Integrating Forecast Evolution with Production/Inventory Planning:

An Implementation Framework for a Fast Moving Consumer Goods Manufacturer¹

Nesim Erkip

Middle East Technical University, Industrial Engineering

Department, Ankara 06531, Turkey

We consider production and inventory planning problems faced by a Fast Moving Consumer Goods (FMCG) supply chain. The supply chain in question mainly consists of a manufacturer, one of the largest and oldest bakery and snack products producer in Turkey, and a marketing company with 150 distributors and nearly 190,000 retail stores. The manufacturer plans its production by relying on forecasts provided by the marketing company. In this study, we would like to achieve two objectives. First, we test and model the time series of forecasts and demands as a multiplicative forecast evolution process. Second, we integrate the forecast evolution model into the production-scheduling module (MPS) of the company's ERP system, through enhanced rules for determining safety stocks by taking the variance-covariance matrix of the forecast evolution model into account. Our tests suggest that the model we propose can bring considerable improvement in the inventory investment without a significant compromise in the realized service level.

¹This is joint work with Mehmet Kayhan and Refik Gullu.

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