Demand Forecasting & Supply Planning Flashcards

What is the main purpose of demand forecasting in inventory management?

Answer: To predict future product demand and optimize stock levels

Demand forecasting is the process of estimating future customer demand for products or services. Its main purpose in inventory management is to predict how much product will be needed, allowing businesses to optimize stock levels, prevent stockouts or overstocking, and make informed purchasing and production decisions. Accurate forecasts are vital for efficient supply chain operations.

Which technique uses historical data to estimate future demand?

Answer: Time series analysis

Time series analysis is a quantitative forecasting technique that uses historical data points, collected over time, to identify patterns, trends, and seasonal variations. By analyzing these past patterns, it estimates future demand for products. This method is effective for stable products with consistent sales histories.

What does a high forecast error indicate?

Answer: Inaccurate demand predictions

A high forecast error indicates that the predicted demand significantly deviates from the actual demand. This means the demand predictions were inaccurate, leading to potential issues like stockouts if demand was underestimated, or excess inventory if demand was overestimated. Minimizing forecast error is critical for effective inventory management.

Which metric is used to measure forecast accuracy?

Answer: MAPE

MAPE stands for Mean Absolute Percentage Error, which is a commonly used metric to measure the accuracy of a forecast. It expresses the average absolute difference between forecasted and actual values as a percentage of the actual values. A lower MAPE indicates a more accurate forecast, helping businesses assess the reliability of their demand predictions.

Why is collaboration important in supply planning?

Answer: It supports synchronized decision-making across departments

Collaboration in supply planning involves sharing information and coordinating activities across different departments (e.g., sales, marketing, production, procurement) and with external partners (suppliers, customers). This synchronized decision-making ensures that all parties are aligned on demand forecasts, production schedules, and inventory levels. It leads to more efficient resource allocation and a more responsive supply chain.

What role does lead time play in supply planning?

Answer: It helps determine order timing and quantity

Lead time is the duration between placing an order and receiving the goods. In supply planning, understanding lead time is critical because it directly impacts when orders need to be placed and in what quantity to avoid stockouts. Accurate lead time data helps determine reorder points and ensures a continuous supply of inventory to meet demand.

What is safety stock used for?

Answer: To handle unexpected spikes in demand or delays

Safety stock is an extra quantity of inventory held to prevent stockouts due to unexpected fluctuations in demand or supply chain disruptions, such as delayed shipments. It acts as a buffer against uncertainty, ensuring that customer orders can still be fulfilled even when actual demand exceeds forecasts or lead times are longer than expected. This helps maintain service levels and avoid lost sales.

Which tool helps visualize and track demand and supply planning?

Answer: ERP systems

Enterprise Resource Planning (ERP) systems are integrated software solutions that manage all core business processes, including demand and supply planning. They provide a centralized platform to visualize and track data across various functions, enabling better coordination and decision-making for inventory, production, and procurement. ERP systems offer comprehensive visibility into the entire supply chain.

What is the impact of underestimating demand?

Answer: Stockouts and lost sales

Underestimating demand means predicting lower sales than what actually occurs. This leads to insufficient inventory to meet customer orders, resulting in stockouts and lost sales opportunities. It can also damage customer satisfaction and lead to a loss of market share.