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1. SUPPLY CHAIN ENGINEERING…MN 799ã TEXT: SUPPLY CHAIN MANAGEMENT – Chopra and Meindl – Prentice Hallã COURSE OUTLINE – Description Book pages – 1/22…
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  • 1. SUPPLY CHAIN ENGINEERING…MN 799• TEXT: SUPPLY CHAIN MANAGEMENT – Chopra and Meindl – Prentice Hall• COURSE OUTLINE – Description Book pages – 1/22 Introduction, curriculum, rules, exams, Infrastructure (1-27) – 1/27 Strategic Fit and Scope. Supply Chain Drivers (27-51) – 2/05 No Class – 2/12 Demand Management (169-204) – 2/19 Aggregate Planning, Managing (205-225) – 2/26 Guest Lecture Network Operations (71-168) – 3/04 Managing Supply and Demand (121-144) – 3/11 Class trip to see Supply Chain in Operation – 3/18 No Class – 3/25 Mid Term – 4/01 Managing Inventory(249-295); – 4/08 Product Availability (297-384) – 4/15 Sourcing and Procurement (387-410) – 4/22 Transportation (411-219); Facility Decisions (109-133) – 4/29 Beer Game – 5/06 Co-ordination Information Information Technology & E-Business (477- 557) – 5/13 FINAL EXAMINATION Supply Chain 1#
  • 2. GUIDELINES• GRADING: – HOMEWORK – 20% – BEER GAME – 5% – MID TERM – 30% – FINAL – 45%• HOMEWORK MUST BE COMPLETED IN TIME. LATE SUBMISSIONS WILL START WITH A ‘B’ GRADE• CLASSES WILL START AT 6.00PM AND GO STRAIGHT THRU TO 8.00PM Supply Chain 2#
  • 3. DEFINITION OF A SUPPLY CHAIN• WHAT IS A SUPPLY CHAIN?• A SUPPLY CHAIN COVERS THE FLOW OF MATERIALS, INFORMATION AND CASH ACROSS THE ENTIRE ENTERPRISE• SUPPLY CHAIN MANAGEMENT IS THE INTEGRATED PROCESS OF INTEGRATING, PLANNING, SOURCING, MAKING AND DELIVERING PRODUCT, FROM RAW MATERIAL TO END CUSTOMER, AND MEASURING THE RESULTS GLOBALLY• TO SATISFY CUSTOMERS AND MAKE A PROFIT• WHY A ‘SUPPLY CHAIN’? Supply Chain 3#
  • 4. Traditional View: Logistics in the Economy 1990 1996 2006 • Freight Transportation $352, $455 $809 B • % Freight 57% 62% • Inventory Expense $221, $311 $ 446 B • % Inventory 39% 33% • Administrative Expense $27, $31 $ 50 B • Logistics related activity 11%, 10.5%,9.9% • % of GNP.Source: Cass Logistics Homework: What are 2007 statistics? Supply Chain 4#
  • 5. Traditional View: Logistics in the Manufacturing Firm • Profit 4% Profit • Logistics Cost Logistics 21% Cost • Marketing Cost 27% Marketing Cost • Manufacturing Cost 48% Manufacturing CostHomework: What it the profile for Consumables; Pharamas and Computers Supply Chain 5#
  • 6. Supply Chain Management: The Magnitude in the Traditional View• Estimated that the grocery industry could save $30 billion (10% of operating cost by using effective logistics and supply chain strategies – A typical box of cereal spends 104 days from factory to sale – A typical car spends 15 days from factory to dealership• Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed• P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand• Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago Supply Chain 6#
  • 7. HAMBURGERS AND FRIES HAMBURGERS (4/LB) FRIES (3Large/lb)• CATTLE FARM – 50c/lb • POTATO FARM 25C/lb• BUTCHER • POTATO PROCESSOR• PACKAGING • DISTRIBUTION CENTER• DISTRIBUTION CENTER • RETAILER• RETAILER • CUSTOMER• CUSTOMERProvide Sales Price at each stage Provide Sales Price at each stage Supply Chain 7#
  • 8. Burger and Fries Examine this process – What do you observe?What problems do you foresee in this Supply Chain? Please write some down Supply Chain 8#
  • 9. Understanding the Supply Chain … a chain is only as good as its weakest link Recall that saying? The saying applies to the principles of building a competitive infrastructure:Supplier Manufacturer Wholesaler Retailer Customer …there is a limit to the surplus or profit in a supply chain Strong, well-structured supply chains are critical to sustained competitive advantage. We are all part of a Supply Chain in everything we buy Supply Chain 9#
  • 10. OBJECTIVES OF A SUPPLY CHAIN• MAXIMIZE OVERALL VALUE GENERATED – SATISFYING CUSTOMER NEEDS AT A PROFIT – VALUE STRONGLY CORRELATED TO PROFITABILITY – SOURCE OF REVENUE – CUSTOMER – COST GENERATED WITHIN SUPPLY CHAIN BY FLOWS OF INFORMATION, PRODUCT AND CASH – FLOWS OCCUR ACROSS ALL STAGES – CUSTOMER, RETAILER, WHOLESALER, DISTRIBUTOR, MANUFACTURER AND SUPPLIER – MANAGEMENT OF FLOWS KEY TO SUPPLY CHAIN SUCCESS UNDERSTAND EACH OBJECTIVE Supply Chain 10#
  • 11. DECISION PHASES IN A SUPPLY CHAIN• OVERALL STRATEGY OF COMPANY – EFFICIENT OR RESPONSIVE• SUPPLY CHAIN STRATEGY OR DESIGN ? – LOCATION AND CAPACITY OF PRODUCTION AND WAREHOUSE FACILITIES? – PRODUCTS TO BE MANUF, PURCHASED OR STORED BY LOCATION? – MODES OF TRANSPORTATION? – INFORMATION SYSTEMS TO BE USED? – CONFIGURATION MUST SUPPORT OVERALL STRAGEGY• SUPPLY CHAIN PLANNING? – OPERATING POLICIES – MARKETS SERVED, INVENTORY HELD, SUBCONTRACTING, PROMOTIONS, …?• SUPPLY CHAIN OPERATION? – DECISIONS AND EXECUTION OF ORDERS? Supply Chain 11#
  • 12. Basic Supply Chain Architectures (Examples) 1. Indirect Channel Retailer Customer Supplier Wholesale Factory Retailer Customer Supplier Wholesale Retailer Customer 2. Direct Channel Supplier Supplier Supplier Fabricator Factory Integrator Customer Supplier 3. Virtual Channel Supplier Credit Virtual Service Store Supplier Fabricator Factory Express Customer Freight Supply Chain 12# C 1999. William T. Walker, CFPIM, CIRM with the APICS Educational & Research Foundation. All Rights Reserved.
  • 13. Supply Chain Architecture Demand LOCAL REGIONAL GLOBAL Strategic IssuesMARKET MARKET MARKET . Demand Reach INDIRECT CHANNEL DIRECT CHANNEL . Demand Risk VIRTUAL CHANNEL MAKE •Cost Structure vs. • Asset Utilization BUY • Responsiveness SOLE SOURCE SINGLE SOURCE MULTI-SOURCE Supply Risk Supply C 1999. William T. Walker, CFPIM,Supply APICS Educational & Research Foundation. 13# CIRM with the Chain All Rights Reserved.
  • 14. SUPPLY CHAIN FRAMEWORK AND INFRASTRUCTURE PRINCIPLE: BUILD A COMPETITIVE INFRASTRUCTURE This principle is about VELOCITY Supply Chain 14#
  • 15. Cycle View of Supply ChainsDEFINES ROLES AND RESPONSIBILITIES OF MEMBERS OF SUPPLY CHAIN Customer to Customer Order Cycle Retailer Replenishment Cycle to Distributor Manufacturing Cycle to Manufacturer Procurement Cycle to Supplier Supply Chain 15#
  • 16. PROCESS VIEW OF A SUPPLY CHAIN• CUSTOMER ORDER CYCLE – TRIGGER: MAXIMIZE CONVERSION OF CUSTOMER ARRIVALS TO CUSTOMER ORDERS – ENTRY: ENSURE ORDER QUICKLY AND ACCURATELY COMMUNICATED TO ALL SUPPLY CHAIN PROCESSES – FULFILLMENT: GET CORRECT AND COMPLETE ORDERS TO CUSTOMERS BY PROMISED DUE DATES AT LOWEST COST – RECEIVING: CUSTOMER GETS ORDER Supply Chain 16#
  • 17. PROCESS VIEW OF A SUPPLY CHAIN• REPLENISHMENT CYCLE – REPLENISH INVENTORIES AT RETAILER AT MINIMUM COST WHILE PROVIDING NECESSARY PRODUCT AVAILABILITY TO CUSTOMER – RETAIL ORDER: • TRIGGER – REPLENISHMENT POINT – BALANCE SERVICE AND INVENTORY • ENTRY – ACCURATE AND QUICK TO ALL SUPPLY CHAIN • FULFILLMENT – BY DISTRIBUTOR OR MFG. – ON TIME • RECEIVING – BY RETAILER, UPDATE RECORDS• MANUFACTURING CYCLE – INCLUDES ALL PROCESSES INVOLVED IN REPLENISHING DISTRIBUTOR (RETAILER) INVENTORY, ON TIME @ OPTIMUM COST – ORDER ARRIVAL – PRODUCTION SCHEDULING – MANUFACTURING AND SHIPPING – RECEIVING Supply Chain 17#
  • 18. PROCESS VIEW OF A SUPPLY CHAIN• PROCUREMENT CYCLE – SEVERAL TIERS OF SUPPLIERS – INCLUDES ALL PROCESSES INVOLVED IN ENSURING MATERIAL AVAILABLE WHEN REQUIRED• SUPPLY CHAIN MACRO PROCESSES• CRM – All processes focusing on interface between firm and customers• ISCM – A processes internal to firm• SRM – All processes focusing on interface between firm and suppliers Supply Chain 18#
  • 19. FRONT OFFICEA Customer’s View on linethe Supply Chain Ex.-Travel arrangements ofOrder the product... Take delivery...with configuration complexity on-line the next day at home, and get started without a hasslePay for the product... Service the product...in a foreign currency by credit card anywhere in the world Supply Chain 19# C 1999. William T. Walker, CFPIM, CIRM with the APICS Educational & Research Foundation. All Rights Reserved.
  • 20. Push/Pull View of Supply Chains PULL – PROCESSES IN RESPONSE TO A CUSTOMER ORDERPUSH – PROCESSES IN ANTICIPATION OF A CUSTOMER ORDER Procurement, Customer Order Manufacturing and Cycle Replenishment cycles Customer Order arrives PUSH PROCESSES PULL PROCESSES Supply Chain 20#
  • 21. UNDERSTANDING THE SUPPLY CHAIN• Homework• EXAMPLES: – EXAMPLES OF SUPPLY CHAINS –1.5 – pp 20-25 – WHAT ARE SOME OF THE KEY ISSUES IN THESE SUPPLY CHAINS – ANALYSE AND COMMENT ON 7-Eleven and Amazon– ANSWER QUESTIONS 1TO 6 FOR EACH Supply Chain 21#
  • 22. SUPPLY CHAIN PERFORMANCE – STRATEGIC FIT AND SCOPE (Lesson 2) FILM – CHAIN REACTION Business Strategy New Product Marketing Strategy Strategy Supply Chain Strategy New Marketing Product and Operations Distribution Service Development Sales Supply and ManufactureFinance, Accounting, Information Technology, Human ResourcesEXAMPLES? Supply Chain 22#
  • 23. ACHIEVING STRATEGIC FIT• Step 1. Understanding the Customer and Demand – Quantity - Lot size Implied – Response time Demand – Product variety Uncertainty – Service level See Table 2.1 – Price Regular Demand – Innovation Uncertainty due to customers demand and Implied Demand Uncertainty due to uncertainty in Supply Chain Supply Chain 23#
  • 24. Levels of Implied Demand Uncertainty Detergent High Fashion Long lead time steel Emergency steel Customer Need Price Responsiveness Low HighImplied Demand Uncertainty Attributes (Table 2-2) Low Implied Uncertainty High Implied UncertaintyProduct Margin Low – HighAver. Forecast Error 10% 40-100%;Aver. Stockout rate 1-2% 10-40%;Aver. markdown 0% 10-25% Supply Chain 24#
  • 25. SUPPLY SOURCE UNCERTAINTY• TABLE 2.3 SUPPLY UNCERTAINTY – FREQUENT BREAKDOWNS – UNPREDICTABLE AND/OR LOW YIELDS – POOR QUALITY – LIMITED SUPPLIER CAPACITY – INFLEXIBLE SUPPLY CAPACITY – EVOLVING PRODUCTION PROCESSES• LIFE CYCLE POSITION OF PRODUCT – NEW PRODUCTS HIGH UNCERTAINTY• DEMAND AND SUPPLY UNCERTAINTY FIG 2.2 Supply Chain 25#
  • 26. Step 2 - Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier (Table: 2.4) Responsiveness – to Quantity, Time, Variety, Innovation, Service level Exercise: Give examples of products that are: Highly efficient, Somewhat efficient,Responsiveness Somewhat responsive and highly responsive High Low Fig 2.3 High Low Cost (efficient) Supply Chain 26#
  • 27. Step 3. Achieving Strategic Fit Responsive Companies try to move supply chain Zone of Strategic fit High Cost fResponsiveness n e o Fit spectrum Zo egic t Stra Low Cost Efficient supply chain Certain Implied Uncertain demand uncertainty demand spectrum Supply Chain 27#
  • 28. SCOPE• Comparison of Efficient & Responsive Supply Chain Table 2.4 – EFF Vs RESPON. STRATEGY for DESIGN; PRICING; MANUF; INVEN; LEAD TIME; SUPPLIER – THERE IS A RIGHT SUPPLY CHAIN STRATEGY FOR A GIVEN COMPETITIVE STRATEGY (without a competitive strategy there is no right supply chain!)• OTHER ISSUES AFFECTING STRATEGIC FIT – MULTIPLE PRODUCTS AND CUSTOMER SEGMENTS • TAILOR SC TO MEET THE NEEDS OF EACH PRODUCT’S DEMAND – PRODUCT LIFE CYCLE Fig 2.8 • AS DEMAND CHARACTERISTICS CHANGE, SO MUST SC STRATEGY - EXAMPLES – COMPETITIVE CHANGES OVER TIME (COMPETITOR)• EXPANDING STRATEGIC SCOPE – INTERCOMPANY INTERFUNCTIONAL SCOPE • MAXIMIZE SUPPLY CHAIN SURPLUS VIEW – EVALUATE ALL ACTIONS IN CONTEXT OF ENTIRE SUPPLY CHAIN (FIG 2.12) – FLEXIBLE INTERCOMPANY INTERFUNCTIONAL SCOPE • FLEXIBILITY CRITICAL AS ENVIRONMENT BECOMES DYNAMIC Supply Chain 28#
  • 29. Strategic Scope Suppliers Manufacturer Distributor Retailer CustomerCompetitive StrategyProduct Dev. StrategySupply Chain StrategyMarketing Strategy Supply Chain 29#
  • 30. Drivers of Supply Chain Performance Competitive Strategy Supply Chain Strategy Efficiency Responsiveness Supply chain structureInventory Transportation Facilities Information Drivers TRADE OFF FOR EACH DRIVER Supply Chain 30#
  • 31. INVENTORY– ‘WHAT’ OF SUPPLY CHAIN– MISMATCH BETWEEN SUPPLY AND DEMAND– MAJOR SOURCE OF COST– HUGE IMPACT ON RESP0NSIVENESS– MATERIAL FLOW TIME • I = R T (I – Inventory, R – Throughput, T – Flow time)– ROLE IN COMPETITIVE STRATEGY– COMPONENTS • CYCLE INVENTORY – AVERAGE INVENTORY BETWEEN REPLENISHMENTS • SAFETY INVENTORY - TO COVER DEMAND AND SUPPLY UNCERTAINITY • SEASONAL INVENTORY – COUNTERS PREDICTABLE VARIATION– OVERALL TRADE OFF: RESPONSIVENESS VS EFFICIENCY Supply Chain 31#
  • 32. TRANSPORTATION• ‘HOW’ OF SUPPLY CHAIN• LARGE IMPACT ON RESPONSIVENESS AND EFFICIENCY• ROLE IN COMPETITIVE STRATEGY• COMPONENTS – MODE – AIR, TRUCK, RAIL, SHIP, PIPELINE, ELECTRONIC – ROUTE SELECTION – IN HOUSE OR OUTSOURCE• OVERALL TRADE OFF: RESPONSIVENESS VS EFFICIENCY Supply Chain 32#
  • 33. FACILITIES• ‘WHERE’ OF SUPPLY CHAIN• TRANSFORMED (FACTORY) OR STORED (WAREHOUSE)• ROLE IN COMPETITIVE STRATEGY• COMPONENTS – LOCATION - CENTRAL OR DECENTRAL – CAPACITY – FLEXIBILITY VS EFFICIENCY – MANUFACTURING METHODOLOGY – PRODUCT OR PROCESS FOCUS – WAREHOUSING METHODOLOGY – STORAGE – SKU, JOB LOT, CROSSDOCKING• OVERALL TRADE OFF: RESPONSIVENESS VS EFFICIENCY Supply Chain 33#
  • 34. INFORMATION• AFFECTS EVERY PART OF SUPPLY CHAIN – CONNECTS ALL STAGES – ESSENTIAL TO OPERATION OF ALL STAGES• ROLE IN COMPETITIVE STATEGY – SUBSTITUTE FOR INVENTORY• COMPONENTS – PUSH VS PULL – COORDINATION AND INFORMATION SHARING – FORECASTING AND AGGREGATE PLANNING – ENABLING TECHNOLOGIES • EDI • INTERNET • ERP • SCM• OVERALL TRADE OFF: RESPONSIVENESS VS EFFICIENCY ? Supply Chain 34#
  • 35. Considerations for Supply Chain DriversDriver Efficiency ResponsivenessInventory Cost of holding AvailabilityTransportation Consolidation SpeedFacilities Consolidation / Proximity / Dedicated FlexibilityInformation What information is best suited for each objective Supply Chain 35#
  • 36. MAJOR OBSTACLES TO ACHIEVING FIT• Multiple global owners / incentives in a supply chain – Information Coordination & Contractual Coordination Local optimization and lack of global fit• Increasing product variety / shrinking life cycles / demanding customers/customer fragmentation Increasing demand and supply uncertainty Supply Chain 36#
  • 37. OBSTACLES TO ACHIEVING STRATEGIC FIT• INCREASING VARIETY OF PRODUCTS• DECREASING PRODUCT LIFE CYCLES• INCREASINGLY DEMANDING CUSTOMERS• FRAGMENTATION OF SUPPLY CHAIN OWNERSHIP• GLOBALIZATION• DIFFICULTY EXECUTING NEW STRATEGIES• ALL INCREASE UNCERTAINTY Supply Chain 37#
  • 38. Dealing with Product Variety: Mass Customization Long Lead Time Short Mass Customization t ion Low Low Co za st mi sto CuHigh High Supply Chain 38#
  • 39. Fragmentation of Markets and Product Variety• Are the requirements of all market segments served identical?• Are the characteristics of all products identical?• Can a single supply chain structure be used for all products / customers?• No! A single supply chain will fail different customers on efficiency or responsiveness or both. Supply Chain 39#
  • 40. HOMEWORK• Page 49 – Nordstrom – Answer Questions 1 to 4• Answer the above questions for Amazon.com• Page 67 – Answer Questions 1 to 4 Supply Chain 40#
  • 41. REVIEW QUESTIONS• WHAT IS STRATEGIC FIT? HOW IS IT ACHIEVED? – COMPANY’S APPROACH TO MATCH DEMAND REQUIREMENTS AND SUPPLY POSITIONING – MULTIPLE PRODUCTS AND CUSTOMER SEGMENTS – PRODUCT LIFE CYCLE• WHAT IS STRATEGIC SCOPE? – INTERCOMPANY, INTERFUNCTIONAL EXTENSION• WHAT ARE THE SUPPLY CHAIN DRIVERS. WHAT ARE THEIR ROLES AND COMPONENTS? – INVENTORY; FACILITIES; TRANSPORTATION; INFORMATION• OBSTACLES Supply Chain 41#
  • 42. Demand-Management Activities Lesson 3 Forecasting (uncertainty) Order service (certainty) Demand management RULE: Do not forecast what you can plan, calculate, or extract from supply chain feedback.Source: Adapted from Plossl, “Getting the Most from Forecasts,” APICS 15th International Conference Proceedings, 1972 Supply Chain 42#
  • 43. DETERMINING DEMAND• FORECASTING – TWO TYPES – WRONG AND LUCKY – TWO NUMBERS – QUANTITY AND DATE – ELEMENTS of a GOOD FORECASTING SYSTEM: • EQUAL CHANCE OF BEING OVER OR UNDER • INCLUDES KNOWN FUTURE EVENTS • HAS RANGE OR FORECAST ERROR ESTIMATE • REVIEWED REGULARLY Supply Chain 43#
  • 44. FORECASTING• GENERAL PRINCIPLES: – MORE ACCURATE AT THE AGGREGATE LEVEL – MORE ACCURATE FOR SHORTER PERIODS OF TIME CLOSER TO PRESENT – SET OF NUMBERS TO WORK FROM, NOT TO WORK TO – MOSTLY ALWAYS WRONG – EXAMPLE: MONTHLY vs DAILY EXPENDITURE Supply Chain 44#
  • 45. FORECASTING• MAIN TECHNIQUES: – QUALITATIVE • MANAGEMENT REVIEW • DELPHI METHOD • MARKET RESEARCH – QUANTITIVE • MOVING AVERAGE • WEIGHTED MOVING AVERAGE • EXPONENTIAL SMOOTHING • REGRESSION ANALYSIS • SEASONALILTY • PYRAMID Supply Chain 45#
  • 46. FORECASTING• QUALITATIVE – USEFUL ON NEW PRODUCTS – AS A SUPPLEMENT TO QUANTITATIVE NUMBERS• QUANTITATIVE – NEEDS HISTORICAL DATA OR PROJECTED DATA – AVAILABLE – CONSISTENT – ACCURATE – UNITS - MEASURABLE Supply Chain 46#
  • 47. WORK OUT JUNE’s FORECASTS FOR ALL SKU’s Month SKU Jan Feb Mar Apr May Jun A 25 21 23 2321 21 B 27 23 26 21 25 C 16 18 17 23 30 D 23 26 25 52 23 E 29 30 ? 26 28 Total 120 118 91 2443 127 What actions should be taken? What is forecast for June? For each SKU? For total? Supply Chain 47#
  • 48. Simple Moving Averages (SMA) Simple Moving Average (SMA) DΤ + DΤ- 1 + DΤ- 2 F +1 = Τ n Demand (3-period) (4-period) Forecast Forecast 180 start-up start-up 160 220 186.6 200 193.3 190 260 226.6 210 240 233.3 230 Where F = Forecast T = Current time period D = Demand n = Number of periods( max) Exercise: Work out the SMA for two periodsQuestion: What determines the number of periods used? Why? Supply Chain 48#
  • 49. Weighted Moving Averages Weighted Moving Average (WMA) FT + 1 = WTD T + WT − 1D T − 1... + ...WT − n+ 1D T − n+ 1 Forecast Forecast Demand (.2, .3, .5)(.1, .2, .3, .4) 180 start-up start-up 160 220 194 200 198 196 26 23 224 0240 4 238 236 Where: F = Forecast T = Current time period D = Demand n = Number of periods (max) W = Weight, where greatest weight applies to most recent period and sum of weights = 1 Exercise: Work out forecast for two periods with weights of 0.4,0.6What periods and weights will use for forecasting soap and fashion clothes Why? Supply Chain 49#
  • 50. Exponential SmoothingDecisionþ Select or compute a smoothing constant (α )þ Relationship of exponential smoothing to simple moving average Formulas Where 1 T+ 1 = α FT +F= = T D (1+− − α )F T F D + + (1 − α )F D T (1 )FT F = forecast value T+1 T T T = current time period FT 1 T + FT= Fαα (D T − F or or +F= = + +(D T(D FT−)F T)) or F 1 FT + α − D = demand T+1 T T T α = exponential factor <1 α= 2 Where n+ 1 n = number of past periods to be captured Supply Chain 50#
  • 51. Exponential Smoothing — Continued FT+1 = FT + a (DT – FT)Period Demand Forecast Forecast Forecast (α = .1) (α = .5) (α = .9) 0 180 start-up start-up start-up 1 160 180 180 180 2 220 178 170 162 3 200 182 195 214 4 260 184 198 201 5 240 192 229 254 6 196 234 241 Work out forecasts with α=0.3What α’s will use for forecasting soap and fashion clothes Why? Supply Chain 51#
  • 52. Simple Trended Series — Example Algebraic Trend Projection X Y a. Trend (“rise” over “run”) = (13 - 4)/3 = 3 = b 0 4 b.Y-intercept (a) = “compute” 1 7 the Y value for X = 0, thus Y-int = 4 2 10 3 13 c. Period 4: Y = a + bX = 4 + 3 (4 [for period 4]) = 16 13 10 Rise 7 4 Run 1 2 3 Supply Chain 52#
  • 53. REGRESSION ANALYSIS• Regression formula b=slope, a=intercept• Slope b= n∑ XY − ∑ X ∑ Y Intercept n ∑ X − (∑ X ) 2 2 a = Y - bX• and Y = a + bX• Work out this example: b=• Year Variable Y (Passengers)• 1 77• 2 75• 3 72• 4 73• 5 71• What is the regression equation? What is the forecast for Year 6? Supply Chain 53#
  • 54. TREND
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