Forecasting Intermittent Demand - Case Study Example

Forecasting Techniques In Aviation Industry Prepared by Submitted to Word Count Introduction 1 Organization Back ground: The organization selected in this paper is British Airways. The company is the world's biggest international airlines. It carries more passengers than any other airlines who travel from one country to another country. It is world's longest established airline firm and is regarded as leader in aviation industry. Regarding cargo it is the seventh biggest cargo airline in the world. The route network of the British Airways covers the destinations in 96 countries. Over 60,000 people are working in the 100 countries regarding this group. The company wants to deliver the enhanced customer services cost effectively. The company developed and implemented a global supply chain solution. This enabled the company to deliver on board customer services as one of the largest airline firms of the world. The company is first to personalize the service for the valued customers. The technology partners of the company are industry matematik International (IMI), Manugistics. One of the most valued strength of the company is committed and professional people in the staff. The majority of the staff in BA is willing to own a problem and is capable of chasing it exemplary. 1 The British Airways demonstrated the compatibility of pleasure and profits. The organization in the company presented its culture as the explanation for the transformation. The organizational environment at the time of transformation resulted in structural changes observing the impact of them in the long term. The organizational structure of the firm exhibited no corporate friction. In general the corporate friction targets to promote positive attitudes by increasing employee's area of responsibility. This system will align financial interests. BA's organizational structure targeted employee attitudes and aimed at secure commitment. The structure did not resign behavioral compliance as staff has common vision in working together. 2 1.2 Problem definition and analysis: The problem considered in this paper is the shortage of spare parts. The shortage of parts is a common problem faced by airlines firms. The problem of shortage of spare parts is a phenomenon encountered due to manufacturing and retailing problems of the spares. When the items are slow moving, generally they are not available readily and the maintenance of those parts by the company can be a burden of inventory. As airlines are a service industry, the maintenance of an inventory to avoid shortage of spare parts is not cost effective practice. One of the possible solutions is the forecasting techniques for the shortage of spares. The forecasting of the problem helps in acquiring the required parts in a particular period of time for the aircrafts of the firm. The all zero, several levels of demand lumpiness, demand variation and ordering, holding and shortage cost are the few models that can be useful in fore casting the shortage of spares in the airlines firm. The evaluation of the forecasting methods by three measures of forecast error and other measures by inventory cost is recommended. All zero forecasts yield the lowest cost when the lumpiness is high. The bid lumpiness also requires the zero forecasts when the shortage cost is more than the holding cost. The maintenance of the spares in the form of inventory should be termed as cost effective when the cost incurred on the company due to shortage is more than the holding cost of the spares in the form of inventory.3 2. Literature Review 2.1 Forecasting demands and Challenges: A.A. Ghobbar in 1994 stated that the most accurate forecasting method on the basis of demand pattern fluctuation in the industry. The average mean absolute percentage error can help in selecting the forecasting methods. The average inner demand interval categorisation can establishes the validity of the factor ranges as a crucial finding. This will simplify and segment the results obtained by evaluating the forecasting methods and their performance. Demand for forecasting is considered as the most important issue in inventory management of the airlines industry. The forecasts form the basis for the inventory levels. This makes the forecasting and the methods followed a biggest challenge for the repair and overhaul segment of British airways. The accuracy in the forecasting decides the cost of inventory. The cost of modern aircraft, the expensive repairable spare parts comprise a large part of the total capital investment of British Airways. In the case of afore mentioned parts, Though they are low in demand the criticalness of the spares will result in excessive down time costs. This makes the holding of these items cheaper than the shortage costs. In general the airlines deal with the intermittent demand and this contains zero values as majority proportion. 4 2.2 Forecasting techniques for intermittent demand in aviation industry: The demand for forecasting for spares contains highly variable demand patterns. This is main objective as the traditional forecasting resulted in larger error margins. The reason is that they have created large stock outs and managers found them useless. The airline operators including the British airways along with maintenance service organizations mentioned several problems in 1996 survey. These problems and opinions helped in developing the service past forecasts. The resultant work is due to the opinions of the most companies about the forecasts. They termed that the forecasts are never realistic by conventional methods. The reason is that the forecasts did not involve the material requirements planning. The service forecast should not be loaded into the system without the review. The relatively high percentage of the items mentioned in the forecasts also is a major reason for the rejection of the forecast results by firms like British Airways. The comparison of the performance of forecasting methods and identifying the domain of applicability according to the level and type of demand. This depends on the level and type of lumpiness and demand of the spares. 2.3 Forecasting Techniques and their importance: The required spare parts forecasting for an aircraft is an integral part of the service supporting strategy in the airlines industry. The forecasting of the number of spares will help in increasing the reliability of services by holding the required spare parts. The forecasting methods depend on the operating time and other environmental factors. The environmental factors help in forecasting by knowing the probability of the repairs for the areas in the engines of aircraft. The identification of the effects of the operating environment will help in enhancing the forecasting quality of the spare parts in aircraft engines. The facilitation of the more accuracy in forecasting is important aspect in any model of forecasting the demand of the spare parts for the aircrafts. In general all zero, lumpiness, demand variation and ordering, holding and shortage are the methods and aspects should be considered for accuracy in the forecasting. The existing methods play an important role in calculating number of spare parts on the basis of the reliability characteristics, without considering the covariates and modified and improved optimum spares requirement. 5 3. Forecasting Techniques and their development The methodology chosen in this paper is to evaluate the needs of British airways regarding the spare parts demand. Croston's forecasting method established the appropriateness in dealing with the intermittent demand items. The method will be problematic for aircrafts when there is a positive bias. The positive bias is according to Syntetos and Boylan in 2001 and 2005, which proposed a modification. As the modification ignored the dumping effect, the occurrence of the demand cannot be estimated correctly. The ignorance of the dumping effect in forecasting demand for the spare parts for the British Airways will show a negative bias that is larger than the considered positive bias. After that the intermittent demands proposed by experts took dumping affect into consideration for forecasting the demand for the spare parts in aviation industry. The intermittent demand is difficult to forecast due to its lumpy nature observed in British Airways aircrafts demands of spares. The main reason for this is the manufacturing firms implementation of single exponential smoothing. This has been lead to inappropriate stock levels. This needs an alternative method that can take into account the demand size along with the inter arrival time between demands. This method found wide application in British Airways after 2005 due to incorporation of various best selling forecasting packages. The Croston's variant of exponential smoothing proved more suitable for intermittent demand than the traditional methods. 6 The review of the functional analysis revealed that there are significant gaps in decision support. Though the skills are adequate the gap in component availability exhibits the lack of integration with spares management. This needs the forecasting models for avoiding the gaps in availability of spars. The models of the forecasting of the demand for spares in aviation industry involve the commercial off the shelf tools. These tools suit for the wide variety of aircrafts and the need of the spares that exist in British Airways. The forecasting through COTS rely on commercial tools and information. This enables the customization while maintaining the benefits for the organization. The model should take into account the demand profiles over time. The data preparation is important in forecasting by any model or tool. This refers to the selection, summarization of sources of data. The usage of different number for the same parts by different dealers can be avoided short listing one dealer for one spare or for a group of spares. This is to avoid excess of stock in inventory regarding some unnecessary spares. After this precaution is taken the model can be implemented by taking into consideration the opinions of the staff and managers who are responsible for their usage. References: 1. Alan Stanley, 2007, British Airways a case study, ciber Europe, ,electronic, 8-7-07, http://www.ciber-europe.com/case_results_single.cfmid=britishairways 2. I Grugulis and A Wilkinson, 2001, British airways: culture and structure, lboro.ac.uk, ,electronic, 8-7-07, http://www.lboro.ac.uk/departments/bs/research/2001-4.pdf 3. Dean C. Chatfield a; Jack C. Hayya , 2007, All-zero forecasts for lumpy demand: a factorial study, informaworld, ,electronic, 8-7-07, http://www.informaworld.com/smpp/quicksearchdb=allquickterm=shortage+of+spares+airlines+industry&searchtype= 4. A. A. Ghobbar, 2004, Forecasting Intermittent Demand for Aircraft Spare Parts: A Comparative Evaluation of Methods, Journal of aircraft, ,electronic, 8-7-07, http://pdf.aiaa.org/jaPreview/JA/2004/PVJA851.pdf 5. Behzad Ghodrati, 2007, Reliability and Operating Environment Based Spare Parts Planning, Lulea University of Technology, ,electronic, 8-8-07, http://epubl.ltu.se/1402-1544/2005/51/LTU-DT-0551-SE.pdf 6. Ruud Teunter and Babangida Sani, 2007, On the bias of Croston's forecasting method, Lancaster University Management School, ,electronic, 8-7-07, http://www.lums.lancs.ac.uk/publications/viewpdf/004279/ 7. Aviation Logistics Division, 2002, Spares Optimization Business Analysis, United States Coast Guard, ,electronic, 8-8-07, http://www.uscg.mil/hq/arsc/contracting/procurement/sows/USCG_Spares_Opt_Final.pdf Read More