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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
  • MAD(Mean Absolute Error)
  • Mean Squared Error (MSE)
  • Mean Absolute Percentage Error (MAPE)
  • Bias
  • Tracking Signal

14
Forecasting methods
  • Static
  • Adaptive
  • 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
Fundamental tradeoffs in Aggregate Planning
  • Production
  • Production level
  • Workforce size (hire vs. lay off)
  • Regular time vs. over time
  • Make-or-buy (subcontract)
  • 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
Aggregate Planning (Define Constraints Linking
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
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