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Supply Chain Demand Forecasting

ALCL 163
Alternate Definition

The prediction of demand for an item or group of items for a future period of time.

Related to Supply Chain Management (SCM), which is a cross-functional approach to procuring, producing, and delivering products and services to customers. The broad management scope includes subsuppliers, suppliers, internal information, and funds flow.  Military SCM is the discipline that integrates acquisition, supply, maintenance, and transportation functions with the physical, financial, information, and communications networks in a results-oriented approach to satisfy joint force materiel requirements.

Alternate Definition Source

DoD Manual (DoDM) 4140.01, V2, DoD Supply Chain Materiel Management Procedures: Demand and Supply Planning

Joint Publication 1-02Department of Defense Dictionary of Military and Associated Terms

General Information

Background

Supply Chain Demand Forecasting is a technique used both by the DoD and commercial industry.  DoD Instruction (DoDI) 4140.01, Supply Chain Materiel Management Policy, states “DoD Components will address demand forecasting, requirements definition, and inventory level setting through the life cycle of an item of supply, starting with its initial sparing during provisioning.” 

The Process

DoDM 4140.01 Vol 2 directs that materiel managers will:

  1. Establish and manage a demand planning process that accumulates and forecasts customer demand for products or services at the appropriate category, organizational level, and time interval in accordance with Section 7 of this volume.
  2. Establish and manage a supply planning process that plans for acquiring and maintaining the inventory needed to meet customer demand.
  3. Use all applicable planning information including operating programs, customer requirements, supply chain resources, and total assets in their demand and supply planning to maximize supply chain productivity.

Commercial Industry

Commercial industry describes demand planning as a supply chain management process that enables a company to project future demand and successfully customize company output — be it products or services — according to those projections.  Effective demand planning typically requires the use of demand forecasting techniques to accurately predict demand trends, and carries added benefits, such as heightened company efficiency and increased customer satisfaction.

Demand Forecasting Techniques

Both the DoD and commercial industry use similar techniques and analytical tools to forecast demand.  DoD Components will use quantitative models to forecast demand for items. To forecast the demand expected to be placed on the supply system for forecastable items within a specified time, DoD Components may use models that consider only historical demand or models that combine future program data with historical demand or failure data for the item.  Commercial industry uses both quantitative and qualitative forecasting tools.  Methods used are:

Barometric forecasting - The barometric forecasting method uses current data to project future demand. Barometric demand planning uses statistical analyses to create a demand forecast.

Trend projection - Trend projection demand forecasts use historical data, including growth patterns, to create a sales forecast. While this may provide an accurate demand forecast for the near future, it can be risky to rely on sales history without considering other factors, especially if you need to create a long-term demand plan for your supply chain.

Exponential smoothing - This forecasting method uses historical data as an input and creates a result that also considers seasonal variations in sales. It’s a useful quantitative method for startups because demand planning using exponential smoothing can be based on a small dataset.

Regression analysis - Regressions can range from simple to complex, allowing you to incorporate both internal and external data into your analysis.

Econometric forecasting - This forecasting model uses the interplay of data about demand with information on external elements that can move demand to create a demand plan. Econometric forecasting requires more sophisticated statistical forecasting techniques than some other methods but may also create a more accurate demand forecast.

Statutes and Codes

  • 10 USC 2202Regulations on production, warehousing, and supply distribution functions
  • 10 USC 2631a, Contingency planning: sealift and related intermodal transportation requirements

​Other Resources

The links provided for informational purposes only; inclusion here does not constitute DoD or DAU endosement of any organization, university, program or resource.

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