Demand and Supply Forecasting at Air Products Essay Example

were customized to specific products, Implying that the same gas/chemlcal was offered In multiple physical configurations. Though the containers were reusable, they represented a very significant capital Investment. Planning the distribution capacity and creating the shipping schedule required that ESM predict when specific containers would be returned. While the time to product depletion ould be estimated based on a customer's historical usage patterns, cycle time from shipment to container return often varied from these estimates.Tracking the flow of containers on a worldwide basis was a continual challenge for ESM.

Yet another strain on distribution capacity was managing two supply chains for consumers In transition. It was ESM supply chain managers' responslblllty to bulld the Inventory according to the number of product lines they wanted to employ or the speed at industry required ESM to be able to meet the requirements of the customer, often at the expense of inventory and forecast accuracy. Role of forecasting in Supply chain management The demand forecasts for different horizons were generated using a software tool.The forecasting system used historical customer demand patterns and statistical models to predict future demand by customer or by SKI-J. The supply chain team received a compilation of business intelligence from the regional marketing managers and used it to adjust the forecast.

It included data on industry growth projections, product material levels, strategic customer purchasing patterns and sales projections. The information was then entered into the forecasting software ool to adjust the supply planning.The numerous SKUs offered by ESM made this tuning process extremely complex, necessitating a focus on high-priority customers and strategically important products. Role of forecasting in Financial management Financial forecasting was the

foundation for overall ESM global revenue and distribution costs. Following the initial forecast analyses, ESM used the recent history as a guide and estimated the revenue for all the products. The result was a high level statement of anticipated revenue and costs for the following year and was a key nput in the projections provided to Wall Street by Air Products' executive management.

However, there were several major challenges, including trying to predict future demand within an inherently cyclical industry. Trying to project customer requirements was also complicated by the product, customer and geographic complexity of the business coupled with a long supply chain. Forecast process Exhibit 10 presents the financial forecast that was fairly accurate. It has to be noted that the budget is developed with an eye to the target, but it also factors in Judgment bout what is achievable given the underlying economic environment.However, exhibit 12, which provided the monthly forecast data, could still be an inaccurate result even with 100% operational correctness. This is due to the difficulty in demonstrating numerically what portion of forecast error is due to incorrect information, incorrect system operation, poor system performance or plain unanticipated customer behavior.

Deciphering whether inaccuracies were solely based on incorrect forecasting system operation was a challenge. Hence, the forecast system in exhibit 10 seems relatively more credible.Management issues Some of the management issues that these forecasts created were high transportation costs like increased air freight and express shipments. These high costs of distributing a material in short supply directly affected the metrics. Long production and transportation lead times meant that the monthly operational forecast had to look out many months in order

to be useful for production and material planning.

Furthermore, keeping the division's network of plans operating efficiently meant producing product that wasn't yet needed or delaying production of a product with imminent demand.Actionable recommendations * Effective Implementation of lean production strategy in supply chain. * Creation of more information points to understand dynamics of global distribution. * Integration of variability in statistical forecasting. Strategic Planning is the key to enhance the forecasting process at ESM.

Successful strategic planning requires accurate forecasts of future products and markets. It needs to take time frame, demand behavior and causes of behavior into consideration to ensure efficient forecasting. Accurately forecasting customer demand would in turn result in providing good quality service.