Table of Contents Consensus versus Average Forecasting 1 Options 1 Demand Forecast 1 Supplier Selection 2 Change Orders 3 Lessons 3 Appendix A: Simulation Comments 4 Appendix B: Simulation Results 6
Consensus versus Average Forecasting
The consensus forecasts worked well for quick insight into estimated demand for each month. In our first year we used the consensus demand because we did not know the dynamics of the group, and we were relying on their expertise to guide us toward a more accurate forecast. As we progressed through the simulation we came to the realization that the consensus forecasts were often much different than the average estimated demand. After we analyzed the results of the first couple years, we
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The second deciding factor was whether or not the option increased profit for the model. We decided to add any option that would increase profit for the model. If the option increased both profit and consensus demand, we checked the graphs to look at the standard deviation. We avoided options that had a high standard deviation because we believed that there was more risk that the estimate would be inaccurate. A lower standard deviation indicated a higher level of confidence with the effect the option would have on demand. In retrospect we relied fairly heavily on the consensus estimates to choose the options. We realize that the consensus demand estimates were often inaccurate, and could have led us to choose options that were not beneficial to the models we were trying to sell. Just as we switched to using average demand estimates for our forecasting, we should have switched to using individual estimates when we were choosing options. It would have provided a greater level of accuracy and could have helped us make better decisions.
Initially we were reluctant to order too much stock because we were focused on the high cost of inventory becoming obsolete. This led to us experience a number of stock outs in our first year. We realized that this was costing us a substantial amount in lost profits. Due to this we changed our strategy