Demand Management

Demand Management

1. Sources of the demand

   • internal customer orders
   • external customer orders
   • forecast

2. Definition

   • the function of recognizing and managing all demands for products, occurring in the
     • long term: demand projections are needed for strategic business planning
     • medium term: project aggregate demand for production planning.
     • short term: needed for items and is associated with master production scheduling

3. Demand patterns

   • trends
   • seasonality
   • random variation

4. forecasting techniques

   • qualitative
   • quantitative
     • intrinsic
       • moving average
       • exponential soothing
       • weighted moving average
     • extrinsic

5. Principles of forecasting

   • forecasts are never 100% right
   • every forecast should include an estimate of error
   • forecasts are more accurate for families or groups
   • forecasts are more accurate for nearer time periods

6. Tracking the forecast

   • forecast error
     • bias
       • systematic error in which the actual demand is consistently above or below the forecast demand. When bias exists, the forecast should be changed to improve its accuracy
     • random variation
       • depends upon the demand pattern of the product. Some products will have a stable demand, and the variation will not be large. Others will be unstable and will have a large variation.
   • mean absolute deviation
     • tracking signal
       • Tracking signal = algebraic sum of forecast errors / MAD
     • MAD = sum of absolute deviations / number of observations