Toney L Ferguson M.B.A.,M.PM.

Demand

Forecasting

Inventory Management

At the root of most business decisions is the challenge of forecasting customer demand. It is a difficult task because the demand for goods and services can vary greatly.

External Factors. External factors that affect demand for a firm's products or services are beyond management's control.

Internal Factors. Internal decisions about product or service design, price and advertising promotions, packaging design, salesperson quotas or incentives, and expansion or contraction of geographic market target areas all contribute to changes in demand volume.

Predicting the future

Qualitative forecast methodsSubjective

Quantitative forecast methodsbased on mathematical formulas

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Time seriesstatistical techniques that use historical

demand data to predict future demand Regression methods

attempt to develop a mathematical relationship between demand and factors that cause its behavior

Qualitativeuse management judgment, expertise,

and opinion to predict future demand

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Management, marketing, purchasing, and engineering are sources for internal qualitative forecastsDelphi method

involves soliciting forecasts about technological advances from experts

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Judgment methods, which translate the opinions of managers,expert opinions, consumer surveys, and sales force estimates into quantitative estimates. Quantitative methods include causal methods and time series analysis.

Time series analysis is a statistical approach that relies heavily on historical demand data to project the future size of demand and recognizes trends and seasonal patterns.

Assume that what has occurred in the past will continue to occur in the future

Relate the forecast to only one factor - time

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Inventory management Is among the most important operations

management responsibilities because inventory requires a great deal of capital and affects the delivery of goods to customers.

Inventory An inventory is a stock of materials used to

facilitate production or to satisfy customer demands. Inventories include raw materials, work in process , and finished goods

Raw materials Purchased parts and supplies Work-in-process (partially completed)

products (WIP) Items being transported

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Purpose of InventoriesTo protect against uncertainties

Safety StockTo allow economic production and purchase

Buying in lotsTo cover anticipated changes in demand or

supply Changes in demand or supply

To provide for transit Transportation of materials

Carrying cost cost of holding an item in inventory

Ordering cost cost of replenishing inventory

Shortage cost temporary or permanent loss of sales

when demand cannot be met

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are inventories needed for the production of goods or services. They are considered to be inputs to the transformation processes of the firm, whether they produce a product or a service.

consists of items such as components or assemblies needed for a final product in manufacturing. WIP is also present in some service operations, such as service shops, mass service providers, and service factories.

in manufacturing plants, warehouses, and retail outlets are the items sold to the firm's customers. The finished goods of one firm may actually be the raw materials for another.

Thank you for your attendance this evening.