L4M7 practice question 10 of 10

XYZ Ltd organises a meeting in order to decide on the safety stock level of a strategic material which is used in XYZ latest product - DMD. To do…

XYZ Ltd organises a meeting in order to decide on the safety stock level of a strategic material which is used in XYZ latest product - DMD. To do this, they must forecast the future demand for this new product. In the meeting, external consultants are invited to join with cross-functional team. Each person of the group anonymously replies to questionnaires and subsequently receives feedback in the form of a statistical representation of the "group response," after which the process repeats itself. The goal is to reduce the range of responses and arrive at something closer to expert consensus. XYZ Ltd is using which forecasting method?

Answer options

A: Objective forecasting technique

B: Delphi method Correct answer

C: Holt-Winters seasonal method

D: Time series analysis

Correct Answer:

B. Delphi method

Explanation

The Delphi method is a structured, qualitative forecasting technique relying on a panel of experts who anonymously respond to iterative rounds of questionnaires. After each round, a facilitator aggregates the responses and provides feedback in the form of a statistical representation of the group’s views. Participants then review the feedback and iteratively adjust their estimates in subsequent rounds. This process continues until the range of responses narrows and a refined expert consensus is achieved. Because it mitigates group bias and does not rely on historical quantitative data, the Delphi method is ideal for forecasting demand for newly launched products like DMD, where past demand data is absent.

Why Incorrect

A. Objective forecasting relies on mathematical models using historical quantitative data rather than subjective expert consensus.
C. Holt-Winters is a quantitative time series model utilizing triple exponential smoothing for trend and seasonality, requiring past historical data.
D. Time series analysis evaluates historical data patterns over time, making it unviable for newly introduced products lacking past sales history.

References

1. CIPS L4M7 Study Guide: Whole Life Asset Management, Chapter 2: Inventory Management and Demand Forecasting.

2. Rowley, J. and Slack, F. (2004) 'Conducting a literature review', Management Research News, 27(6), pp. 31-39. https://doi.org/10.1108/01409170410784185

3. Lysons, K. and Farrington, B. (2020) Purchasing and Supply Chain Management, 10th edn. Pearson Education, pp. 341–345.

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