BEM 241: Exam 3

Term
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Forecast
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Terms in this set (49)
Forecast
Prediction of what will occur in the future
What makes Forecasting difficult
- Consumers have more product choices and more access to information
- Consumers demand and receive higher product diversity
Qualitative Forecast Methods
Subjective methods
Quantitative Forecast Methods
Based on Mathematical formulas
Supply Chain
encompasses all of the facilities, functions, and activities involved in producing a product or a service from suppliers
A Factor that affects Supply chain in the short run
product demand
Factors that affect the supply chain in the long run
new products and processes, tech advances, changing markets
bullwhip effect
distortion of information about product demand as it is transmitted back to suppliers through the supply chain
continuous replenishment
- continuous updating of data is shared between suppliers and customers
- Forms: just-in-time, Vendor-managed-inventory, supplier managed inventory, stockless inventory
Components of Forecast
- time frame
- demand behavior
- Forecasting Process
- Forecasting Method
time frameIndicates how far into the future is forecast - ex: short-to-mid range, long range (anything past 2 yrs)3 types of Demand behavior1. Trend 2. Cycles 3. Seasonal Patterns3 types of Forecasting Methods1. Regression Forecasting Method 2. Delphi Method 3. Data MiningTime Series MethodsUse historical demand over a period of time to predict future demandMoving Averageuses average demand for a fixed sequence of periods - good when demand is stable and does not display any pronounced demand behaviorExponential SmoothingAveraging method that reacts more strongly to recent changes in demand - forecast tends to lag the trend - good when recent data changes are significant and unpredictable instead of just randomadjusted exponential smoothingexponential smoothing forecast with an adjustment for a trend added to itlinear trendmodel relating demand to time - good when demand displays obvious trend over timeinventorystock of items kept to meet future demandSupply Chain Management Primary Objectiveprovide high-levels of customer service in terms of on-time deliveryBenefits of Inventory- cushion from bullwhip effect - prepared for seasonal or cyclical demand - provides independence from suppliers - provides independence between stages and prevents work stoppages - take advantage of price discountsInventory costs- Carrying cost : cost to hold an item of inventory - ordering cost: cost to replenish inventory - Shortage Cost: temp or permanent loss of sales when demand cannot be metEconomic Order Qty (EOQ)- continuous inventory System - optimal order qty will min total inventory costsEOQ model assumptions- Demand is known, constant, and independent - Lead time is known and constant - Receipt of inventory is instantaneous and complete - No quantity discounts - Only variable costs are setup and holding - Stock outs can be completely avoidedProduction Quantity ModelOrder is received gradually, as inventory is simultaneously being depletedQuantity Discount Modelprice per unit decreases as order qty goes upDependent Demanditems are usually internally to produce a final productindependent demandfinal products demanded by external consumersInventory Control SystemsControls the level of inventory by determining how much to order and when to order - 2 types 1. Continuous 2. Periodiccontinuous inventory Systemconstant amount ordered when inventory declines to predetermined levelPeriodic Inventory Systeman order is placed for a fixed amount after a fixed period of timeABC Systeminventory classification system in which small % of (a) items account for most of the inventory valueSeasonal FactorAdjust for seasonality by multiplying the normal forecast by a seasonal factorLinear regressionmathematical technique that relates a dependent variable to an independent variable in the form a linear equationCorrelationmeasure of the strength of the relationship between independent and dependent variablesCoefficient of DeterminationPercentage of variation in the dependent variable that results from the independent variableMultiple Regressionrelationship of demand to two or more independent variablesForecast Errordifference between the forecast and the actual demandMean Absolute Deviation (MAD)the average absolute difference between the forecast and demand - most popular form to measure errorMean Absolute Percent Deviation (MAPD)Absolute error as percent of demand - eliminates problem of interpreting the measure of accuracy relative to the magnitude of the demand and forecast valuesCumulative Errorsum of the forecast errors - large positive value means that the forecast consistently underestimates demand -large negative value means that the forecast consistently overestimates demandAverage error (bias)the per-period average of cumulative error - positive value = low bias - negative value = high biasTracking signalmonitors the forecast to see if it is biased high or low - recomputed each periodMean Squared Error (MSE)Average of the squared forecast errorsRevenue ManagementMaximizes the yield of time-sensitive products and servicesReorder PointLevel of inventory at which a new order should be placedstockoutan inventory shortagesafety stocka buffer added to the inventory on hand during lead timeservice levelProbability that the inventory during lead time will meet demand