to give retailers increased confidence that orders will be delivered. With Production and Distribution Planning, it is possible to break down the sales forecast by sales period, sales region, and to more specific levels, such as individual stores. The order forecast integrates the sales forecast with order requirements to develop specific demand at retail level. Production and Distribution Planning ensures that the right product is built and delivered to the right aisle of the right store at the right time.In turn, Production and Distribution Planning works with Production Scheduling, breaking down production requirements on a daily or even hourly basis to ensure that the correct capacity and throughput are optimized to fill the obligatory order. Operating through real-time collaboration reduces the uncertainty between trading partners and leads to consolidated supply chain inventories.Inventory levels are decreased, customer responsiveness is increased, and a platform for continual improvement among trading partners is established.(Edward, 2003)Steps 7 and 8 Identifying and Resolving ExceptionsIdentifying exceptions, deter mines what items fall outside the order forecast constraints established by the partners. The result is a list of exception items that are identified using the criteria established in the front-end agreement.Step eight, resolving exceptions, involves the process of analyze order forecast exceptions by querying shared data and submitting results to changes in the order forecast. Once again, the guidelines set down in the front-end agreement (or negotiations among partners) determine how those exceptions are resolved. (Edward, 2003)Phase III ExecutingDuring the final CPFR phase, front-end planning and forecasting come together with supply chain execution. Through J.D. Edwards collaborative CPFR solution, the order is generated and perpetrate to livery, enabling successful order delivery execution.Step 9 Generating OrdersThe final step in the CPFR process is generating the order and promising the delivery. The essence of maintaining unequivocal relationships with partners and cust omers is to deliver on promises.Order Promising tags inventory (or raw materials) and addresses production schedules and transportation constraints to ensure that the product is ready when needed. Using Order Promising, companies can instantly determine where orders can best be satisfied from inventory at any location, planned production orders, or purchase receipts. When there is a promotion (such as a new store opening or product launch), Order Promising allows companies to quote future delivery dates or other key information related to the event. (Edward, 2003)Step 10 Executing to the CPFR PlanAlthough order generation is the ninth and final step of the formal CPFR model, the process doesnt end there. In effect, there is a one-tenth step involving execution of the order. This is whereJ.D. Edwards distinguishes itself. Once CPFR planning is complete, the model can feed data directly into J.D. Edwards Supply Chain Execution applications. Manufacturing, warehousing, order fulfillm ent, and transportation plans are completely synchronized into an integrated package to monitor and ensure on-time execution of the order delivery process.(Edward, 2003)ConclusionProper demand forecasting enables better planning and utilization of resources for business to be competitive. Forecasting is an integral part of demand management since it provides an estimate of the future demand and the basis for planning and making sound business decisions. A mismatch in supply and demand could result in excessive inventory and stock outs and loss of profit and goodwill. Both qualitative and quantitative methods are available to help companies forecast demand better. Since forecasts are seldom completely accurate, management must monitor forecast errors and make the necessary improvement to the forecasting process.Forecast made in isolation tend to be inaccurate. Collaborative planning, forecasting, and replenishment are an approach is which companies work together to develop inversely agreeable plans and take responsibility for their actions. The objectives of CPFR is to optimize the supply chain by generating a consensus demand forecast, delivering the right product at the right time to the right location, reducing inventories, avoiding stock outs, and improving customer services. Major corporations such as Wall-Mart, Warner-Lambert, and Proctor Gamble are early adopters of CPFR. Although the benefits of CPFR are well recognized, wide spread adoption has not materialized.