# Planning Demand and Supply in a Supply Chain - PowerPoint PPT Presentation

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## Planning Demand and Supply in a Supply Chain

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### Planning Demand and Supply in a Supply Chain. Demand Forecasting. and. Aggregate Planning ... Wt = Workforce size for month t, t = 1, ..., 6 ... – PowerPoint PPT presentation

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Title: Planning Demand and Supply in a Supply Chain

1
Planning Demand and Supply in a Supply Chain
• Demand Forecasting and Aggregate Planning

2
Time Series Forecasting
Forecast demand for the next four quarters.
3
(No Transcript)
4
roughly (in average) 20,000 per quarter
5
roughly parallel to the peaks or the
valleys roughly 500 more for each quarter
6
assuming factors for 2Q, 3Q, 4Q, and 1Q 0.4,
0.7, 1.1, 1.8
7
Components of an observation
• Observed demand (O)
• Systematic component (S) Random component (R)

Level (current deseasonalized demand)
Trend (growth or decline in demand)
Seasonality (predictable seasonal fluctuation)
8
Key Steps for Static Method
• Systematic component (S) Level (L) Trend
(T) Period (t) Seasonal Factors (St)
• How to estimate L, T, and St from the observed
demand Dt?
• Forecast Ft(LtT)St

9
Procedure to deseasonalize
10
Deseasonalized Demands
11
Estimation from deseasonalized demand
• Assume
• Find
• Find
• Find averaged S

12
Forecast for the next coming year
13
Error measures
• Error
• Absolute Error
• Mean Squared Error (MSE)
• Mean Absolute Percentage Error (MAPE)
• Bias
• Tracking Signal

14
Forecasting methods
• Static
• Moving average
• Simple exponential smoothing
• Holts model (with trend)
• Winters model (with trend and seasonality)

15
Characteristics of forecasts
• Forecasts are always wrong. Should include
expected value and measure of error.
• Long-term forecasts are less accurate than
short-term forecasts Forecast horizon
• Aggregate forecasts are more accurate than
disaggregate forecasts

16
Aggregate Planning at Red Tomato Tools
6 months planning horizon
17
Basic Strategies
• Chase strategy- using capacity as the lever
• Level strategy - using inventory as the lever
• Time flexibility from workforce or capacity -
using utilization as the lever

18
• Production
• Production level
• Workforce size (hire vs. lay off)
• Regular time vs. over time
• Inventory
• Backlog / lost sales

19
Aggregate Planning by LP
20
Aggregate Planning (Define Decision Variables)
• Wt Workforce size for month t, t 1, ..., 6
• Ht Number of employees hired at the beginning
of month t, t 1, ..., 6
• Lt Number of employees laid off at the
beginning of month t, t 1, ..., 6
• Pt Production in month t, t 1, ..., 6
• It Inventory at the end of month t, t 1, ...,
6
• St Number of units stocked out at the end of
month t, t 1, ..., 6
• Ct Number of units subcontracted for month t, t
1, ..., 6
• Ot Number of overtime hours worked in month t,
t 1, ..., 6

21
Aggregate Planning (Define Objective Function)
22
Variables)
• Workforce size for each month is based on hiring
and layoffs

23
Aggregate Planning (Constraints)
• Production for each month cannot exceed capacity

or
24
Aggregate Planning (Constraints)
• Inventory balance for each month

or
25
Aggregate Planning (Constraints)
• Over time for each month

or
26
Optimized Solution from LP
27
Scenarios - Increase in holding cost (from 2 to
6)
28
Scenarios - Over time cost drops to 4.1 per hour
29
Increased Demand Fluctuation
30
Scenarios Peaked Demand
31
Phases of Supply Chain Decisions
• Strategy or design Forecast
• Planning Forecast
• Operation Actual demand

32
Learning Objectives
• Identify components of a demand forecast
• Time series forecasting
• Estimate forecast error
• Aggregate planning in the supply chain