M2-B: Demand Forecasting

Question 1

Which kind of demand needs to be forecasted?

Answer 1

Only Independent demand for finished products or service parts, given that those items do not have an upstream parent-relationship with any other components

Question 2

Can an item in the BOM have both a dependent and independent demand?

Answer 2

Yes, if that part is sold also as a separate item for servicing purposes like repair service

Question 3

When dependent demand is calciulated?

Answer 3

During Material Requirement Planning in the MPC process

Question 4

What is the total net requirement for an item?

Answer 4

the sum of independent and dependent demand for it

Question 5

What are the channels for collecting indipendent demand estimates?

Answer 5

• End customer surveys
• replenishment orders from distribution
• intercompany transfers (eg move orders between plants)
• internal use (eg R&D, quality inspection, marketing)
• forecasting methods

Question 6

What is the real component of forecasted demand?

Answer 6

the actual demand figure drawn by summing up all already qualified customer orders coming from up/down-stream for the incoming period. The rest is only a forecasted probabilistic figure

Question 7

what is the process to let any internal or external order in the enterprise resource planning system?

Answer 7

Order management

Question 8

what are the main components of the real demand curve?

Answer 8

Trend component
+ Random variations (high frequencies variations)
+ Seasonality(low frequency variations)
+ Market Cycles (growth or recession economy state)

Question 9

what is seasonality?

Answer 9

a predictable repetitive growth or decline pattern of demand measured within years between similar calendar dates like quarters, months, days or hours.

Once identified seasonal components to demand, they can be temporarily isolated from the forecasting process to then later be added on top of the base forecasted trend component

Question 10

What are most difficult items to forecast?

Answer 10

• NPIs
• innovative products

Question 11

What are the easiest items to forecast?

Answer 11

Commodities like food or gasoline consumptions

Question 12

can averages be misleading?

Answer 12

Yes because they omit and flatten variability components

Question 13

What is the difference between forecast and forecasting?

Answer 13

Forecasting is the business function that by means of multiple analytical and experience-based procedures produces the final product forecast, as a string of numbers representing demanded volumes for each planned period within the forecasted horizon

Question 14

What forecasts with forecasting horizons within 10y are used for?

Answer 14

to support the company strategy development and sustain capital investimenti decisions toward such sales goals

Question 15

What is a one-number system?

Answer 15

A company where all it’s functions and external agents agree upon a single forecasted sales volumes figure toward which to commit using available resources within end of the forecasted period.

Question 16

What is a planning bill?

Answer 16

A top-down derivation of single SKUs demand forecast, starting from each high-level aggregated product family

Question 17

How the seasonal index is computed?

Answer 17

S(t0, t1) = AVG(Demand, t0,t1) / Sum of all Averages of period t0-t1

es.
for each Q(k, i) in T years with k = 1,..,4, compute average Q(k) of demand within Q(k, i) for each Q(k, i) in T, then take the overall average of all the Q(k, i) with k=K, this is the denominator of the seasonal index for Q(k=K,i) for all i. For the numerator, use the average Q(k=K).

Question 18

how the seasonal index is used?

Answer 18

to deseasonalize the average value of forecasted demand using the formula:

Des.Demand = Period Average demand / Seas.Index

Question 19

What are the available methods for forecasting?

Answer 19

The ones based on mathematics and the ones based on judgment and experience