Demand forecasting in supply chain management

Prepared By: 1. 2. 3. 4. Amith .M Chetan C.S Sanjay bagriya Yogeshkumar Joshi

Introduction
Supply Chain Management (SCM) can be best described as the natural extension of the downsizing (right-sizing) and re-engineering performed by the organization(s) in the past. Downsizing and re-engineering transformed the enterprises into lean and mean competitive units, by cost cutting and process simplifications. These operations (of downsizing and re-engineering) involved the optimization (in terms of the number of persons involved, the time taken, the complexity of the work etc.) of business units (functional and/or administrative domains) over which the organizations had full control. These strategies did lead to increased productivity and profitability of the organizations but as the benefits of these leveled off, it was realized that the approach to the way organizations work needed to be changed. The above changes were a by-product of the isolationist (closed system) world picture of the enterprises involved in the full value chain; with organizations (the system) trying to survive in an hostile environment; assuming that all other participants in the value chain were adversaries with whom the organization must compete, even though the operations performed by the separate organizations may be supplementary in nature rather than complementary. The realization that this world picture was an impediment to the growth of organizations prompted the enterprises to start seeking strategic alliances with other organizations. The formation of these alliances required a basis (a common ground) which would be acceptable to each and every partner in the alliance. This common basis is/was supplied by the participation of the organizations in the value chain (the demand-supply chain). The participants in the chain, suppliers, sub-contract suppliers, in house product processes, transportation, distribution, warehouses, and the end customer, generally,

perform mutually exclusive tasks and thus do not compete directly with each other.

Issues in SCM
A supply chain encompasses all the activities, functions and facilities involved in producing and delivering a product and/or service, from suppliers (and their suppliers) to the customers. The supply chain management (SCM) paradigm is geared towards optimizing each component of what used to be called (Production and) Operations management (production, warehousing, inventory, transportation and distribution etc.) and the inter-links between these components synergistically. In the 70s and the 80s, various models for production and operations control and management were developed: Just-InTime (JIT) Inventory management model, Vendor Managed Inventory (VMI) model, Zero Inventory (ZI) model, Total Quality Management (TQM) etc. These models focused on the various components of the supply chain in isolation, this implies that these models were oriented towards the optimization of a sub-part of the system whereas the SCM paradigm aims at the optimization of the full chain. This leads to trade-offs among the different components of the supply chain. For example, JIT would require a factory to keep inventories low and produce and distribute products in a timely manner, however JIT ignores many other aspects which cannot be seen independently, e.g. if the availability of the input materials is uncertain and irregular, the factory may need to insure smooth and continuous production. Similarly, regional stocking may permit reductions in transportation costs through increased shipment consolidation, as well as expanded sales through better delivery performance. These improvements may be accomplished with only moderate increases in inventory and warehousing cost(s). However, in an

environment where different functional units manage the various logistics activities independently, an organization is less likely to properly analyze such important trade-offs.

Fig. -1 : Interdependence of supply chain with other functional domains in an enterprise. Moreover, these models also ignore the interdependency of production and operations functions with other domains within an organization, such as marketing and finance. Marketing decisions have serious impact on logistics function and vice-versa. For example, a marketing promotion campaign should be coordinated with production planning, since a higher demand may be expected. On the other hand, when raw materials are cheap, or when the factory temporarily has an over-capacity, the marketing department may decide to cut prices and/or start other promotion campaigns during these periods to increase demands. Also, financial decisions are driven by production and logistics decisions. Production of new products requires the investment in raw materials and consumes other change-over costs. Financial managers have to be aware of the increased demand for capital to finance the production plan. Likewise, the delivery of finished products generates

financial income, so the forecast demand can be used to calculate/forecast the accounts payable and receivable in the future. The above description means that production, finance and marketing decisions cannot be made independently (fig.1). All these decisions are driven by the activities in the supply chain of a manufacturing company. Fig.-1 shows a simple representation of the interdependence of the supply chain and the other functional domains in the organization. The links between the (other) functional domains - marketing, sales, human resources etc. - are not shown. The linkage between the supply chain components and the other functional domains relies heavily on information sharing to have an effective impact. One other major factor in the current scenario is the globalization of the supply chain. With the fall of the East-European socialist bloc and the opening of the Asian market, the trade barriers began falling in the 1980s and the 90s. This lead to organizations having a supply chain that criss-crossed the globe. The proliferation of trade agreements - EC, ASEAN, NAFTA, APEC, etc. - has changed the global market. SCM now has become not only a problem of logistics but also demands that supply chain management must look into the ramifications of these agreements on the cost of transportation (including tariffs or duties) of products within a trade zone and outside it[1]. Furthermore, organizations now acknowledge that efficient consumer response (ECR) can lead to competitive edge. SCM is tantamount to coordinating all the operations of an organization with the operations of the suppliers and customers. Effective SCM strategies are essential for successful implementation of ECR programmers. Thus, a production planning and control model that focuses on all the aspects of the operations and distribution activities and links with other functional domains such as finance

and marketing is needed. The supply chain management model should also perform the task of managing and coordinating activities upstream and downstream in the supply chain. Of course, such a model in its entirety becomes very complex and cannot be used without a sufficient computational infrastructure.

Supply-Demand Nexus
To have an effective supply chain management framework; organizations must have a clear understanding of the supply - demand nexus and its implications for strategy and implementation. There is an interdependent relationship between supply and demand; organizations need to understand customer demand so that they can manage it, create future demand and, of course, meet the level of desired customer satisfaction. Demand defines the supply chain target, while supply side capabilities support, shape and sustain demand. When one considers how tangentially marketing and operations area of an organization typically interact (in practice), it becomes obvious that putting together the supply-demand can only occur in the context of overall perspective. The wide gap between the supply and demand sides of an organization can only be bridged by a comprehensive umbrella strategy. This can be done by developing a holistic strategic framework that leverages the generation and understanding of demand effectiveness with supply efficiency. Such a framework provides a strategic anchor to prevent the supply and demand components of a business from drifting apart. The basis of such a holistic strategy framework is the integrated supply and demand model (Fig.-2). The model is designed around two key principles.

First, in the present scenario where vertically integrated supply chains (VISC) are a rarity, if not non-existent; organizations must bring a multi-enterprise view to their supply chains. They must be capable of working co-operatively with other organizations in the chain rather than seeking to outdo them. Secondly, they must recognize the distinct supply and demand processes that must be integrated in order to gain the greatest value.

Fig. -2 : The Integrated Demand-Supply Model Thus involving three key elements: The core process of the supply and demand chains viewed from a broad cross-enterprise vantage point rather than as discrete function. To gain the maximum benefits, organizations need to identify the core processes across the demand and supply chain, as well as exploring the impact of each of these processes on the different functions.

Fig. -3 : Integrating processes in the supply and demand chains The integrating processes that create the links between the supply and demand chains (fig - 3). This implies that the planning processes (which involves development of channel strategies, planning of manufacturing, inventory, distribution and transportation, demand planning and forecasting; and marketing and promotional planning) and service processes (which includes functions such as credit, order management, load planning, billing and collection, etc.) must be integrated. This integration must be done across the boundaries of the enterprises. If each participating organization in the chain formulates its own plans on the basis of its own private information, then there is no way to integrate the supply and demand chain processes that they share.

 The supporting information technology (IT) infrastructure that makes such integration possible. While information technology is needed to handle routine transactions in an efficient manner, it can also play the a critical role in facilitating the timely sharing of planning, production and purchasing information; capturing and analyzing production, distribution and sales data at new levels of detail and complexity. Information technology provides an integrating tools that makes it possible to convert data into meaningful pictures of business processes, markets and consumers that are needed to feed company strategies in order to develop competitive advantage. On the administrative side, such elements as flow path economics, which help organizations understand the real drivers of costs, and new performance and measurement standards that align functions in accordance with total process goals that are critical to achieving integration.

SCM Framework A framework to understand the various issues involved in SCM is provided by the pyramid structure for the SCM paradigm The pyramid allows issues to be analyzed on four levels: Strategic: On the strategic, level it is important to know how SCM can contribute to the enterprises basic value proposition to the customers. Important questions that are addressed at this level include: What are the basic and distinctive service needs of the customers? What can SCM do to meet these needs? Can the SCM capabilities be used to provide unique services to the customers? Etc. Structural: After the strategic issues are dealt with, the next level question(s) that should be asked are: Should the organization market directly or should it use distributors or other intermediaries to reach the customers? What should the SCM network look like? What products should be sourced from which manufacturing locations? How many warehouses should the company have and where should they be located? What is the mission of each facility (full stocking, fast moving items only, cross-docking etc.)? etc. Functional: This is the level where operational details are decided upon. Functional excellence requires that the optimal operating practices for transportation management, warehouse operations, and materials management (which includes forecasting, inventory management, production scheduling, and purchasing) are designed. These strategies should keep in view the trade-offs that may need to be made for the overall efficiency of the system. Achieving functional excellence also entails

development of a process-oriented perspective on replenishment and order fulfillment so that all activities involved in these functions can be well integrated.

Implementation: Without successful implementation, the development of SCM strategies and plans is meaningless. Of particular importance are the organizational and information systems issues. Organizational issues centers on the overall structure, individual roles and responsibilities, and measurement systems needed to build an integrated operation. Information systems are enablers for supply chain management operations and therefore must be carefully designed to support the SCM strategy. Supply chain managers must consider their information needs relative to decision support tools, application softwares, data capture, and the systems overall structure. It is important to note that the decisions made within the SCM strategy pyramid are interdependent. That is, it must be understood what capabilities and limitations affect the functional and implementation decisions and consider those factors while developing a supply chain management strategy and structure. The SCM models used in practice lie in a continuum between two extreme models: on one end of the spectrum lies the vertically integrated supply chain model in which the organization has direct control over each and every component of the supply chain, while on the other end of the spectrum lies the horizontally diversified supply chain model (ideally) in which the number of participant is as large as the number of distinct parts of the supply chain. In a

vertically integrated supply chain system, the organization can control every component of the chain and can make various changes to the system to optimize the chain very easily. But in a horizontally diversified supply chain the tendency will be to optimize only the functions that the organization is involved in, thus conscious efforts must be made by the various participants in the supply chain for the integration of their respective components in the supply chain. If an organization can be identified as the major/dominant partner in the supply chain, then this organization has to take an initiative in seeking the co-operation of the other participants in the supply chain. The type and structure of the supply chain that is established depends on many factors, some of the major factors are: Geographical: If the supply chain is stretched across the globe then it may not be possible to incorporate some of the principles of lean production like JIT delivery, flexible manufacturing, and co-ordination among suppliers and customers. It can lead to uncertain transportation schedules, unpredictable lead time and may need larger inventory carriage. Cultural: The difference in the culture of the participants in the chain (the difference can be due to geographical factors or corporate practices) can lead to friction and distrust. This may hamper the development of close ties. Government Legislation: The laws of the country may prohibit the sharing of information about some facet of the supply chain and thus, may lead to a restrictive participation by one or more participant in the supply chain.

 Time: Just as among individuals, organizations require time before trust can be built up. The first phase in any relationship is manifest as confrontation that essentially means that participants in the chain try to win at the cost of other participants. And, the last phase is exemplified by total trust and working together of organizations. The information sharing behavior in the first phase is almost zero, while in the integrated relationship the information sharing is mutual and free about the common concerns. In between the two phases lies a continuum of phases.

Demand Forecasting
What is a demand forecast? Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market. A demand forecast is the prediction of what will happen to your company's existing product sales. It would be best to determine the demand forecast using a multi-functional approach. The inputs from sales and marketing, finance, and production should be considered. The final demand forecast is the consensus of all participating managers. You may also want to put up a Sales and Operations Planning group composed of representatives from the different departments that will be tasked to prepare the demand forecast. Determination of the demand forecasts is done through the following steps: Determine the use of the forecast Select the items to be forecast Determine the time horizon of the forecast Select the forecasting model(s) Gather the data

 Make the forecast Validate and implement results

Objectives of Demand Forecasting

1.Helping for continuous production 2.Regular supply of commodities 3.Formulation of price policy 4.Arrangement of finance 5.Labor requirement Factors Involved In demand Forecasting 1.Time period 2.Levels of forecasting-- International level-- Macro level-- Industry level-Firm level 3.Purpose - General or Specific 4.Methods Of Forecasting 5.Nature Of Commodity 6.Nature Of Competition

Need for Demand Forecasting

The significance of demand or sales forecasting in the context of business policy decisions can hardly be overemphasized. Sales constitute the

primary source of revenue for the corporate unit and reduction for sales gives rise to most of the costs incurred by the firm. Demand forecasting is essential for a firm because it must plan its output to meet the forecasted demand according to the quantities demanded and the time at which these are demanded. The forecasting demand helps a firm to arrange for the supplies of the necessary inputs without any wastage of materials and time and also helps a firm to diversify its output to stabilize its income overtime. The purpose of demand forecasting differs according to the type of forecasting. (1) The purpose of the Short term forecasting: It is difficult to define short run for a firm because its duration may differ according to the nature of the commodity. For a highly sophisticated automatic plant 3 months time may be considered as short run, while for another plant duration may extend to 6 months or one year. Time duration may be set for demand forecasting depending upon how frequent the fluctuations in demand are, short- term forecasting can be undertaken by affirm for the following purpose;

Appropriate scheduling of production to avoid problems of over production and under- production.

Proper management of inventories Evolving suitable price strategy to maintain consistent sales Formulating a suitable sales strategy in accordance with the changing pattern of demand and extent of competition among the firms.

Forecasting financial requirements for the short period. (2) The purpose of long- term forecasting: The concept of demand forecasting is more relevant to the long-run that the short-run. It is comparatively easy to forecast the immediate future than to forecast the distant future. Fluctuations of a larger magnitude may take place in the distant future. In fast developing economy the duration may go up to 5 or 10 years, while in stagnant economy it may go up to 20 years. More over the time duration also depends upon the nature of the product for which demand forecasting is to be made. The purposes are;

Planning for a new project, expansion and modernization of an existing unit, diversification and technological up gradation.

Assessing long term financial needs. It takes time to raise financial resources. Arranging suitable manpower. It can help a firm to arrange for specialized labour force and personnel.

Evolving a suitable strategy for changing pattern of consumption.

Challenges Faced in Demand Forecasting A small retailer may not need and aord a full-edged demand forecasting analysis. However, with increasing number of bigger retailers entering the market demand forecasting becomes feasible. Firms face a multitude of challenges due to the following factors: 1. Scale of forecast (how many goods to include in the forecast?) 2. sporadic demand (erratic sales for many items in the store) 3. introduction of new goods

4. changing prices and promotions

Large scale forecasting. A big retailer may have thousands of items per shop. Since forecasting is an important yet expensive task, the retailer can not forecast for all goods it sells. Though it is infeasible to manually forecast the demand of all the products, it is possible to use automated tools to do so. In most cases, quality forecasts can be obtained from the automated tool and the expert analysts can be employed to forecast few of the most important products. This reduces the burden from the humans but requires lot of compute power available.

What to optimize. Total sale volumes, total revenue earned, total prots, maximize margin are many dierent objectives that a rm may use and may receive optimized goods in stock. Creditability of such optimization decisions pivots on the ability to correctly predict the sales. This is usually based on prior data about the same product or close substitutes. It may also be based upon analysis done at another location with similar buyer patterns. When to restock. Slow moving goods may be restocked leisurely compared to fast moving goods. It is important for retailers to provide the customers the specic goods that the customer asks of the retailer. Under stocking would cause unsatised customers who may quickly move to other stores. Over stacking may increase the money locked up in inventory. Hence, the retailer should aim at a replenishment policy by which the rack never gets empty and never overows. When close substitutes are available for some products, the

retailer may compensate for a lower current stock in one good with another one.

JUDGEMENTAL
The main methods in these categories are as follows: Unaided Judgement: It is common practice to ask experts what will happen. This is a good procedure to use when, Experts are unbiased, Large changes are unlikely, Relationships are well understood by experts (e.g., demand goes up when Prices go down), Experts possess privileged information, Experts receive accurate and well-summarized feedback about their forecasts.

Delphi: To forecast with Delphi the administrator should recruit between ve and twenty suitable experts and poll them for their forecasts and reasons. The administrator then provides the experts with anonymous summary statistics on the forecasts, and experts reasons for their forecasts. The process is repeated until there is little change in forecasts between rounds - two or three rounds are usually sucient. The Delphi forecast is the median or mode of the experts nal forecasts.

Judgemental Decomposition: The basic idea behind judgemental decomposition is to divide the forecasting problem into parts that are easier to forecast than the whole. One then forecasts the parts individually; using methods appropriate to each part. Finally, the parts are combined to obtain a forecast. Expert Systems: As the name implies, expert systems are structured representations of the rules experts use to make predictions or diagnoses. For example, if local household incomes are in the bottom quartile, then do not supply premium brands. Expert systems forecasting involves identifying forecasting rules used by experts and rules learned from empirical research. Developing an expert system is expensive and so the method will only be of interest in situations where many forecasts of a similar kind are required. Expert systems are feasible where problems are suciently wellstructured for rules to be identied. Simulated interaction: Simulated interaction is a form of role playing for predicting decisions by people who are interacting with others. To use simulated interaction, an administrator prepares a description of the target situation, describes the main protagonists roles, and provides a list of possible decisions. Role players adopt a role and read about the situation. They then improvise realistic interactions with the other role players until they reach a decision; for

example to sign a trial one-year exclusive distribution agreement. The role players decisions are used to make the forecast. Intentions and Expectations Survey: With intentions surveys, people are asked how they intend to behave in specied situations. In a similar manner, an expectations survey asks people how they expect to behave. To forecast demand using a survey of potential consumers, the administrator should prepare an accurate and comprehensive description of the product and conditions of sale. He should select a representative sample of the population of interest and develop questions to elicit expectations from respondents. Bias in responses should be assessed if possible and the data adjusted accordingly. The behavior of the population is forecast by aggregating the survey responses.

How is demand forecast determined? There are two approaches to determine demand forecast (1) the qualitative approach, (2) the quantitative approach. The comparison of these two approaches is shown below: Description Applicability Qualitative Approach Used when situation is vague & little data exist (e.g., new products and technologies) Quantitative Approach Used when situation is stable & historical data exist (e.g. existing products,

current technology) Considerations Involves intuition and experience Techniques Jury of executive opinion Sales force composite Delphi method Consumer market survey Involves mathematical techniques Time series models Causal models

Qualitative Forecasting Methods

Your company may wish to try any of the qualitative forecasting methods below if you do not have historical data on your products' sales. Qualitative Method Jury of executive opinion Description The opinions of a small group of high-level managers are pooled and together they estimate demand. The group uses their managerial experience, and in some cases, combines the results of statistical models. Sales force composite Each salesperson (for example for a territorial coverage) is asked to project their sales. Since the salesperson is the one closest to the

marketplace, he has the capacity to know what the customer wants. These projections are then combined at the municipal, provincial and regional levels. Delphi method A panel of experts is identified where an expert could be a decision maker, an ordinary employee, or an industry expert. Each of them will be asked individually for their estimate of the demand. An iterative process is conducted until the experts have reached a consensus. Consumer market survey The customers are asked about their purchasing plans and their projected buying behavior. A large number of respondents is needed here to be able to generalize certain results. Quantitative Forecasting Methods There are two forecasting models here (1) the time series model and (2) the causal model. A time series is a s et of evenly spaced numerical data and is obtained by observing responses at regular time periods. In the time series model, the forecast is based only on past values and assumes that factors that influence the past, the present and the future sales of your products will continue. On the other hand, t he causal model uses a mathematical technique known as the regression analysis that relates a dependent variable (for

example, demand) to an independent variable (for example, price, advertisement, etc.) in the form of a linear equation. The time series forecasting methods are described below: Description
Time Series Forecasting Method

Nave Approach

Assumes that demand in the next period is the same as demand in most recent period; demand pattern may not always be that stable For example: If July sales were 50, then Augusts sales will also be 50

Description
Time Series Forecasting Method

Moving

MA is a series of arithmetic means and is used if little impression of data over time A simple moving average uses average demand for a fixed sequence of periods and is good for stable demand with no pronounced behavioral patterns. Equation:

Averages (MA) or no trend is present in the data; provides an overall

F 4 = [D 1 + D2 + D3] / 4 F forecast, D Demand, No. Period A weighted moving average adjusts the moving average method to reflect fluctuations more closely by assigning weights to the most recent data, meaning, that the older data is usually less important. The weights are based on intuition and lie between 0 and 1 for a total of 1.0 Equation: WMA 4 = (W) (D3) + (W) (D2) + (W) (D1) WMA Weighted moving average, W Weight, D Demand, No. Period Exponential Smoothing The exponential smoothing is an averaging method that reacts more strongly to recent changes in demand by assigning a smoothing constant to the most recent data more strongly; useful if recent changes in data are the results of actual change (e.g., seasonal pattern) instead of just random fluctuations F t + 1 = a D t + (1 - a ) F t Where F t + 1 = the forecast for the next period D t = actual demand in the present period

F t = the previously determined forecast for the present period = a weighting factor referred to as the smoothing constant Time Series The time series decomposition adjusts the seasonal factor

Decomposition seasonality by multiplying the normal forecast by a

Forecast Accuracy and Key Performance Indicators (KPIs)

In inventory control operations, demand forecasting is usually performed for each stock item SKU stock keeping unit. Different metrics, called KPIs (key performance indicators), can be used to ensure that customer service remains at or above acceptable levels for each SKU. Common KPIs include case fill and order fill. To fulfill these objectives, its necessary to keep a certain level of safety stock . However, holding excess safety stock can lead to higher inventory costs, and furthermore, increases risk that some inventory will have to be written off during the later stages of the product lifecycle. If supply chain managers are interested in reducing safety stock, there are several methods they can use, foremost of which is demand planning. Increasing forecasting accuracy, then, is a primary goal in the supply chain.

Forecast accuracy can be calculated using a formula called MAPE Mean Absolute Percent Error. The equation is as follows: Error % = |Actual Forecast|/Actual (note that |x| means the absolute value of x) The reason that absolute value bars are used in mean absolute percent error is because for statistical reasons, magnitude of error is often more important than the sign. Forecast accuracy is a metric that is inversely related to MAPE (as MAPE increases, FA decreases). The equation for forecast accuracy is: FA = 100 MAPE (expressed as a percentage)

SCM Disaster
Businesses now not only need to operate at a lower cost to compete, it must also develop its own core competencies to distinguish itself from competitors and stand out in the market. Supply chain management plays an important role in successful running of any business. SCM has allowed company to rethink their entire operation and restructure it so that they can focus on its core competencies and outsource processes that are not within the core competencies of the company. But the opposite effect of the SCM also comes into the view at times. There have been m a n y c a s e s i n t h e p a s t i n w h i c h t h e S C M h a v e p r o v e d t o b e a r e a s o n f o r p o o r f i n a n c i a l performance of the company.

SCM Disaster at Nike Nike Rebounds: How (and Why) Nike Recovered from Its Supply Chain Disaster Nike Inc.
Nike Inc. is a major publicly traded sportswear and equipment supplier based in the United S t a t e s. Th e c o mp a n y i s h e a d q u a rt e re d i n B e a v e rt o n, O re g o n, w h i c h i s p a rt o f t h e P o rt l a nd metropolitan area. It is the world's leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment with revenue in excess of $18.6 billion USD in its fiscal year 2008 (ending May 31, 2008). As of 2008, it employed more than 30,000 people worldwide. Nike a nd P re c i si o n C a st p a rt s a re t h e o nl y F ort u ne 5 0 0 c o mp a ni e s h e a d q u a rt e r e d i n t h e st a t e o f Oregon, according to The Oregonian. The company was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bower man and Philip Knight, and officially became Nike, Inc. in 1978. The company takes its name from Nike, the Greek goddess of victory equipment; the company operates retail stores under the Nike town name. Nike sponsors many high profile athletes and sports teams around the world, with the highly recognized trademarks of "Just do it" and the Swoosh logo. Nikes Supply Chain: Failure and Eventual Success During the 1970s retailers would make their orders with Nike 9 months in advance before their delivery date. The orders were then sent to Nikes manufacturers all over the world. At the beginning this process worked well

and allowed Nike to deliver its orders on time. However, during the 1980s and 1990s Nikes business grew dramatically and customers became more demanding about style, comfort and variety leading Nikes forecasting, manufacturing and distribution to become very complex. In 1999, profits dropped by 50 percent due to supply chain factors. The situation led to the adoption of Nikes supply chain project called NSC. The project attempted to improve the failing forecasting and order activities in Nike. However this didnt work well for Nike, so it acquired and implemented i2 technologies demand forecasting system at a cost of $40 million. The objectives of this project were to forecast over 1 million stock keeping units (SKUs). Algorithms were used to generate Nikes forecasts for manufacturing. However, later in 2000, the forecasts were found to be faulty, causing Nike to over manufacture some products while struggling to meet the demand for other products. It took Nike between 6 and 9 months to overcome its manufacturing problems and more than 2 years to make up for its financial loss. After analyzing its i2Technologies, Nike learned that it needed a more adequate training of users, more comprehensive testing for the application and a more careful integration of the application with other information systems. The review of the project found that there was too much reliance on forecasts generated by algorithms without using any judgment to evaluate the forecasts. By 2004, Nike had an integrated and efficient supply chain with i2 technologies forecasting system, SAPs ERP system, and Siebels CRM systems. Nike spent 6 years and $800 million on the project.

Nikes 2001 Planning System Perplexity The companys headquarters are located in Beaverton, Oregon in the US. The company had a good supply chain management wherein the company was in a practice of never manufacturing the products. Instead the company used to outsource the manufacturing process directly to the suppliers. These suppliers were known as the contractors. Future program: It was in the year 1975 when the Nike introduced the Future Program. Under this program the Nikes global operations were broadly divided into 5 geographic regions. This was aimed towards obtaining better operations and effective systems. During this era, toward the end of the 1990s the supply chain management seemed to be ineffective and inadequate. There were problems like ineffective forecasting and managing the changing trends. NSC Project: Further in the year 2000 Nike launched the New Safe Confinement (NSC) project. This project aimed at implementing its ERP, Supply Chain, & CRM Software onto a single SAP Platform. This project ultimately proved to be a big disaster for the Nikes operations. The Failure: I n t h e s p ri ng o f 2 0 0 1 , N i ke b l a me d i 2 Te c h nol og i e s fo r a m a ssi v e sa l e s - a n d - earnings shortfall. Nike posted a profit of only $97 million that quarterat least $48 million below forecast. Nike said the culprit was i2's demand-forecasting and supply-chain-management

systems. The supply-chain software was supposed to reduce the amount of rubber; canvas and other materials that Nike needed to produce its shoes. It was also supposed to help make sure Nike built more of the shoes customers wanted and fewer of the ones they didn't. Instead, Nike was left with far too many of the wrong shoes and not nearly enough pairs of its hottest sellers. The Reason: The total cost of i2's demand-forecasting and supply-chain-management software was only about $40 million. The other $360 million was spent over five yearson customer-relationship and enterprise-planning software from SAP. This whole project aiming at effective forecasting proved to be a big SCM failure for the company. This meant huge financial losses for the company. The reasons for the i2s software implementation were finally designated over the following reasons: 1. Third party integrator 2. Inexperience of i2 3. Customization 4. Trying to forecast too far out ahead 5. Pilot test 6. Lack of training, 7. Inadequate information 8. Problems in smooth integration 9. Changing market conditions 10. Complication of NSC project 11. Review meetings

The Result: T h i s re su l t e d i n h u g e p ro fi t l os s f o r t h e c o mp a ny . I t e f fe c t e d t h e c o mp a n y reputation a lot. Massive sales and earnings shortfall were observed. Nike was left with far too many of the wrong shoes and not nearly enough pairs of its hottest sellers. Thus company understood the importance of the SCM and forecasting. Forecasting for the Nike was extremely important. It was important for them to determine the quantities. An important feature that the company understood regarding its SCM was that it needed to lay attention on the make to order rather than the make to stock policy. Company also understood that in a type of business that the company is in, forecasting plays an important role in reducing the supply time. For all this to obtain it was important for the company to obtain the best forecasting. Nike further improved its supply chain management by installing well equipped and competent system. Its continuous interaction with the consumers on the web portal proved to be the best feature. Herein the consumers achieve the supreme level of customization of the products. Nike also improved itself by proper analysis of the data and implementation. Feedback as in any other industry plays an important role in Nike today. Nike obtains continuous feedback from the suppliers and the consumers.

Conclusion: Hence supply chain management for any company plays an important role in successful running of a company. The reverse effect of the SCM can also be experienced if the implementation of the SCM processes is not done in the best way. Implementation is a complex procedure and it must be tackled in the best way. Evaluating pros and cons of any project beforehand is also e q u a l l y im p o rt a nt . A p i l ot p r oj e c t c a n b e t u rn a rou nd t h e f a t e o f a ny b u si n e s s i f h a nd l e d correctly

Bibliography
Nike Report:- http://www.scdigest.com/assets/reps/SCDigest_Top-11SupplyChainDisasters.pdf