Production Planning By Forecasting Demand

Planning in advance has become essential topic in business field to have advantage over business investments. Production planning and demand forecasting are interrelated to each other. Because we cannot plan or design our production model without having clear idea of demand of goods in market. The whole study is based on Delphi method to forecast demand.

Production planning forecasting is the process of measuring the future demand of product and services and setting strategies and plans to produce the same by avoiding future uncertainties.

The forecasting determines the requirement of different resources such as raw-materials, labours, machines, tools etc. The entrepreneur realises what is the best method that he should apply to meet the consumer needs effectively and efficiently. The production planning defines the appropriate plant and distribution model to reduce both risk and time to meet the economy of scale. Forecasting could be combination of objective calculations and subjective judgements as well. That is why, it involves collection and analysing past knowledge.

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This can be done objectively with the assistance of applied mathematics techniques and tools. (Production and Operations Management by Shailendra Kale)

Four steps of production planning

• Step 1- demand forecast- manager must calculate or measure future demand to produce. Different methods exist to forecast demand. The most common method is using the past data, trends and behaviour. The producer must also know how to alter the past patterns of demand by considering internal and external business environment. For e.g. Economy slowdown, new marketing campaigning etc.
• Step 2- check production potentialities- it determines to know the resources requirement for production.
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  The capacities of production must be calculated to ensure the flow of production. For e.g. Staff skills, machine scheduling, material availability, inventory management, relationship with suppliers, network of distribution etc. (smetoolkitorg, 2018)

• Step 3- select the production options- check and compare the cost and time of each potential options. The production option must strengthen the operational capacity of the firm. The production will become smooth if all the staffs and departments know their duties at relevant time of production.
• Step 4- monitor the plan- it means to ensure that the plan is moving accordingly. Monitoring should always be by checking what is happening with what should be happening. It helps to detect the problem in production plant and can be sorted out before it’s too late.

Delphi method ( qualitative method)

This is a systematic method of communication among group of experts who present their opinions on the basis of several specialised questionnaires. The experts are required to give their views on questionnaires for two or more rounds. When each round gets end, there are facilitators who are required to summarise the expert opinions anonymously. (Slidesharenet, 2018) And then the summarised reports are presented again to the experts to record their views again on future forecast of demand. The experts are provided with all previous data and market trends information about particular company. The process is repeated for two or more rounds until a unique consensus is received. In this way, the forecasts are checked among experts to reach more accurate decision making.

Characteristics Of Delphi Method

1. Information flows is uniform because it is controlled by facilitator. The summary reports are made by filtering irrelevant expert’s views.
2. Regular feedback among experts by commenting on own forecast and listening responses from others.
3. Facilitator is known as the leader and facilitates the responses of their experts. Responses are analysed and conflicts are identified.
4. Demand forecasting and production planning informations to be included in delphi method questionnaire

A precision of the demand figure altogether influences security and exact stock of raw materials, inventory, stock holding expenses and client benefit levels. At this point, when demand is highly seasonal, it is very difficult to have an accurate demand forecast without using a forecasting model. (Scienceasiaorg, 2018) Following are the points to be considered in the questionnaire to forecast demand and production planning:

• Past company sales.
• Product category.
• Market trends of product.
• Competitors pricing model.
• Product life cycle.
• Seasonal fluctuations.
• Demand and supply of related product.
• Dependent factor variable of product.
• Investment in advertisement.
• Distribution model.
• Annual sales forecast.
• Time taken to produce one unit.
• Previous demand trends of product
• Net profit margin.

Steps of conducting delphi method to forecast demand and production

• Step 1: choose a facilitator- choosing a facilitator is the first step. We can act ourselves as a facilitator but must have knowledge in research and collection. The facilitator must be biasfree and must have knowledge in all aspects of goods and economic trends.
• Step 2: identify the experts- the delphi technique is depend upon panel of experts. The member of the company’s project or the consumer itself can act as a panel team of expert, but make sure that experts must have enough knowledge on business economics and demand and supply. (projectsmartcouk, 2018)
• Step 3: define the problem- the problem here in this case is demand forecasting of particular product. So, the features, price, conditions and other aspects of information related to product should be precisely and accurately defined so that the panel of experts can present views as accurate as possible.
• Step 4: round questions: the rounds of analysing questionnaire can be continued repeatedly until the fine consensus. It is always better to keep general questions in first round to have broad understanding of expert views. The level of question should rise in ascending order and should relate to previous questions. The research agents should summarise the report and revert the questionnaires back to experts to gain more further knowledge.
• Step 5: check the inference- In this round, you will have reached a consensus and have an opinion of future risk and opportunities. This will help us to plan our production system, distribution model. Holding and ordering of inventory, price of the product and finally the demand forecasted.

Advantages:

1. Easy to conduct.
2. Can be used without availability of quantified data.
3. No pressure from other experts
4. Structured and organised process.
5. Anonymity.
6. Delphi is useful for technology, new product and industry sales.

Disadvantages:

1. Delphi is not a scientific analysis.
2. The experts may be biased.
3. Difficulty in selecting expert panel.
4. Time taking method.
5. No guidelines for determining consensus and sampling techniques. (Researchgatenet, 2018)

Other qualitative method

Market research method- It is a careful analysis of the data about consumer, competitor, market and the issues of marketing products. The data is the information regarding consumer’s income, taste, gender, location etc. The people who are participating in the survey should belong to desired consumer market. (Arkievacom, 2018)

Some quantitative methods

The approaches involved in these methods are basically based on mathematical tools. The demand forecast is calculated from several past demands in a row. Some methods are explained below:

Simple average method - This method calculate future demand by simply calculating the average of past monthly or yearly demands.

Exponential smoothing method - This is a moving average method in which very less record keeping of past data are required. In this method, weights are given in exponential form. The weights decrease exponentially from most recent data to older data.

Regression analysis method - This method helps marketers to identify relationship between two different variables. It is a kind of cause and effect relationship. One variable has some role on others. Past demand data are used to drive functional relationship between variables. For e.g.- one variable can be investment in advertisement and other is unknown i.e. demand, which is to be forecasted.

So, demand forecasting is the basis for developing an effective production plan. The production planning depends upon precise estimate of the products to be manufactured to satisfy customer. The Delphi method shown in this work is simple and accessible due to low cost and ease of application. With the help of information in the questionnaire, Delphi method can be used by small and medium sized companies.