"Module 3 Workbook1 Overview & Objectives[This page should take about 5 minutes to complete] Operations issuesIn this module, we will focus on demand forecasting and inventory management. In relationto demand forecasting, its instrumental role for effective supply chain management will beexplained. Demand chain management is often juxtaposed with supply chain management tohighlight the criticality of downstream operations for the ultimate goal of matching supplywith demand. In this regard, some technical aspects of forecasting are also covered. Withrespect to inventory management, we will learn about its importance, functions and types.Inventory costs and models will also be addressed in detail.2 Demand management[This page should take about 10 minutes to complete]Demand management might be thought of as focused efforts to estimate and managecustomers? demand, with the intention of using this information to shape operating decisions.Traditional supply chains typically begin at the point of manufacture or assembly and end with the sale of product to consumers or business buyers. The essence of demandmanagement is to further the ability of firms throughout the supply chain to collaborate onactivities related to the flow of product, services, information, and capital. WatchThis videos explains day to day issues and challenges of Demand Planning at L?Oreal fromthe point of view of Meredith Skeeters, Manager, Logistics Demand Planning. (2 minutes)(Demand planning at L'Oreal, L'Oreal Careers US, 2013)Balancing supply and demandThere are four methods for balancing supply and demand that are commonly used acrossmany industries. Two of those, price and lead time, are referred to as external balancingmethods. The other two, inventory and production flexibility, are called internal balancingmethods. External balancing methods are used in an attempt to change the manner in whichthe customer orders in an attempt to balance the supply-demand gap. Internal balancingmethods utilise an organisation?s internal processes to manage the supply-demand gap.Production flexibility allows an organisation to quickly and efficiently change its productionlines from one product to another.The trade-off here is between production changeover costs and safety stock costs. Inventoryis probably the most common, and maybe the most expensive, method used to manage theimbalance between supply and demand. Many organisations produce product to a forecast that includes safety stock to smooth the effects of both demand and lead timevariability.In fact, forecasting is an important aspect of demand management. All business decisions areultimately driven by forecasts of the future. Thus, a poor forecast will likely lead to a poordecision, even if the decision methodology is sound (like “garbage-in, garbage-out” (GIGO)in computer programing).2 Demand management2.1 Demand forecasting[This page should take about 20 minutes to complete]Crystal Ball / Glaskugel flickr photo by manoftaste.de shared under a Creative Commons(BY) licenseAs noted, a major component of demand management is forecasting the amount of productthat will be purchased, when it will be purchased, and where it will be purchased bycustomers. Although various qualitative and statistical techniques exist to forecast demand,the common thread for all forecasts is that they will ultimately be wrong to some extent.Key steps in forecasting1. Determine the use of the forecast2. Select the items to be forecasted3. Determine the time horizon of the forecast4. Select the forecasting model(s)5. Gather the data needed to make the forecast6. Make the forecast7. Validate and implement the results Forecasting methodsThere are both qualitative methods and quantitative. Let's explore when it is appropriate touse either of these classes of methods.Qualitative methods are used when? the situation is vague and little data exist (e.g. new products, new technology)? the situation involves intuition, experience (e.g. forecasting sales on Internet)Qualitative methods are:Jury of executive Pool opinions of high-level experts, sometimes augmented by statistical modelsopinionDelphi method Panel of experts, queried iterativelySales force composite Estimates from individual salespersons are reviewed for reasonableness, then "