SUPPLY CHAIN MANAGEMENT

Supply Chain Management can be defined as the management of flow of products and services,
which begins from the origin of products and ends at the product’s consumption. It also
comprises movement and storage of raw materials that are involved in work in progress,
inventory and fully furnished goods. The main objective of supply chain management is to
monitor and relate production, distribution, and shipment of products and services. This can
be done by companies with a very good and tight hold over internal inventories, production,
distribution, internal productions and sales.

SUPPLY CHAIN
Supply chain refers to the way that materials flow through different
organizations, starting with raw-materials and ending with finished products
delivered to the ultimate customer.
A supply chain is a sequence of suppliers, transporters, warehouses,
manufacturers, wholesalers or distributors, retail outlets and final customers.

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Different companies may have different supply chains due to the nature of their
operations and whether they are primarily a manufacturing operation or a service
operation.

SUPPLY CHAIN MANAGEMENT

Supply chain management is a collection of actions required to co-ordinate and
manage all activities necessary to bring a product to market, including processing
raw-materials, producing goods, transporting and distributing those goods and
managing the selling process. - Jules Abend

Supply chain management is a ability to get closer to the customer. - Marty Weil
Supply chain management is the process of planning, implementing and
controlling the operations of the supply chain with the purpose to satisfy customer
requirements as efficiently as possible. Supply chain management spans all
movement and storage of raw-materials, work-in-process inventory and finished
goods from point-of-origin to point-of-consumption.

IMPORTANCE OF SUPPLY CHAIN MANAGEMENT

1. The total time for materials to travels through the entire supply chain can be
quiet long (say six months to one year or more). Since the materials spend so
much time waiting in inventory at various stages in the supply chain, there is a
great opportunity to reduce the total supply chain cycle time leading to a
corresponding reduction in inventory, increased flexibility, reduced costs and
better deliveries.
2. The goals of supply chain management are to reduce uncertainty and risks in
the supply chain.
3. The design, planning and operation of a supply chain have a strong impact on
overall profitability and success.
4. Supply-chain management has become a hot competitive advantage as
companies struggle to get the right stuff to the right place at the right time.

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5. Supply chain management includes transportation vendors, suppliers,
distributors, banks, credit and cash transfers, bills payable and receivable,
warehousing and inventory levels, order fulfillment and sharing customer,
forecasting and production information.
6. Increase their competitiveness via product customization, high quality, cost
reductions and speed-to-market.
7. Supply chain management builds a chain of suppliers that focus on both
minimizing waste and maximizing value to the ultimate customer
OBJECTIVES OF A SUPPLY CHAIN
1. To maximize the overall value generated
2. To achieve maximum supply chain profitability. Supply chain profitability is
the total profit to be shared across all supply chain stages.
3. To reduce the supply chain costs to the minimum possible level
FLOWS IN SUPPLY CHAIN MANAGEMENT
There are three different types of flow in supply chain management:
 Material flow
 Information/Data flow
 Money flow

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 Material Flow
Material flow includes a smooth flow of an item from the producer to the consumer. This is
possible through various warehouses among distributors, dealers and retailers. The main
challenge we face is in ensuring that the material flows as inventory quickly without any
stoppage through different points in the chain. The quicker it moves, the better it is for the
enterprise, as it minimizes the cash cycle. The item can also flow from the consumer to the
producer for any kind of repairs, or exchange for an end of life material. Finally, completed
goods flow from customers to their consumers through different agencies. A process known as
3PL is in place in this scenario. There is also an internal flow within the customer company.

Information Flow

Information/data flow comprises the request for quotation, purchase order, monthly schedules,
engineering change requests, quality complaints and reports on supplier performance from
customer side to the supplier. From the producer’s side to the consumer’s side, the information
flow consists of the presentation of the company, offer, confirmation of purchase order, reports
on action taken on deviation, dispatch details, report on inventory, invoices, etc. For a
successful supply chain, regular interaction is necessary between the producer and the
consumer. In many instances, we can see that other partners like distributors, dealers, retailers,
logistic service providers participate in the information network. In addition to this, several
departments at the producer and consumer side are also a part of the information loop. Here
we need to note that the internal information flow with the customer for in-house manufacture
is different.

Money Flow

On the basis of the invoice raised by the producer, the clients examine the order for correctness.
If the claims are correct, money flows from the clients to the respective producer. Flow of
money is also observed from the producer side to the clients in the form of debit notes. In short,
to achieve an efficient and effective supply chain, it is essential to manage all three flows
properly with minimal efforts. It is a difficult task for a supply chain manager to identify which
information is critical for decision-making. Therefore, he or she would prefer to have the
visibility of all flows on the click of a button.
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 PROCESS VIEW OF A SUPPLY CHAIN

Two different way to view the process performed in a supply chain are:

1. Cycle view
2. The push-pull view
1. Cycle view: According to this view, the processes in a
supply chain are divided into a series of cycles,
each performed at the interface between two successive
stages of a supply chain.
All supply chain processes can be broken down into the
following four process cycles.
Customer order cycle
Replenishment cycle
Manufacturing cycle
Procurement cycle

a) Customer order cycle

a. Customer arrival refers to the customers visiting the location (super market or
retail store) where he or she has access to his or her choices and make a decision
regarding what to buy, how much to buy and so on.
b. Customer order entry refers to customers telling the retailer what products they
want to buy and the retailer allocating those products to customers.
c. Customer order fulfillment refers to process by which the customer order is
filled and sent to the customer. ◦Customer order receiving refers to the process
by which customer receives what he has ordered and takes ownership of the
products ordered.

b) Replenishment cycle

a. Retail order trigger: As and when the retailer fills customer order, inventory is
depleted which must be replenished to meet future demand. The retailer devises

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 a replenishment or ordering policy which triggers an order on the distributor so
as to maximize profitability by balancing product availability and cost.
b. Retail order entry: The retailer places the order with the distributor or
manufacturer. The purpose of the retail order entry process is to ensure that an
order is entered accurately and conveyed quickly to all supply chain processes
affected by the order.
c. Retail order fulfillment: This is a process by which retail order is filled by the
distributor or manufacturer. The objective is to get the replenishment order to
the retailer on time while minimizing costs.
d. Retail order receiving: When the replenishment order arrives at a retailer, the
retailer must receive it physically, update all inventory records and settle all
product from distributor to the retailer as well as information and financial
flows. This process helps to update inventories and displays quickly at the
lowest possible cost.

c) Manufacturing cycle: This occurs at the distributor or manufacturer interface and

includes all processes involved in replenishing distributor (or retailer) inventory.

The process involved in the manufacturing cycle include

Order arrival from the distributor, retailer or customer

Production scheduling
Manufacturing and shipping and
Receiving at the distributor, retailer or customer

d) Procurement cycle: This occurs at the manufacturer or supplier interface and includes
all processes necessary to ensure that materials are available for carrying out
manufacturing as per the schedule. The manufacturer orders components from
suppliers to replenish inventories. Competent orders are based on the production
schedule.

2. Push / Pull view of supply chain process

All processes in the supply chain fall into one of two categories:
1) Push processes
2) Pull processes
In pull processes, execution is initiated in response to a customer order.

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In push processes, execution is in anticipation of customer order.
At the time of execution of pull process demand is known with certainty, whereas at the time
of execution of push process demand is not known but forecasted.
A push or pull view of the supply chain is useful when considering strategic decisions relating
to supply chain design. This view facilitates a more global consideration of supply chain
processes as they relate to a customer order. Pull processes may be regarded as reactive
processes because they react to customer demand. Push processes may be regarded as
speculative process because they respond to forecast (speculative) demand rather than actual
demand. The push or pull boundary in a supply chain helps to separate, push processes from
pull processes. For example: In a computer manufacturing company manufacturing personal
computers the beginning of assembly process represents the push or pull boundary. All
processes carried out prior to assembly are push processes and all processes carried out after
and including assembly are pull processes because they are initiated in response to a customer
order

Supply Chain Macro Processes in a Firm

All supply chain processes discussed in the two process views and throughout this book can
be classified into the following three macro processes, as shown in Figure 1-8:

1. Customer Relationship Management (CRM): all processes that focus on the

interface between the firm and its customers
2. Internal Supply Chain Management (ISCM): all processes that are internal to the firm
3. Supplier Relationship Management (SRM): all processes that focus on the interface
between the firm and its suppliers

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 DECISION PHASES IN A SUPPLY CHAIN

1. Supply chain strategy or design

2. Supply chain planning and
3. Supply chain operation.
SUPPLY CHAIN STRATEGY OR DESIGN

1. The location and capacities of production and warehousing facilities

2. Products to be manufactured or stored at various locations
3. Modes of transportation to be made available along different shipping legs
4. Type of information system to be utilized

SUPPLY CHAIN PLANNING

The planning phase starts with a forecast for the coming year of demand in different markets.
Supply chain planning includes decision regarding the following:
Which market to be served from which locations
The subcontracting of manufacturing
Policies regarding back up locations in case of a stock out and
The timing and size of marketing promotions
SUPPLY CHAIN OPERATIONS
During this phase, companies make decisions for the time horizon (weekly or daily) regarding
individual customer orders. The supply chain operation aims at implementing the operating
policies in the best possible manner.
Various activities involved in these phases are:
Allocating individual orders to inventory or production
Setting dates for fulfilling orders
Generating pick lists at a warehouse
Allocating an order to a particular shipping mode or shipment
Getting delivery schedules of trucks and
Placing replenishment orders.

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 DRIVERS OF SUPPLY CHAIN PERFORMANCE

How a company can improve supply chain performance in terms of

responsiveness and efficiency, we must examine the logistical and cross–
functional drivers of supply chain performance : facilities, inventory,
transportation, information, sourcing, and pricing. These drivers interact to
determine the supply chain’s performance in terms of responsiveness and
efficiency.

First, we provide some definitions. Supply chain responsiveness includes a supply

chain’s ability to do the following:

• Respond to wide ranges of quantities demanded

• Meet short lead times
• Handle a large variety of products
• Build highly innovative products
• Meet a high service level
• Handle supply uncertainty

These abilities are similar to many of the characteristics of demand and supply that
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led to high implied uncertainty. The more of these abilities a supply chain has, the
more responsive it is.

Responsiveness, however, comes at a cost. For instance, to respond to a wider range

of quantities demanded, capacity must be increased, which increases costs. This
increase in cost leads to the second definition:

Supply chain efficiency is the inverse of the cost of making and delivering a product to
the customer. Increases in cost lower efficiency. For every strategic choice to increase
responsiveness, there are additional costs that lower efficiency.

Lowest cost is defined based on existing technology; not every firm is able to operate
on the efficient frontier, which represents the cost- responsiveness performance of the
best supply chains. A firm that is not on the efficient frontier can improve both its
responsiveness and its cost performance by moving toward the efficient frontier. In
contrast, a firm on the efficient frontier can improve its responsiveness only by
increasing cost and becoming less efficient. Such a firm must then make a trade-off
between efficiency and responsiveness. Of course, firms on the efficient frontier are
also continuously improving their processes and changing technology to shift the
efficient frontier itself. Given the trade-off between cost and responsiveness, a key
strategic choice for any supply chain is the level of responsiveness it seeks to provide.
Supply chains range from those that focus solely on being responsive to those that focus
on a goal of producing and supplying at the lowest possible cost.

The more capabilities constituting responsiveness a supply chain has, the more
responsive it is. Seven-Eleven Japan replenishes its stores with breakfast items in the
morning, lunch items in the afternoon, and dinner items at night. As a result, the
available product variety changes by time of day. Seven-Eleven responds quickly to
orders, with store managers placing replenish- ment orders less than 12 hours before
they are supplied. This practice makes the Seven-Eleven supply chain very responsive.

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First we define each driver and discuss its impact on the performance of the supply
chain.

1. Facilities are the actual physical locations in the supply chain network where
product is stored, assembled, or fabricated. The two major types of facilities are
production sites and storage sites. Decisions regarding the role, location, capacity,
and flexibility of facilities have a significant impact on the supply chain’s
performance.

For example, in 2009, Amazon increased the number of warehousing facilities located
close to customers to improve its responsiveness. In contrast, Blockbuster tried to
improve its efficiency in 2010 by shutting down many facilities even though it
reduced responsiveness. Facility costs show up under property, plant and
equipment, if facilities are owned by the firm or under selling, general, and
administrative if they are leased.

2. Inventory encompasses all raw materials, work in process, and finished goods
within a supply chain. The inventory belonging to a firm is reported under assets.
Changing inventory policies can dramatically alter the supply chain’s efficiency
and responsiveness.

3. Transportation entails moving inventory from point to point in the supply chain.
Transportation can take the form of many combinations of modes and routes, each
with its own performance characteristics. Transportation choices have a large
impact on supply chain responsiveness and efficiency.
4. Information consists of data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers throughout the supply chain.
Information is potentially the biggest driver of performance in the supply chain
because it directly affects each of the other drivers. Information presents
management with the opportunity to make supply chains more responsive and more
efficient. For example, Seven-Eleven Japan has used information to better match
supply and demand while achieving production and distribution economies. The
result is a high level of responsiveness to customer demand while production and

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 replenishment costs are lowered. Information technology–related expenses are
typically included under either operating expense (typically under selling, general,
and administrative expense) or assets. For example, in 2009, Amazon included
$1.24 billion in technology expense under operating expense and another $551
million under fixed assets to be depreciated.

5. Sourcing is the choice of who will perform a particular supply chain activity such
as production, storage, transportation, or the management of information. At the
strategic level, these decisions determine what functions a firm performs and what
functions the firm outsources. Sourcing decisions affect both the responsiveness
and efficiency of a supply chain. After Motorola outsourced much of its production
to contract manufacturers in China, it saw its efficiency improve but its
responsiveness suffer because of the long distances. To make up for the drop in
responsiveness, Motorola started flying in some of its cell phones from China even
though this choice increased transportation cost. Flextronics, an electronics contract
manufacturer, is hoping to offer both responsive and efficient sourcing options to
its customers. It is trying to make its production facilities in high-cost locations very
responsive while keeping its facilities in low-cost countries efficient. Flextronics
hopes to become an effective source for all customers using this combination of
facilities. Sourcing costs show up in the cost of goods sold, and monies owed to
suppliers are recorded under accounts payable.

6. Pricing determines how much a firm will charge for the goods and services that it
makes available in the supply chain. Pricing affects the behavior of the buyer of the
good or service, thus affecting supply chain performance. For example, if a
transportation company varies its charges based on the lead time provided by the
customers, it is likely that customers who value efficiency will order early and
customers who value responsiveness will be willing to wait and order just before
they need a product transported. Differential pricing provides responsiveness to
customers that value it and low cost to customers that do not value responsiveness
as much. Any change in pricing impacts revenues directly but could also affect costs
based on the impact of this change on the other drivers.
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 COMPETITIVE AND SUPPLY CHAIN STRATEGIES

A supply chain strategy determines the nature of procurement of raw materials,

transportation of materials to and from the company, manufacture of the product or
operation to provide the service, and distribution of the product to the customer, along
with any follow-up service and a specification of whether these processes will be
performed in-house or outsourced. Supply chain strategy specifies what the operations,
distribution, and service functions, whether performed in-house or outsourced, should
do particularly well.

A company’s competitive strategy defines, relative to its competitors, the set of

customer needs that it seeks to satisfy through its products and services. For example,
Wal-Mart aims to provide high availability of a variety of products of reasonable
quality at low prices. Most products sold at Wal-Mart are commonplace (everything
from home appliances to clothing) and can be purchased elsewhere. What Wal-Mart
provides is a low price and product availability. McMaster-Carr sells maintenance,
repair, and operations (MRO) products. It offers more than 500,000 products through
both a catalog and a Web site. Its competitive strategy is built around providing the
customer with convenience, availability, and responsiveness. With this focus on
responsiveness, McMaster does not compete based on low price. Clearly, the
competitive strategy at Wal-Mart is different from that at McMaster.

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 ACHIEVING STRATEGIC FIT

Strategic fit requires that both the competitive and supply chain strategies of a
company have aligned goals. It refers to consistency between the customer priorities that
the competitive strategy hopes to satisfy and the supply chain capabilities that the supply
chain strategy aims to build. For a company to achieve strategic fit, it must accomplish
the following:
1. The competitive strategy and all functional strategies must fit together to form a
coordinated overall strategy. Each functional strategy must support other functional
strategies and help a firm reach its competitive strategy goal.
2. The different functions in a company must appropriately structure their
processes and resources to be able to execute these strategies successfully.
3. The design of the overall supply chain and the role of each stage must be aligned
to support the supply chain strategy.
A company may fail either because of a lack of strategic fit or because its overall
supply chain design, processes, and resources do not provide the capabilities to support
the desired strategic fit.

How Is Strategic Fit Achieved?

What does a company need to do to achieve that all-important strategic fit between the
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supply chain and competitive strategies? A competitive strategy will specify, either
explicitly or implicitly, one or more customer segments that a company hopes to
satisfy. To achieve strategic fit, a company must ensure that its supply chain
capabilities support its ability to satisfy the needs of the targeted customer segments.
There are three basic steps to achieving this strategic fit, which we outline here and
then discuss in more detail:

1. Understanding the Customer and Supply Chain Uncertainty: First, a

company must understand the customer needs for each targeted segment and the
uncertainty these needs impose on the supply chain. These needs help the company define
the desired cost and service requirements. The supply chain uncertainty helps the
company identify the extent of the unpredictability of demand, disruption, and delay that
the supply chain must be prepared for.
2. Understanding the Supply Chain Capabilities: Each of the many types of
supply chains is designed to perform different tasks well. A company must understand
what its supply chain is designed to do well.
3. Achieving Strategic Fit: If a mismatch exists between what the supply chain
does particularly well and the desired customer needs, the company will either need to
restructure the supply chain to support the competitive strategy or alter its competitive
strategy.

UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY

The Quantity of the Product Needed in Each Lot: An emergency order for material
needed to repair a production line is likely to be small. An order for material to construct
a new production line is likely to be large.
\The Response Time That Customers Are Willing to Tolerate: The tolerable response
time for the emergency order is likely to be short, whereas the allowable response time
for the construction order is apt to be long.

The Variety of Products Needed: A customer may place a high premium on the avail-
ability of all parts of an emergency repair order from a single supplier. This may not be
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the case for the construction order.
The Service Level Required: A customer placing an emergency order expects a high
level of product availability. This customer may go elsewhere if all parts of the order
are not immediately available. This is not apt to happen in the case of the construction
order, for which a long lead time is likely.
The Price of the Product: The customer placing the emergency order is apt to be much
less sensitive to price than the customer placing the construction order.
The Desired Rate of Innovation in the Product: Customers at a high-end department
store expect a lot of innovation and new designs in the store’s apparel. Customers at
Walmart may be less sensitive to new product innovation.
CHALLENGES TO ACHIEVING AND MAINTAINING
STRATEGIC FIT

The key to achieving strategic fit is a company’s ability to find a balance between
responsiveness and efficiency that best matches the needs of its target customer.

Increasing Product Variety and Shrinking Life Cycles

One of the biggest challenges to maintaining strategic fit is the growth in product
variety and the decrease in the life cycle of many products. Greater product variety
and shorter life cycles increase uncertainty while reducing the window of opportunity
within which the supply chain can achieve fit. The challenge gets magnified when
companies continue to increase new products without maintaining the discipline of
eliminating older ones. Apple has had great success limiting its product variety while
continuing to introduce new products. This has allowed the company the luxury of
dealing only with high-demand products for which it becomes easier to design an
aligned supply chain. In general, however, firms must design product platforms with
common components and maintain a tailored supply chain that contains a responsive
solution to handle new products and other low-volume products and a low-cost
solution to handle successful high-volume products. Simultaneously, variety must be

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limited to what truly adds value to the customer. This often requires the continuous
elimination of older products.

Globalization and Increasing Uncertainty

Globalization has increased both the opportunities and risks for supply chains. The
21st century has started with significant fluctuations in exchange rates, global
demand, and the price of crude oil, all factors that impact supply chain performance.
In 2008 alone, the euro peaked in value at about $1.59 and went as low as $1.25. In
2001, the euro went as low as $0.85. After demand for automobiles in the United
States peaked at more than 17 million vehicles, demand dropped significantly
between November 2007 and October 2008. In October 2008, auto sales in the United
States dropped by more than 30 percent relative to the same month the previous year.
The drop in sales of larger vehicles was much more significant than the drop for
smaller, more fuel-efficient cars. Crude oil peaked at more than $145 a barrel in July
2008 and was less than $50 a barrel by November 2008.
Supply chains designed to handle these uncertainties have performed much better than
those that ignored them. For example, Honda built flexible plants that were a great
help in 2008 as demand for SUVs dropped but demand for small cars increased.
Honda’s flexible plants that produced both the CRV and small cars on the same line
continued strong operations. In contrast, companies that had built plants dedicated to
producing only large trucks and SUVs had a lot of difficulty in 2008 as demand dried
up. Clearly, firms must account for global risks and uncertain- ties if they want to
maintain strategic fit.

Fragmentation of Supply Chain Ownership

Over the past several decades, most firms have become less vertically integrated. As
companies have shed noncore functions, they have been able to take advantage of
supplier and customer competencies that they themselves did not have. This new

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 ownership structure, however, has also made aligning and managing the supply chain
more difficult. With the chain broken into many owners, each with its own policies
and interests, the chain is more difficult to coordinate. This problem could potentially
cause each stage of a supply chain to work only toward its own objectives rather than
the whole chain’s, resulting in the reduction of overall supply chain profitability.
Aligning all members of a supply chain has become critical to achieving supply chain
fit.

THE ROLE OF FORECASTING IN A SUPPLY CHAIN

Various functional areas based on demand forecast are

1. Production
2. Marketing
3. Finance
4. Human resource

Production is concerned with scheduling inventory planning and control and

aggregate planning
Marketing is concerned with sales force allocation sales promotion and new
product launching
Finance is concerned with capital investment in plant and equipment and
budgeting
Human resource is concerned with the manpower planning, hiring, layoff etc

Demand forecast can be of can be classified on the basis of time Horizon

1. Long term forecast
2. Medium term forecast and
3. Short term forecast

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Long term forecast are for a period of three or more than 3 years. These forecast
are of long term nature and especially for strategic business planning. Long
term forecast have at times not very accurate and they have high rate of error.

The medium term or the intermediate term forecast are for a period of 1 to 3
years.
The short term forecast are for short interval time which can run from few
weeks to few months and they are generally more accurate. Various category of
forecast includes Demand forecast
Sales forecast
Price forecast

The objectives of the forecast are

1. To manage uniform level of production
2. To avoid the situations of out of the stocks
3. To lower the safety stock reserves
4. To take the benefit of price discount in bulk purchase
5. To manage product getting obsolete and also
6. To manage the transportation cost

Demands can be based on nature of demand anticipation i.e push based

demand or pull based command. A company must be knowledgeable about
numerous factors that are related to the demand forecast, including the
following:

The demand also depends upon

1. The past demand
2. The lead time required to fulfil the demand
3. Any planned advertising or marketing activities
4. Prevailing Trends in the market ( Fashion )
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 5. Seasonal factors
6. State of the economy
7. Any planned discounts to be offered and
8. Demand also depends upon the action of the computers in case for
example pepsi offers buy 1 get 1 free then the coke has to come up with
the similar offer which will increase the demand for the product based on
the promotion scheme offered by the competition

Demand forecasts form the basis of all supply chain planning. All push processes
in the supply chain are performed in anticipation of customer demand, whereas
all pull processes are performed in response to customer demand. For push
processes, a manager must plan the level of activity, be it production,
transportation, or any other planned activity. For pull processes, a manager must
plan the level of available capacity and inventory but not the actual amount to
be executed. In both instances, the first step a manager must take is to forecast
what customer demand will be.

Product demand also depends upon the various stages of the product life cycle
PLC.
The demand of the product varies from one stage to another stage. In the nascent
stage which is the introductory stage the demand may be low and the demand
may subsequently increase when the product enters into the growth stage. The
demand saturates or remains the same at the saturation stage and may even
subsequently decrease in the decline stage.

Bull-Whip effect refers to the fluctuation in the orders which increase as they
move up the supply chain from retailers to manufacture and finally to the
suppliers The error in demand forecast increases from one stage to the another
stage as we move we move up the supply chain, this effect is known as the Bull
Whip effect.

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 Forecasting methods are classified according to the following four types:
1. Qualitative: Qualitative forecasting methods are primarily subjective and rely
on human judgment. They are most appropriate when little historical data are
available or when experts have market intelligence that may affect the
forecast. Such methods may also be necessary to forecast demand several
years into the future in a new industry.
2. Time series: Time-series forecasting methods use historical demand to make a
forecast. They are based on the assumption that past demand history is a good
indicator of future demand. These methods are most appropriate when the
basic demand pattern does not vary significantly from one year to the next.
These are the simplest methods to implement and can serve as a good starting
point for a demand forecast.
3. Causal: Causal forecasting methods assume that the demand forecast is highly
corre- lated with certain factors in the environment (the state of the economy,
interest rates, etc.). Causal forecasting methods find this correlation between
demand and environmental factors and use estimates of what environmental
factors will be to forecast future demand. For example, product pricing is
strongly correlated with demand. Companies can thus use causal methods to
determine the impact of price promotions on demand.
4. Simulation: Simulation forecasting methods imitate the consumer choices that
give rise to demand to arrive at a forecast. Using simulation, a firm can combine
time-series and causal methods to answer such questions as: What will be the
impact of a price promotion? What will be the impact of a competitor opening a
store nearby? Airlines simulate customer buying behavior to forecast demand for
higher fare seats when there are no seats available at the lower fares.

5. Market research method : This is a planned approach to determine the product

demand by conducting a survey and taking the customer experience into
consideration. This method is used to forecast demand for medium term and
long term. Market research or consumer survey provides the first hand
information which helps in estimating the product demand. This method can be
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 expensive and time-consuming. The quality of the forecast also depends upon
the questionnaire used for the survey

6. Delphi Method : In this method views of the experts are taken into
consideration. The frontline staff has first-hand knowledge of the market and
are better aware with the ground realities. This group provides necessary
information to the decision makers involved in the process of demand
forecasting. The forecast is prepared on the general consensus. In this process
panel of experts is made and their inputs are taken into consideration for
making the forecast. This process can be time consuming may also lead to
errors arising because of poorly designed questionnaires

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