An assessment of the Holt-Winters model in making effective forecast for supply chain system

Abstract

The importance of supply chain management in manufacturing sector of any economy cannot be over-emphasised. Supply chain is the integration of the decisions of demand, supply and production into a single framework. An important supply chain problem is the bullwhip effect, which refers to the fluctuations increase of demand as one move up the supply chain from retailer to manufacturer. Demand forecasting and ordering policies has been recognised as two key causes of the bullwhip effect. Instability in the supply chain harms firms, consumers, and the economy at large, through excessive inventories, poor customer service, and unnecessary capital investment; while instability in employment erodes skill and worsens labour-management relationship, diverts leadership attention from the design of new products and strategies to firefighting and crisis management. It also causes volatility in revenue and profit; increases risk and raises the cost of capital. This article assessed the effectiveness of the Holt-Winters time series model in making forecasts and also in quantifying the bullwhip and net-stock amplification in supply chain.