Logistics and
Supply Chain Management
Dr. Rahul V Altekar
Email: altekarrahul@[Link]
Mobile: +91 98200 53 1 44
Text Book
“Supply Chain Management: Concepts and
Cases”, Rahul Altekar, Prentice Hall of India,
2019 Edition
– Chapter 1: Introduction – All topics
– Chapter 2: Demand Management – pg 12 to 23
– Chapter 3: Operations Management - pg 93 to 99
– Chapter 5: Logistics Management – pg 216 to 225
– Chapter 6: IT For SCM – All topics
Logistics and Supply Chain Management
Session 1: Demand Management & Forecasting
Dr Rahul V Altekar
3
Learning Objectives
• Advanced Demand Forecasting Modeling: Understanding the
variables and constants of forecasting
• Forecasting approaches: Qualitative and Quantitative, Using different
algorithms for forecasting
• Forecast Performance Measurement: Why and how to measure
forecasting accuracy, Common techniques of error measurement.
• In class Exercise : Time Series Modeling
• Live Walkthrough of Demand Tool
– Understanding Concept of Forecasting Level (DFU)
– Understanding Advanced Forecasting Process
– Exposure to Demand Analytics and its practical application in Industry
– Understanding the power of Advanced Demand Planning Software
4
Learning Objectives con’t
• New Product Forecasting: Process Overview
and different approaches in different
industries
• Case Study of Media Industry on New Product
Forecasting: Using Advanced Analytics
Software
5
Principles of Forecasting: Chapter 2
Many types of forecasting models that differ in
complexity and amount of data & way they
generate forecasts:
1. Forecasts are rarely perfect
2. Forecasts are more accurate for grouped
data than for individual items
3. Forecast are more accurate for shorter than
longer time periods
6
Types of Forecasting Methods
• Decide what needs to be forecast
– Level of detail, units of analysis & time horizon required
• Evaluate and analyze appropriate data
– Identify needed data & whether it’s available
• Select and test the forecasting model
– Cost, ease of use & accuracy
• Generate the forecast
• Monitor forecast accuracy over time
7
Types of Forecasting Methods
• Forecasting methods are classified into two
groups:
Types of Forecasting Models
• Qualitative methods – judgmental methods
– Forecasts generated subjectively by the
forecaster
– Educated guesses
• Quantitative methods – based on mathematical
modeling:
– Forecasts generated through mathematical
modeling
Qualitative Methods
Type Characteristics Strengths Weaknesses
Executive A group of managers Good for strategic or One person's opinion
opinion meet & come up with new-product can dominate the
a forecast forecasting forecast
Market Uses surveys & Good determinant of It can be difficult to
research interviews to identify customer preferences develop a good
customer preferences questionnaire
Delphi Seeks to develop a Excellent for Time consuming to
method consensus among a forecasting long-term develop
group of experts product demand,
technological
changes, and
Quantitative Methods
• Time Series Models:
– Assumes information needed to generate a forecast is
contained in a time series of data
– Assumes the future will follow same patterns as the past
• Causal Models or Associative Models
– Explores cause-and-effect relationships
– Uses leading indicators to predict the future
– Housing starts and appliance sales
Time Series Models
• Forecaster looks for data patterns as
– Data = historic pattern + random variation
• Historic pattern to be forecasted:
– Level (long-term average) – data fluctuates around a constant mean
– Trend – data exhibits an increasing or decreasing pattern
– Seasonality – any pattern that regularly repeats itself and is of a
constant length
– Cycle – patterns created by economic fluctuations
• Random Variation cannot be predicted
Time Series Patterns
Time Series Models
• Naive: Ft +1 = At
– The forecast is equal to the actual value observed during the
last period – good for level patterns
• Simple Mean: Ft +1 = A t / n
– The average of all available data - good for level patterns
• Moving Average: Ft +1 = A t / n
– The average value over a set time period
(e.g.: the last four weeks)
– Each new forecast drops the oldest data point & adds a new
observation
– More responsive to a trend but still lags behind actual data
14
Time Series Models con’t
• Weighted Moving Average: Ft +1 = C t A t
• All weights must add to 100% or 1.00
e.g. Ct .5, Ct-1 .3, Ct-2 .2 (weights add to 1.0)
• Allows emphasizing one period over others; above
indicates more weight on recent data (Ct=.5)
• Differs from the simple moving average that weighs all
periods equally - more responsive to trends
Time Series Models con’t
• Exponential Smoothing: Ft +1 = αA t + (1 − α )Ft
Most frequently used time series method because of ease
of use and minimal amount of data needed
• Need just three pieces of
data to start:
– Last period’s forecast (Ft)
– Last periods actual value (At)
– Select value of smoothing coefficient, ,between 0 and 1.0
• If no last period forecast is available, average the last few
periods or use naive method
• Higher values (e.g. .7 or .8) may place too much weight
on last period’s random variation
16
Time Series Problem
• Determine forecast for periods 7 & Period Actual
8 1 300
• 2-period moving average
2 315
• 4-period moving average
3 290
• 2-period weighted moving average
4 345
with t-1 weighted 0.6 and t-2
weighted 0.4 5 320
• Exponential smoothing with 6 360
alpha=0.2 and the period 6 forecast 7 375
being 375
8
Time Series Problem Solution
Period Actual 2-Period 4-Period [Link]. Expon. Smooth.
1 300
2 315
3 290
4 345
5 320
6 360
7 375 340.0 328.8 344.0 372.0
8 367.5 350.0 369.0 372.6
18
