Supply Chain Management Forecasting

1. Forecasting and
Forecasting and
Supply-Chain
Supply-Chain
Mohammad Tawfik
Mohammad Tawfik

2. Zeco Cafe
Zeco Cafe

6. What is the supply chain of Zeco Cafe?

10. Zeco may focus on a much simpler chain!

12. Zeco Supply Chain
●
Buy components from supplier
●
Mix and serve drinks
●
Collect money and complaints
●
Pay suppliers for more supplies
●
Inform suppliers about complaints
●
Get answers about complaints and inform customer.

14. Three Flows

15. Kpakpakpa®

16. Or is it five flows?

17. Brandalyzer®

18. What risk does Zeco have?
●
He might not find customers!
●
Supplies may be spoiled
●
Money may be stolen :(

19. Zeco Risk
●
Zeco transfers the risk to the customer by
adding an extra charge on the bill
●
Zeco transfers risk to the supplier by buying on
credit

20. Customer and supplier risks
●
Customer risks having to pay without being
satisfied!
●
Not to mention the risk of food poisoning!!!
●
The suppliers risk not being paid or losing their
reputation by working with Zeco.

21. Values Transfer
●
Zeco adds value to the coffee and tee by:
– Mixing and serving – Food business
– Maintaining the cafe in acceptable conditions to
attract customers – Entertainment Business

22. Note the close relation between supply chain
supply chain
and value chain
value chain!

23. Without adding value, no business will exist for
Zeco or anyone else for that matter

24. What is Supply-Chain Management?

25. Definition
●
The management of upstream
upstream and
downstream
downstream value-added flows of materials,
final goods, and related information among
suppliers, company, resellers, and final
consumers.
WikiPedia

26. Or maybe ...

28. Primary Targets
Primary Targets
Secondary Targets
Secondary Targets

29. Primary and secondary targets are assigned
according to how scholars
scholars of SCM pay attention
to them
However, you can easily argue that they are both
important
important for any successful business

30. Supply-Chain Strategies
Supply-Chain Strategies

31. Top 3 Strategies
●
Improve Distribution Network
●
Monitor Cash Flow
●
Establish Information Conduits (channels)
Darren Woollard

32. … or 5 Strategies
●
Improve your distribution network
●
Devise a distribution strategy
●
Monitor cash flows
●
Establish information conduits
●
Track your inventory
Track your inventory
Zoe Meeken

33. We may add ...
●
Monitor and improve your suppliers’ network
suppliers’ network!

34. Inventory Management
Inventory Management

35. Back to Zeco :)

37. What inventory does Zeco have?

38. The most important question that YOU need to
answer is:
WHY do I need inventory?
WHY do I need inventory?

39. The motive for inventory:
●
Transaction motive
Transaction motive: Economies of scale is
achieved when the number of set-ups are
reduced or the number of transactions are
minimized.
Donglei Du

40. Imagine having to buy sugar 10 times a day each
for 1 kg!

41. The motive for inventory:
●
Precautionary motive
Precautionary motive: hedge against
uncertainty, including demand uncertainty,
supply uncertainty
Donglei Du

42. What if you get to buy sugar, and your supplier is
out of it!!!

43. Or worse …
Customer have to wait until you purchase the
sugar each time a cup of coffee is ordered!!!

44. The motive for inventory:
●
Speculative motive
Speculative motive: hedge against price
increases in materials or labour
Donglei Du

45. Imagine having to say:
“Sorry sir, but the coffee price have changed
because the sugar price went up an hour ago”

46. What is the purpose of inventory management?

47. Purpose of Inventory Management
●
The objective of inventory is to achieve
satisfactory levels of customer service while
keeping inventory costs within reasonable
inventory costs within reasonable
bounds
bounds.
Donglei Du

48. Purpose of Inventory Management
●
Level of customer service:
– (1) in-stock rate
”Yes sir, coming right-away”
”Yes sir, coming right-away”
– (2) number of back orders
”Sorry sir, you need to wait until we buy the sugar”
”Sorry sir, you need to wait until we buy the sugar”
– (3) inventory turnover rate: the ratio of average cost of
goods sold to average inventory investment
”Since we use sugar all the time, let’s build a sugar factory”
”Since we use sugar all the time, let’s build a sugar factory”
Donglei Du

49. Purpose of Inventory Management
●
Inventory cost: cost
cost of ordering
ordering and carrying
carrying
trade-off
Donglei Du

50. How to improve inventory management?
TradeGecko®

51. Fine tune your inventory forecasting
Fine tune your inventory forecasting
methods
methods

52. Keep the holidays in mind...all the
holidays

53. Re-evaluate lead times
Re-evaluate lead times

54. Choose your supply chain partners
Choose your supply chain partners
carefully
carefully

55. Find a local consultant

56. Do your research
Do your research

57. Move to the cloud
Move to the cloud

58. Lets talk about forecasting ...

59. Forecasting in Business
Forecasting in Business

60. What is forecasting?
●
Forecasting is the process of making
statements about events whose actual
outcomes (typically) have not yet been
observed.
Wikipedia

61. Why Forecasting?

62. Predicting the future!
What will we need tomorrow?
What will we need tomorrow?
What will the customer need next year?
What will the customer need next year?
What will the prices be next month?
What will the prices be next month?

63. Inventory requirements
What should I store?
What should I store?
How much should I store?
How much should I store?

64. Financial requirements
How much cash should I keep?
How much cash should I keep?
Should I keep that much cash?
Should I keep that much cash?
How liquid is that asset?
How liquid is that asset?

65. Shipping requirements
If I need it NOW, when should I order it?
If I need it NOW, when should I order it?
If the customer orders NOW, when should they get it?
If the customer orders NOW, when should they get it?
How much does that matter?
How much does that matter?

66. Market expectations
Are prices expected to change?
Are prices expected to change?
Is demand expected to change?
Is demand expected to change?

67. Human resources requirements
Should I hire?
Should I hire?
Should I fire?
Should I fire?

68. A good forecast must be ...

69. Meaningful

70. Reliable

71. Accurate

72. Timely

73. How?

74. Data, Data, Data!

75. Naive forecasting

76. “Yesterday we used 7 kg of sugar, let’s buy 7 for
today!”

77. Judgmental forecasting

78. “It seems that we use more sugar everyday, lets
buy more today”

79. Crowd wisdom

80. “How did you do in that issue when you faced it?”

81. Weighted averages

82. Time regression

83. We will get back to that when we talk about
regression

84. Steps of forecasting

85. Determine purpose

86. Establish time horizon

87. Select technique

88. Obtain data

89. Forecast!

90. Follow up

91. Some Analytics
Some Analytics

92. Donglei Du
Constant consumption rate
Constant delivery rate
Reorder Quantity
Order Size

93. How much should the order quantity
be?
●
The larger the order quantity, the larger the total
holding cost (ch
*Average Stock)
●
The smaller the order quantity, the larger the
order cost (co
*Number of orders)

94. Where does holding cost come
from?
●
Lost investment opportunity
●
Storage rental and/or maintenance
●
Storage security
●
Material degradation due to storage

95. Where does operation cost come
from?
●
Time lost in procurement
●
Paper-work per operation
●
Risk associated with financial transactions
●
Risk of not being able to obtain the material
(delay and having to look for another supplier)

96. Total Cost
Annual HoldingCost=
Q
2
ch
AnnualOrderingCost=
D
Q
co
TotalCost=Tc =
Q
2
ch+
D
Q
co
D = Total quantity per time cycle
Donglei Du

97. Differentiate ...
●
You get the optimum ordering quantity to be:
Qoptimum =
√2 Dco
ch

98. The above was all Deterministic
Deterministic!

99. Deterministic!!!
●
What if the consumption/demand is not
constant?
●
What if the delivery time is not constant?

100. Data, Data, Data
Data, Data, Data

101. Static
Static Problems
●
You collect the data, and evaluate the average!
●
How much do we consume per month?
●
How long does it take the supplier to deliver?
●
This way is simple and effective on the short term
and when you do not have much data

102. Quasi-Static
Quasi-Static Problem
●
Data is accumulating …
●
What matters more: how much did we consume last year or
last month?
●
Should I completely ignore last year?
●
How about two months ago?
●
Here weighted averaging comes handy

103. Trends ...
●
Is your business expanding or contracting?
●
How fast?

105. Which is better?
●
On the short term, average, or even just what
happened yesterday, may be good
●
On the long term, trends and seasonality mater
more!

106. My YouTube Channel

112. References
References

113. References
●
“What does a Supply Chain Engineer do?”, StepStone,
https://www.stepstone.be/career-advice/article/supply-chain-engineer/
●
“Supply Chain Engineer job description template”, Hiring Resources,
https://recruitee.com/hiring-resources/job-description-templates/supply-chain-e
ngineer/
●
“What is supply chain management (SCM)?”, TechTarget®
https://searcherp.techtarget.com/definition/supply-chain-management-SCM
●
“Supply chain management”, WikiPedia,
https://en.wikipedia.org/wiki/Supply_chain_management
●
“The three flows of supply chain”, Nifemi Aluko,
https://kpakpakpa.com/spotlight/the-three-flows-of-supply-chain/

114. References
●
“Consumer Behaviour, Brand Management, Marketing and Psychology”,
Brandalyzer,
https://brandalyzer.blog/2016/03/23/the-five-major-flows-in-supply-chain/
●
“Top 3 Strategies To Improve The Supply Chain Performance In Your Business”,
Darren Woolard,
https://www.dmg-freight.com/top-3-strategies-to-improve-supply-chain-performan
ce-in-business/
●
“5 Ways to Increase Supply Chain Performance”, Zoe Meeken,
https://www.business.org/software/supplier/ways-to-increase-supply-chain-perfor
mance/
●
“7 Tips for Effective Inventory Management in Global Supply Chain”, TradeGecko,
https://www.tradegecko.com/blog/7-tips-for-effective-inventory-management-in-a-
global-supply-chain

115. References
●
“Supply Chain Management: Inventory Management”, Donglei Du
●
“Business-Plan Forecasting”, Steven D. Peterson, Peter E. Jaret, Barbara
Findlay Schenck
●
“Excel Sales Forecasting For Dummies”, Conrad Carlberg
●
“Sales Forecasting: A Practical Guide”, Mark Blessington
●
“Sales and Operations Planning The How-To Handbook”, Thomas F.
Wallace and Robert A Stahl
●
“Introduction to Financial Forecasting in Investment Analysis”, John
Guerard