"aggregatedMarket Survey Ask the customerQuantitative methods are used when:? the situation is „stable? and historical data exist (e.g. existing products, currenttechnology)? the situation involves mathematical techniques (e.g. forecasting sales of colourtelevisions)There are two classes of quantitative forecasting models: 1) time-series models 2) associativemodels. Time-series models include a set of evenly spaced numerical data which are obtainedby observing response variable at regular time periods. In these models forecasting is basedonly on past values and there is an assumption that factors influencing past and present willcontinue their influence in future.Four time-series forecasting methods are:Naive This approach assumes demand in the next period is the same as demand in the mostapproach recent period. For example, if January sales were 68 units, then February sales will be 68units. This approach is sometimes cost effective and efficient and can be considered as agood starting point.Moving The simple moving average is probably the simplest to develop method in basic timeaverages series forecasting. It makes forecasts based on recent demand history and allows for theremoval of random effects. The simple moving average method does not accommodate seasonal, trend, or business cycle influences.Exponential Exponential smoothing is one of the most commonly used techniques because of itssmoothing simplicity and its limited requirements for data. Exponential smoothing needs threetypes of data: an average of previous demand, the most recent demand, and a smoothingconstant. The smoothing constant must be between 0 and 1. Using a higher constantassumes that the most recent demand is a better predictor of future demand.Trend The assumption in trend projection is that the general trend seen in the past will continueprojection into the future in a linear fashion. Least squares regression can be used to calculate thevalues for the equation. The method involves fitting a trend line to historical data pointsin order to project into the medium to long-range. Linear trends can be found using theleast squares techniqueAssociative models are used when changes in one or more independent variables can be usedto predict the changes in the dependent variable. Most common associative technique is linearregression analysis (which is not covered in this module).For descriptions and mathematical formulations of these quantitative techniques, seethe optional material page in this module.3 Inventory management[This page should take about 30 minutes to complete]The effective management of inventories in the supply chain is one of the key factors forsuccess in any organisation. Inventory as an asset on the balance sheet and as a variable expense on the income statement has taken on greater importance as organisations attempt tomore effectively manage assets and working capital. However, inventory takes on addedimportance because of its direct impacts on service levels. As such, inventory managementhas taken a strategic position in many firms today.Organisations would ideally want to have enough inventory to satisfy the demands of theircustomers for their products with no lost revenue because of stockouts. However, theorganisation does not want to have too much inventory on hand because it consumes valuableworking capital. This is a paradoxical decision for any inventory manager. There are howeverinventory management concepts and tools that can be very useful for inventory control acrossthe supply chain, some of which are discussed this module.Inventory plays a dual role in organisations and it impacts the cost of goods sold as well assupporting order fulfilment (customer service). It is also one of the most expensive assets inany organisation representing close to 50% of total invested capital. WatchWatch this video to find out more about inventory management: (1 minute)(What is inventory management?l, Tradegecko, 2016)ReadingThe following report published by Productivity Commission in 2003 provides you with amacro perspective on the role and importance of inventory and inventory management to thenational economy. Pay particular attention to Appendix D of the report- Changed inventorymanagement, starting on page 197. (10 minutes) ? Productivity Commission. 2003. Appendix D - Changed inventorymanagement Trends in Australian Manufacturing. 197- 200.Inventory functionsSome of the key functions of inventory or the reasons why companies hold inventory arelisted below:(Adapted from Heizer, j. & Render, B. 2014. Operations management. Pearson.)? Batching Economies/Cycle Stocks Batching economies or cycle stocks usually arisefrom three sources—procurement, transportation and production. Cycle stock is theperiodically replenished stock that keeps the supply chain moving (and excludesexcess and safety stocks). Scale economies are often associated with all three (i.e.procurement, transportation and production), which can result in the accumulation ofinventory that will not be used or sold immediately. This means that some cycle stockor inventory will be used up or sold over some period of time. Larger purchasedvolumes result in lower prices per unit and vice versa. Transportation firms usuallyoffer rate/price discounts for shipping larger quantities. Note that purchase economiesand transportation economies are complementary.The third batching economy isassociated with production. Many organisations feel that their production costs perunit are substantially lower when they have long production runs of the same product.? Uncertainty/Safety Stocks All organisations are faced with uncertainty. On thedemand or customer side, there is usually uncertainty in how much customers willbuy and when they will buy it. On the supply side, there might be uncertainty aboutobtaining what is needed from suppliers and how long it will take for the fulfilment ofthe order. "