Inventory typically is categorized based on its flow through the production cycle, using such designations as raw materials, work in process, and finished goods. Maintenance, repair, and operating supplies also are stocked to support the functionality of the firm. For planning and forecasting purposes, inventory is classified based on the source of its demand as either independent or dependent. Independent demand items are requested directly by the customer and thus must be forecasted. Demand for dependent items can be derived or calculated based on relationships to independent items, usually noted by higher levels in the bill of material.

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Demand is prioritized when supply is lacking. Proper demand management facilitates the planning and use of resources for positive and profitable results and may involve marketing programs designed to increase or reduce demand in a relatively short time.

The tactical horizon may be based on the cumulative lead time needed to procure or produce low-level components. The strategic horizon is based on the time needed to adjust capacity. A greater degree of uncertainty requires a longer planning horizon. It requires that all factors surrounding the decision-making process are recorded.

Forecasts can be made at strategic, tactical, and operational levels. Subjective forecasting is a qualitative technique, while the causal and time series methods are quantitative, statistical models. In forecasting, either historical demand data are transformed into future projections or a subjective prediction of the future is madeā€”or some combination of the two.

In the process, item forecasts first are aggregated by product group. Management then makes a new forecast for the group. The value is then transferred to individual item forecasts so that they are consistent with the aggregate plan.

Forecast data may be broken down in an attempt to uncover the components of demand, such as trend, seasonality, and cyclical and random patterns. The base component reflects the demand for an item without applying the patterns. Baseline methods. It usually is a predictable component of demand. Time series. Time series is a technique that projects historical data patterns by looking at past forecasts and forecast errors. A time series may contain seasonal, cyclical, trend, and random components.

Exponential smoothing. Exponential smoothing is a forecasting technique using a weighted moving average, where past observations are adjusted according to their age. The most recent data typically are weighted the heaviest. A smoothing constant is applied to the difference between the most recent forecast and critical sales data, avoiding the necessity of maintaining historical sales data. Alternatives to exponential smoothing include moving average and weighted moving average models. Trend is the general upward or downward movement of demand over time.

Seasonality is a cyclical pattern of demand, where some periods of the year are higher or lower than others. Regression models. Regression models are statistical techniques used to determine the best mathematical expression that describes the relationship between a dependent variable, such as demand, and one or more independent variables. Focus forecasting. Focus forecasting is a system that allows a user to simulate the effectiveness of numerous forecasting techniques and select the best method.

Bias refers to consistent errors that cause a forecast to go either too high or too low. A forecast is biased if the current forecast errors are greater or less than zero. Standard deviation. Standard deviation is a measurement of the dispersion of data or of a variable. It is calculated by finding the differences between average and actual observations, squaring each difference, adding the squared differences, dividing by n minus 1 for a sample , and finally taking the square root of the result.

Mean absolute deviation MAD. It is the arithmetic mean of past absolute errors. Mean absolute percent error. Tracking signal. This is used to alert that the forecast model is biased. Promotions and de-promotions. These are products subject to wide fluctuations in sales, often being sold at a reduced price or as part of another sales incentive.

Cannibalization is the reduction of demand for a product due to the introduction of a new or similar product. Substitution is the use of a different product or component not originally specified on an order but serving the same purpose, which impacts demand history.

In forecasting, they are where quantitative and qualitative data are collected for future needs. For example, exponential smoothing might be appropriate for a very short-term forecast predicting demand during lead time, but not for a long-term product group demand forecast where regression might be a better fit.

Selecting the best method or methods for specific needs is important in successful forecasting. ASCM will continue to operate as usual with staff working from home. You have free articles left to view this month.


Supply chain Consulting services

Kagat Relevancy by Job Title Index. APICS, through a partnership with The Manufacturing Institute, explores how manufacturing and supply chain can attract, retain and advance women. You have free articles left to view this month. What should be expanded on or added in the future? Sort, set in order, shine, standardize, and sustain are five terms beginning with the letter S used in creating a workplace suitable for lean production. APICS research cuts through the clutter and brings you critical ideas and innovations in supply chain management, best practices, how-to steps, and practical advice that give you and your organization a competitive advantage. APICS Research Reports APICS research cuts through the clutter and brings you apifs ideas and innovations in supply chain management, best practices, how-to steps, and practical advice that give you and your organization a competitive advantage.


APICS Operations Management Body of Knowledge Framework, Third Edition



APICS Operations Management Body of Knowledge (OMBOK) Framework




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