Supply Chain Management Demand Planning 4 — Questions and Answers
Question 1: Which of the following is a key limitation of using only historical sales data for demand forecasting?
- It requires complex software to analyze
- It captures lost sales caused by stockouts as if demand were lower (Correct answer)
- It cannot be used for seasonal products
- It overstates demand during promotional periods
Correct answer: It captures lost sales caused by stockouts as if demand were lower
Historical shipment data reflects what was sold (supply-constrained), not what customers wanted, so stockout periods artificially suppress apparent demand.
Question 2: A demand planner uses a smoothing constant (alpha) of 0.9 in exponential smoothing. This implies:
- Heavy reliance on older historical data
- Very high responsiveness to recent demand changes (Correct answer)
- The forecast is nearly identical to a 12-month moving average
- Demand volatility is low
Correct answer: Very high responsiveness to recent demand changes
A high alpha (close to 1) gives most weight to the most recent observation, making the forecast highly reactive to recent changes.
Question 3: In the context of demand planning, 'consensus forecasting' refers to:
- Using the median of all statistical model outputs
- Aligning multiple stakeholder inputs (sales, marketing, finance) into a single agreed-upon forecast (Correct answer)
- Having two separate forecasting systems cross-validate each other
- Averaging customer order forecasts from different regions
Correct answer: Aligning multiple stakeholder inputs (sales, marketing, finance) into a single agreed-upon forecast
Consensus forecasting brings together perspectives from sales, marketing, finance, and supply chain to produce a single agreed forecast that drives planning.
Question 4: Which demand planning concept refers to the practice of holding extra inventory to protect against forecast uncertainty?
- Cycle stock
- Pipeline stock
- Safety stock (Correct answer)
- Anticipation inventory
Correct answer: Safety stock
Safety stock is buffer inventory calculated based on demand variability and service level targets to protect against stockouts from forecast error.
Question 5: A product's demand history shows a consistent upward trend of 50 units per month. Which forecasting method is best suited to capture this pattern?
- Simple moving average
- Naive forecast
- Double exponential smoothing (Holt's method) (Correct answer)
- Seasonal decomposition
Correct answer: Double exponential smoothing (Holt's method)
Holt's double exponential smoothing explicitly models both the level and trend components of a time series, making it appropriate for trended data.
Question 6: What is the primary difference between 'demand planning' and 'supply planning' in S&OP?
- Demand planning is strategic while supply planning is operational
- Demand planning projects unconstrained customer demand; supply planning determines how to fulfill it within constraints (Correct answer)
- Demand planning is performed monthly; supply planning is performed weekly
- Demand planning focuses on finished goods; supply planning on raw materials only
Correct answer: Demand planning projects unconstrained customer demand; supply planning determines how to fulfill it within constraints
Demand planning creates an unconstrained view of market need, while supply planning translates that into a feasible production and procurement plan.
Question 7: Which KPI directly measures how well a company's demand forecast translates into actual customer order fulfillment?
- Forecast accuracy
- Fill rate (Correct answer)
- Inventory turnover
- Gross margin return on inventory
Correct answer: Fill rate
Fill rate measures the percentage of customer demand that is satisfied from available stock, directly reflecting the real-world impact of demand planning quality.
Supply Chain Management Demand Planning 4
Which of the following is a key limitation of using only historical sales data for demand forecasting?