CHAPTER 5- DEMAND FORECASTING &

COLLABORATIVE PLANNING,
FORECASTING, & REPLENISHMENT

Principles of Supply Chain Management:

A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD

Forecasting is only one of the three key activities in

Collaborative Planning, Forecasting and Replenishment
(CPFR).
Collaborative Planning is the process of working together to
organize and to resolve key barriers to achieve rapid and
efficient delivery of goods in supply chain between partners
in the supply chain and between distribution centers and
selling location.
Forecasting is important as it results to a reliable order
forecast that the supplier actually uses to drive acquisition
and manufacturing to support on time and complete
shipping.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
2005 Thomson Business and Professional Publishing

Learning Objectives
You should be able to:

Explain the role of demand forecasting in a supply chain.

Identify the components of a forecast
Compare and contrast qualitative and quantitative forecasting
techniques
Assess the accuracy of forecasts
Explain collaborative planning, forecasting, and replenishment

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Introduction
Competitive environment more effective demand-driven
supply chain to respond quickly to market changes.
(Customers, Competitors, Seasonal etc.)
Used to be push market environment. Now its pull
market environment.
Matching supply and demand as closely as possible.
Forecasting - an estimate of future demand
The goal is to minimize forecast error.
Have to consider the factors that influence demand
Improved forecasts benefit all trading partners in the
supply chain.
Principles of Supply Chain Management: A Balanced Approach by
Wisner, Leong, and Tan.

Aim/Results of Accurate Forecast

Lower inventories
Avoid or Minimize stock-outs
Smoother production plans
Reduced costs, and
Better customer service.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Demand Forecasting

Estimate of future demands planning and business

decisions
Future are unknown errors.
Choice of appropriate forecasting techniques to reduce
errors.
To consider factors that influence demand, impact of
these factors, whether it still influence future demand

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Benefits of Good Forecast

Allows the right amount of products (Raw materials,

components and MRO)
Produce the right types and amount of products
To deliver the right number of products at the right time.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Forecasting Techniques

Qualitative forecasting is based on opinion and

intuition.
Quantitative forecasting uses mathematical models
and historical data to make forecasts.
Time series models are the most frequently used
among all the forecasting models.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Forecasting Techniques- Cont.

Qualitative Forecasting Methods
Generally used when data are limited, unavailable, or not currently
relevant. Forecast depends on skill & experience of forecaster(s) &
available information.
Four qualitative models used are:
Jury of executive opinion
Delphi method
Sales force composite
Consumer survey
1.

2.

3.

4.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Forecasting Techniques- Cont.

Quantitative Methods
Time series forecasting- based on the assumption that
the future is an extension of the past. Historical data is
used to predict future demand.
Associative forecasting- assumes that one or more
factors (independent variables) predict future demand.

It is generally recommended to use a combination of

quantitative and qualitative techniques.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Forecasting Techniques- Cont.

Components of Time Series- Data should be plotted to
detect for the following components:

Trend variations: either increasing or decreasing

Cyclical variations: wave-like movements that are longer than
a year
Seasonal variations: show peaks and valleys that repeat over a
consistent interval such as hours, days, weeks, months, years,
or seasons
Random variations: due to unexpected or unpredictable events

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

11

Forecasting Techniques- Cont.

Time Series Forecasting Models
Simple Moving Average Forecasting Model. Simple moving
average forecasting method uses historical data to generate a
forecast. Works well when demand is fairly stable over time.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Nave Forecast
Estimate the next period is equal to the current/actual
demand.
Example:
Demand for this period (actual) is 100 units, then the next
period is 100 units

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

13

Simple Moving Average Forecast

Period

Demand

1600

2200

2000

1600

2500

3500

3300

3200

3900

10

4700

11

4300

12

4400

Using the data provided, calculate

the forecast for period 5 using
four-period simple moving average
Forecast for period 5 =
1600 + 2200 + 2000 + 1600
4
= 1850

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

14

Weighted Moving Average Forecast

Forecaster may decide that equal weighting is not

accurate.
Weighted moving average forecast is weighted average
of the n-period observations using unequal weights.
Weight should not be negative and sum to one.
Generally a greater emphasis (highest weight is on the
most recent observation.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Example
Period

Demand

1600

2200

2000

1600

2500

3500

3300

3200

3900

10

4700

11

4300

12

4400

Based on data provided, calculate the forecast for

period 5 using a four-period weighted moving
average.
The weight of 0.4, 0.3, 0.2, 0.1 are assigned to the
most recent, second most recent, third most recent
and most fourth recent respectively.
Forecast for period 5 =
0.1(1600) + 0.2(2200) + 0.3(2000) + 0.4(1600)
= 1840

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Forecasting Techniques- Cont.

Associative Forecasting Models- One or several external variables
are identified that are related to demand

Simple regression. Only one explanatory variable is used and is similar

to the previous trend model. The difference is that the x variable is no
longer a time but an explanatory variable.

= b0 + b1x

where
= forecast or dependent variable
x = time (period) or independent variable
b0 = intercept of the line
b1 = slope of the line

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Using Excel Spreadsheet

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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