Demand planning in seasonal weather dependent product portfolio – simulation case study

Abstract

As weather effects on consumer behaviour, companies selling weather dependent and seasonal consumer products are significantly affected by changing weather conditions. For those companies, the financial results might be determined by the weather in short and medium term. The weather creates also a clear challenge for supply chain as the chain balances between minimizing the product shortages and stocks.

This thesis focuses on defining ways to improve demand planning in a weather dependent seasonal consumer product portfolio context. A simulation model is built to understand end-customer demand response to different weather scenarios and to simulate demand distortion effects when orders flow upwards on the case distribution channel. On top of the end-customer demand, the simulation replicates the replenishment policy for retail stores and wholesaler’s DC to understand the demand requirements faced at the factory level during each weather scenario.

The research was conducted as a simulation case study on the Case Company’s supply chain. The results of the simulation study indicate that the baseline demand scenarios (the demand which is expected to happen without incremental sales activities) can be accurately forecasted by using the constructed simulation model and the model outperforms the current forecasting method used in the Case Company in both aggregated and individual product level. Additionally, the simulation model supports demand planning minimize risks in season stock build, planning safety stocks, and do quick corrective action during season such as recognize forecasting errors from noisy data more efficiently and identify excess stock temporary in distribution channel.

The simulation model is light to operate and have potential to improve the Case Company’s demand planning process significantly. Compared to the other research on the field, the thesis proves that rather simple method to model weather effects on demand can also provide valuable results.