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 methods  Subjective  Quantitative forecast methods  based on mathematical formulas Copyright 2011 John Wiley & Sons, Inc. 12-5

Copyright 2011 John Wiley & Sons, Inc. 12-6

 Time series  statistical 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  Qualitative  use management judgment, expertise, and opinion to predict future demand Copyright 2011 John Wiley & Sons, Inc. 12-7

 Management, marketing, purchasing, and engineering are sources for internal qualitative forecasts  Delphi method involves soliciting forecasts about technological advances from experts Copyright 2011 John Wiley & Sons, Inc. 12-8

 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 Copyright 2011 John Wiley & Sons, Inc

 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 Copyright 2011 John Wiley & Sons, Inc

 Purpose of Inventories  To protect against uncertainties Safety Stock  To allow economic production and purchase Buying in lots  To 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 Copyright 2011 John Wiley & Sons, Inc

 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.