ISCM – III

SYLLABUS
• Demand Forecasting: Qualitative and Quantitative Methods –
Time Series Forecasting – Enabling Supply Chains through IT –
Strategic Management Framework for IT adaptation in Supply
Chain Management.
 Demand Forecasting
• Demand forecasting is a process of predicting the
demand for an organization's products or services in a
specified time period in the future. Demand forecasting
is helpful for both new as well as existing organizations
in the market.
CONT
• Level of forecasting - Demand forecasting can be
done at the firm level, industry level, or economy level.
At the firm level, the demand is forecasted for the
products and services of an individual organisation in
the future. At the industry level, the collective demand
for the products and services of all organisations in a
particular industry is forecasted. On the other hand, at
the economy level, the aggregate demand for products
and services in the economy as a whole is anticipated.
CONT
• Time period involved
• On the basis of the duration, demand is forecasted in the short run
and long term, which is explained as follows:
• Short-term forecasting: It involves anticipating demand for a
period not exceeding one year. It is focused on the shortterm
decisions (for example, arranging finance, formulating production
policy, making promotional strategies, etc.) of an organisation.
• Long-term forecasting: It involves predicting demand for a period
of 5-7 years and may extend for a period of 10 to 20 years. It is
focused on the long-term decisions (for example, deciding the
production capacity, replacing machinery, etc.) of an organisation.
CONT
• Nature of products
• Products can be categorised into consumer goods or capital goods on the basis
of their nature. Demand forecasting differs for these two types of products,
which is discussed as follows:
• Consumer goods: The goods that are meant for final consumption by end users
are called consumer goods. These goods have a direct demand. Generally,
demand forecasting for these goods is done while introducing a new product or
replacing the existing product with an improved one.
• Capital goods: These goods are required to produce consumer goods; for
example, raw material. Thus, these goods have a derived demand. The demand
forecasting of capital goods depends on the demand for consumer goods. For
example, prediction of higher demand for consumer goods would result in the
anticipation of higher demand for capital goods too.
 Importance of Demand Forecasting

Producing t Assessing t Forecasting

Better cont Controlling Assessing

Ensuring st Planning im
ability port and ex
port policie
s
CONT
• Producing the desired output - Demand forecasting
enables an organisation to produce the pre-determined
output. It also helps the organisation to arrange for the
various factors of production (land, labour, capital, and
enterprise) beforehand so that the desired quantity can be
produced without any hindrance.
• Assessing the probable demand - Demand forecasting
enables an organisation to assess the possible demand for its
products and services in a given period and plan production
accordingly. In this way, demand forecasting avoids
dependence on merely making assumptions for demand.
CONT
• Forecasting sales figures - Sales forecasting refers to the estimation of sales
figures of an organisation for a given period. Demand forecasting helps in
predicting the sales figures by considering historical sales data and current trends
in the market.
• Better control - In order to have better control on business activities, it is
important to have a proper understanding of cost budgets, profit analysis, which
can be achieved through demand forecasting.
• Controlling inventory - As discussed earlier, demand forecasting helps in
estimating the future demand for an organisation’s products or services. This, in
turn, helps the organisation to accurately assess its requirement for raw material,
semi-finished goods, spare parts, etc.
CONT
• Assessing manpower requirement - Demand forecasting helps
inaccurate estimation of the manpower required to produce the desired
output, thereby avoiding the situations of under-employment or over-
employment.
• Ensuring stability - Demand forecasting helps an organisation to stabilise
their operations by initiating the development of suitable business policies
to meet cyclical and seasonal fluctuations of an economy.
• Planning import and export policies - At the macro level, demand
forecasting serves as an effective tool for the government in determining
the import and export policies for the nation. It helps in assessing whether
import is required to meet the possible deficit in domestic supply.
Factors affecting Demand Forecasting
CONT
• Prevailing Economic Conditions - Demand
forecasting can be affected by the changing price
levels, national and per capita income, consumption
pattern of consumers, saving and investment practices,
employment level, etc. of an economy.
• Existing conditions of the Industry - The
assessment of demand for an organisation’s products
and services is also affected by the overall conditions of
the industry in which the organisation operates.
CONT
• Existing Condition of an Organization - Apart from
industry conditions, the internal state of an organisation also
affects demand forecasting. Within the organisation, demand
forecasting is affected by various factors, such as plant
capacity, product quality, product price, advertising and
distribution policies, financial policies, etc.
• Prevailing Market Conditions - in market conditions, such
as change in the prices of goods; change in consumers’
expectations, tastes and preferences; change in the prices of
related goods; and change in the income level of consumers
also influence the demand for an organisation’s products and
services.
CONT
• Psychological Conditions - Psychological factors, such as
changes in consumer attitude, habits, fashion, lifestyle,
perception, cultural and religious beliefs, etc. affect demand
forecast of an organisation to a large extent.
• Competitive Conditions - A market consists of several
organisations offering similar products. This gives rise to
competition in the market, which affects demand
forecasted by organisations. For example, reduction in
trade barriers increases the number of new entrants in a
market, which affects the demand for products and services
of existing organisations.
CONT
• Import – Export policies - The demand for export-
import goods gets directly affected by changes in
factors, such as import and export control, terms and
conditions of import and export, import/export policies,
import/export conditions, etc.
Steps in Demand Forecasting
CONT
• Specifying the objective - The purpose of demand
forecasting needs to be specified before starting the
process. The objective can be specified on the following
basis:
• Short-term or long-term demand for a product
• Industry demand or demand specific to an organisation
• Whole market demand or demand specific to a market
segment
CONT
• Determining the time perspective - Depending on the objective,
the demand can be forecasted for a short period (2-3 years) or long
period (beyond 10 years). If an organisation performs long-term
demand forecasting, it needs to take into consideration constant
changes in the market as well the economy.
• Selecting the method for forecasting - There are various
methods of demand forecasting, which have been discussed later in
the chapter. However, not all methods are suitable for all types of
demand forecasting. Depending on the objective, time period, and
availability of data, the organisation needs to select the most
suitable forecasting method. The selection of demand forecasting
method also depends on the experience and expertise of the
demand forecaster.
CONT
• Collecting and analysing data - After selecting the
demand forecasting method, the data needs to be
collected. Data can be gathered either from primary
sources or secondary sources or both. As data is collected
in the raw form, it needs to be analysed in order to derive
meaningful information out of it.
• Interpreting outcomes - After the data is analysed, it is
used to estimate demand for the predetermined years.
Generally, the results obtained are in the form of
equations, which need to be presented in a
comprehensible format.
 Limitation of Demand Forecasting
• Lack of Historical Sales Data
• Unrealistic Assumptions
• Cost incurred
• Change in Fashion
• Lack of Expertise
• Psychological Factors
CONT
• Lack of historical sales data - Past sales figures may not
always be available with an organisation. For example, in
case of a new commodity, there is unavailability of
historical sales data. In such cases, new data is required to
be collected for demand forecasting, which can be
cumbersome and challenging for an organisation.
• Unrealistic assumptions - Demand forecasting is based
on various assumptions, which may not always be
consistent with the present market conditions. In such a
case, relying on these assumptions may produce incorrect
forecasts for the future.
CONT
• Cost incurred - Demand forecasting incurs different costs
for an organisation, such as implementation cost, labour
cost, and administrative cost. These costs may be very high
depending on the complexity of the forecasting method
selected and the resources utilised. Owing to limited
means, it becomes difficult for new startups and small-scale
organisations to perform demand forecasting.
• Change in fashion - Consumers’ tastes and preferences
continue to change with a change in fashion. This limits the
use of demand forecasting as it is generally based on
historical trend analysis.
CONT
• Lack of expertise - Demand forecasting requires effective
skills, knowledge and experience of personnel making
forecasts. In the absence of trained experts, demand
forecasting becomes a challenge for an organisation. This is
because if the responsibility of demand forecasting is assigned
to untrained personnel, it could bring huge losses to the
organisation.
• Psychological factors - Consumers usually prefer a
particular type of product over others. However, factors, such
as fear of war and changes in economic policy, could affect
consumers’ psychology. In such cases, the outcomes of
forecasting may no longer remain relevant for the time period.
Techniques of Demand Forecasting
Survey Methods Statistical Methods
• Consumer Survey Method • Time Series Analysis
• Collective Opinion Method
• Regression Analysis
• Delphi Method
• Market Experiment
Method
CONT
• Consumer Survey Method - A firm can ask consumers, what
and how much they are planning to buy at various prices of
the product for the forthcoming time period, usually a year.
• Collective Opinion Method - Also called sales-force polling),
salesmen or experts are required to estimate expected future
demand of the product in their respective territories and
sections.
• Delphi Method - It is also known as Reasoned Opinion. A
variant of opinion poll and survey method is a Delphi method,
developed by Rand Corporation of USA in the late 1940s for
predicting technical changes.
CONT
• Market Experiment Method - Under this method, the
main determinants of the demand of a product like
price, advertising, product design, packaging, quality,
etc., are identified.
• These factors are then varied separately over different
markets or over different time periods, holding other
factors constant. The effect of the experiment on
consumer behaviour is studied under actual or
controlled market conditions, which is used for overall
forecasting purpose.
CONT
• Statistical Methods - These methods make use of
historical data (time series or cross-section) as a basis for
extrapolating quantitative relationships to arrive at the
future demand patterns and trends. The data may also be
analysed through econometric models.
• These are useful for long-term forecasting, for old
products and for larger levels of aggregation. They are
based on scientific ways of estimation, which are logical,
unbiased and proved to be useful. However, the biggest
disadvantage is that it is difficult to apply these methods.
CONT
• Time Series Analysis - It is an arrangement of statistical
data in chronological order, i.e., in accordance with its
time of occurrence. It reflects the dynamic pace of
steady movements of a phenomenon, over a period of
time.
• Regression Analysis - Regression analysis is perhaps the
most popular method of forecasting among economists.
It is a mathematical analysis of the average relation
between two or more variables, in terms of the original
units of the data.
 IT in Supply Chain Management
• Inventory Management (Real-Time Inventory Tracking,
Automated Reordering Systems, Identification of Obsolete
Items, Enhanced Forecasting Accuracy, Barcode and RFID
Systems).
• Demand Forecasting (Historical Data Analysis, Market
Trend Evaluation, Integration with External Factors,
Machine Learning Models, Scenario Planning)
• Order Processing and Fulfillment (Automated Order Entry,
Real-Time Order Status Tracking, Real-Time Order Status
Tracking, Integrated Supply Chain Communication,
Advanced Analytics for Inventory Allocation)
CONT
• Logistics and Transportation (Route Optimization, Carrier
Contract Management, Real-Time Shipment Tracking,
Enhanced Load Planning, Predictive Maintenance for
Transportation Vehicles)
• Supplier Relationship Management (SRM) (Performance
Evaluation Systems, Electronic Data Interchange, Contract
Management Platforms, Collaborative Forecasting and
Replenishment, Risk Management Tools)
• Warehouse Management Systems (WMS) (Automated Picking
and Packing Processes, Optimized Storage Solutions,
Enhanced Inventory Accuracy, Streamlined Receiving and
Shipping, Labor Management)
CONT
• Supply Chain Visibility (Real-Time Data Access,
Integrated Dashboard, GPS and RFID Tracking,
Predictive Analytics, Automated Alerts and Notifications)
• Collaboration and Communication (Unified
Communication Platforms, Shared Data Repositories,
Real-time Collaboration Tools, Automated Information
Exchange, Mobile Solutions)
• Quality Control and Traceability (Barcode Scanning and
RFID Tags, Serialization, Automated Quality Inspection,
Data Analytics for Quality Assessment, Integrated
Compliance Management)
CONT
• Risk Management (Predictive Analytics, Scenario
Modeling, Real-Time Monitoring Systems, Risk
Assessment Tools, Integrated Risk Communication)
• Integrated Supply Chain (Centralized Data Platforms,
Automated Workflow Coordination, Advanced Planning
Systems, Cross-Functional Visibility, IoT and Smart
Technologies)
• Increased Productivity (Process Automation, Enhanced
Data Flow, Resource Optimization, Performance
Monitoring, Collaborative Tools)
CONT
• Cost Reduction (Automated Procurement Systems,
Efficient Inventory Management, Transportation
Management Systems, Energy Management Systems,
Supplier Integration)
• Product Improvement (Market Trend Analysis, Customer
Feedback Systems, Rapid Prototyping Tools,
Performance Tracking, Collaborative Product
Development)
 Reference link
• https://www.geektonight.com/demand-forecasting/
• https://www.geektonight.com/demand-forecasting-defini
tion-steps-methods-importance/

• https://www.guvi.com/blog/role-of-it-in-supply-chain-ma
nagement/
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