Eastlog 2014 prague

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Copyright: Jaguar-APS

Effective Use of Data to Support Successful Supply Chains.

Charles Novak & Pavel Černý, Jaguar-APS

Prague, CZ May 2014

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Theme of the Presentation

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Copyright: Jaguar-APS 3®


Complexities Affecting Business Strategy Factors impacting supply

chain complexity: Globalization Mass customization of

products Compressed product

lifecycles Outsourcing New product introductions Competitive market

entrants Fluctuation in supplier

costs Capacity constraints Mergers and acquisitions

4Copyright: Jaguar-APS

What can we do to avoid this situation…

Utilize and work with all available data!

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Managing by Analytics Analytics resolve

differences of opinion. Initial discussion based

on opinions but has to be supported by numbers.

Cross-functional involvement to improve alignment.

Typically, managing by analytics is a MAJOR CHANGE.

Teams work best when analytics rule discussion

Analytics is Much More Than Reporting

Traditional supply chains respond, but they do not sense.

Organizations do not use analytics to listen.

In the world of new analytics, they will be able to sense, test and learn and orchestrate the response market to market.

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Analytics is Much More Than Reporting New technology forms

of analytics are expanding the possibilities.

The evolution of analytics for visualization, pattern recognition, unstructured text mining and parallel processing are converging to drive a new form of supply chain.

Think

Sense

Act

Analytics combines digital with cognitive reasoning to sense, think and act.

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Analytics is Much More Than Reporting What if we could test and

learn in-market, reading market impacts in real-time through analytics, based on matching customer attributes to product attributes to build customized products for regions around the world?

This new approach allows test and learn capabilities to answer the questions that we do not know to ask to build unique insights.

And, what if we could mine unstructured data and combine it with transactional data to mitigate supplier risk?

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Business FailureLinking strategy with execution is the key!

Focus on decisions rather than the information.

The reason why successful companies fail is they invest in things that provide the most immediate and tangible evidence of achievement.”



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The Roadmap to Sustainable Success Identify business goals Identify business decisions

driving the goals Identify people that will

drive the business goals Identify business processes

that will help with making decisions

Identify data and tools required to make the decisions

Improve planning by launching what-if capabilities.

Strategy

Data-Tools

Supply chain must identify business

goals from the start.

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The only thing that is constant today, is the CHANGE




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Role of Demand Planning Analytical approach

incorporating domain knowledge, not just judgement.

Non-biased forecast generation.

Forecast model and methods evaluation and selection

To tell the top management the

truth!

Data collection, coordination, transformation and analysis

Forecast development and analysis Forecast communication Error tracking, analysis and remediation Cross-functional interface Planning process interface

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Introduction: Recent Developments

Predictive analytics used to:

• Uncover patterns in consumer behavior.• Measure effectiveness of marketing investment.• Optimize financial performance.• Shape and proactively drive demand using what-if simulations.• Sense demand signals and shape the future demand supported by data

mining technologies.

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Predictive Analytics and Supply Chains• Cost perceived too high• Focus on investments that provide immediate and

tangible results.• Too complex to connect the data nodes across

extended supply chain.• Big data is a distraction at the moment. • Skillsets in supply chain and IT are limited.• Disconnect between the need and silo managed IT and

other departments.• Demand planning not a Core Competence.Why Not• Strong potential to transform the way in which supply

chain managers lead and supply chains operate.• Senior management’s need to grow the business

profitably. • Multi-echelon supply chains require quick and correct

signals to operate effectively. • “Heads-up” to help sense, analyze, and better respond

to market changes.• Data equals information and information equals profit.• Pressures to synchronize demand and supply to

understand why consumers buy products.Why Yes

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Demand-Driven Forecasting & Supply Chain

Demand Sensing

Source: Laura Cecere, Supply Chain Insights & Charles Chase, SAS

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Demand-Driven Forecasting & Supply Chain Demand sensing

Shortening the time to sense “true” market data to understand “true” market shifts in the demand response.

Order-to-shipment data that can have 1-3 weeks latency in translating “true” market (or channel) demand to action.

Development of Consumption based Forecast

Demand shaping Domain knowledge vs. judgement. Applying techniques to stimulate

market demand. Linking demand to supply chain. Elimination of politics and bias in

forecast. Demand translation

Translating demand outside-in from the market to each role within the organization

The system design recognizes that the requirements for each - distribution, manufacturing and procurement - are different.

In this process, the forecast is based on “the selling unit” into the channel with “ship-to modeling.”

The demand is then translated to “ship-from” views based on the needs of the specific role.

Demand orchestration and shifting Making trade-offs market-to-

market based on the right balance of demand risk and opportunity.

These trade-off decisions depend on the use of advanced analytics to sense and shape demand simultaneously.

Domain knowledge vs. judgment.Source: Laura Cecere, Supply Chain Insights & Charles

Chase, SAS

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Things You Need To Know About The Process

Process is more

important than

forecasting models and forecasting software.




Demand-Driven Forecasting Process

Source: Charles Chase, SAS

Demand Sensing

Sensing demand signals related to the marketplace by market, channel, category, and product.

Demand Shaping

Using what-if analysis, demand planners shape future demand based on tactical and strategic sales/marketing plans.

Demand Shifting

Collaboration with sales, marketing and operations planning to match supply to unconstrained demand.

Demand Response

Constrained demand response used to develop a final supply response (plan).

Process Flow

Uncover Market

Opportunities and Key Business Drivers

• Sales• Marketin

g

Optimize Sales and Marketing Tactics and Strategies

•Sales•Marketing

Assess Financial Impact

•Finance

Finalize Unconstrained Demand

Forecast


Consensus Planning Meeting


•Finance•Operations Planning

Rough Cut Capacity Planning Review

•Operations Planning

Revised Demand Response


Create Supply

Response

•Operations Planning

Collaborative Work

Flow

Sales and Operations Planning

Consensus Planning

Horizontal Processes

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Demand-Driven Forecasting Planning Process This structured approach puts the burden of

ACCOUNTABILITY on the SALES AND MARKETING organizations to produce a more accurate unconstrained demand forecast that reflects current market conditions – assuming there is unlimited supply.

This change in the process signals a radical shift in the way companies view their demand forecasting and planning process today. Most demand forecasting processes are SUPPLY DRIVEN with little emphasis on predicting unconstrained demand, let alone shaping future demand.

Demand driven forecasting is a proactive structured process that senses demand signals and shapes future demand based on sales and marketing strategies and tactics rather that reacting to past supply constraints.


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Demand-Driven Forecasting Planning Process Focus on demand-driven including evaluation of

strategic, operational, and tactical plans to consolidate departmental inputs by identifying, assessing, and closing any financial gaps.

Provides realistic view of true unconstrained demand.

Based on sales and marketing consensus that has been financially analyzed for further refinement to be used in support of the S&OP process.

Supply constraints are addressed through shifting demand to allow for efficient and cost-effective response to meet demand.


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Vendor

DC

Store

Store

Store

Inside-out (push) strategy issues

Downstream demand accumulated ad presented as aggregate total.

Delay in the initial demand from original customer.

Service level need is an average.

Upstream supply expected to be at 100% service level.

“If replenishment takes care of inventory problems, what caused the inventory problems in the first place?”

Inventory

Information

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Inside-Out Questions Is the demand the result of consumption at a

store level? Is the demand upstream the result of the

downstream consumer demand or the downstream warehouse demand?

How long it is before a forecast becomes true demand?

Does the demand signal become true just because you believe it to be better?

Do you have enough time to react to the true demand when it finally becomes known?

Planning

Production Sales

PUSH

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More intelligent use of market data Changing view of how to

look at the data and serve customers From INSIDE-OUT to

OUTSIDE-IN It is about owning the entire

supply chain, including the channel, and managing products from their manufacture to their end use.

Current supply chains catch orders and shipments and assume that they are representative of the market.

Supply chain leaders can sense dynamics in the market and translate it through organization and alert the right person at the right time to make the right next action.

Planning

Production Sales

PULL


Inside-Out (PUSH) Outside-In (PULL)

Strategic Focus

Superior new products Product solutions to customer’s unmet needs

Investment Required

High; requires engineering innovation

Small to high; requires marketing brains & insight in consumer behavior

Marketing Communication

Product features and benefits

Solutions to customer problems

Measurement

Sales & market share Customers share & lifetime value

Profitability Short term planning; profits subject to market changes

Long term planning; profits subject to customer loyalty

Planning Demand and supply based on past shipments/orders

Translating market demand to each role within the organization.

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Infrastructure for Demand-Driven Value Networks

Opportunities

Insights RiskDemand Supply

Become Market Driven

SustainabilityBuild Value in

Supply Networks

Drive Innovation in Products and Services

Orchestrate Demand-Driven

Response

Demand-driven value networks (DDVNs) integrate processes and data in the supply chain to enable collaboration, as well as orchestrate a response to demand that creates value and mitigates risk.

Source: Gartner Research

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Demand-Driven Value Network

Focus of DDVN

Process

Network Design

Sensing

Proven Benefits: Improved customer

service Lower inventory levels Improved working

capital and cash flow Reduced supply chain

disruptions Improved operational

efficiency Lower IT costs Improved profitability Improved market share

Source: Gartner Research

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Supply chain managers must advocate for “demand-shaping with supply in mind” Price

These activities cause significant demand variation and uncertainty depending upon the price elasticity of products and competitive reactions.

Supply chain managers can support pricing decisions and demand variations and uncertainties.

For example, they can carry material and component buffer stocks, reserve excess manufacturing capacity, and maintain safety stocks of finished goods.

Promotion As with pricing activities, these cause significant demand

variations and uncertainties. Prior to a promotional campaign the primary role of supply

chain managers is to fill downstream supply chains with product to cover the often substantial uplift in expected demand.

Larry Lapide, MIT Supply Chain Management

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Supply chain managers must advocate for “demand-shaping with supply in mind” Product

Establishing and changing the portfolio of products sold, including the introduction of new and reformulated products and the phasing out of old obsolete products.

New product launches especially have significant demand uncertainty. Yet it is important to ensure that product is available to satisfy first-time buyers.

Supply chain managers need to execute launches by initially filling downstream supply chains with sufficient inventories, as well as helping to ensure new products are positioned at the points of sale.

As a product launch progresses, supply needs to be replenished all along the downstream supply chains, as well as at the points of sale.

Place Involves establishing the distribution and sales channels. Similar to new product launches, opening a new channel involves very significant

demand variation and uncertainty. It involves establishing the ways products will flow and be inventoried throughout

a new channel, as well as initially stuffing and replenishing it with inventory. For example, establishing an online Internet sales channel often involves

deploying new order fulfillment and supply strategies, such as piece picking, packing, and shipping in customer-facing warehouses.

Larry Lapide, MIT Supply Chain Management

www.jaguar-aps.com


Data segmentationStatistical Methods Selection Based on Segmentation and Portfolio Management


𝐷𝑒𝑚𝑎𝑛𝑑 𝑃𝑎𝑡𝑡𝑒𝑟𝑛𝑠+𝐷𝑒𝑚𝑎𝑛𝑑𝑉𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦=𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦


Data

Trend, Seasonality,

Cycle, Randomness

High Value, Low Value

New, Harvest, Growth, Niche

Forecastability

Value to the Company

Data Segmentation

New Products

Niche Brands

Growth Brands

Harvest Brands



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Copyright: Jaguar-APS 29Copyright: Jaguar-APS

Four Quadrants Based on Portfolio Management


Low ValueHigh

Forecastability

Low Priority Products:· Strong Trend· Highly Seasonal· Possibly Cycles· Minor Sales Promotions

Low Priority Regional Specialty Products:

· Some Trend· Seasonal Fluctuations· Irregular Demand· Local Targeted Marketing

Events

Product Line Extensions:(Evolutionary New Products).Some ‘Like’ history available.

Short Life Cycle Products:Many ‘Like’ products available.

New Products:(Revolutionary New Products)

No ‘Like’ history available.

High Priority Products:· Strong Trend· Seasonal Fluctuations· Possible Cycles· Sales Promotions· National Marketing Events· Advertising Driven· Highly Competitive

Growth Brands

Niche Brands Harvest Brands

New ProductsCo

mpa

ny V

alue

Forecastability

High ValueLow

Forecastability

Low ValueLow

Forecastability

High ValueHigh

Forecastability

Low ValueHigh

Forecastability

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Statistical Methods Selection Based on Segmentation and Portfolio Management


ARIMAXARIMA with Interventions and Regressors

Simple RegressionMultiple Regression

Combined average:Judgment, Time Series, Causal

Combined Weighted:Judgment, Time Series, Causal

Croston’s Intermittent Demand

ARIMA Box-JenkinsWinters 2 / 3 ParameterDecompositionSimple Moving AverageHolt’s Double Exponential Smoothing

‘Juries’ of Executive OpinionDelphi Committees

Sales Force CompositesIndependent Judgment

Causal Modeling

Multiple Methods Time Series

JudgmentalCo

mpa

ny V

alue

Forecastability

New Products

High ValueLow

Forecastability

Niche Brands

Low ValueLow

Forecastability

Growth Brands

High ValueHigh

Forecastability

Harvest Brands

Low ValueHigh

Forecastability

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Data Segmentation for Effective Demand Planning

Sample size: 14,271 SKUs

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Data Segmentation - Forecastability

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Collaboration accross the supply chainWhat can you get from your customers or what can you get from your suppliers.



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Bullwhip effect:Increasing Variability of Orders Up the Supply Chain

Bullwhip effect signals less than optimal supply chain caused by inefficiencies in information sharing. Poorly managed supply chains cause instabilities (i.e. poorly forecasted consumer demands). These instabilities create these bullwhip effect swings.

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Solutions to fixing the Bullwhip effect Sharing of real demand data across the supply

chain Trust and collaboration – process integration Agile execution to respond to demand

variability Use “Pull” – Outside-in techniques

Customer demand drives material flow Consumption based replenishment and forecasting Frequent deliveries in smaller volumes to replace

customer consumption VMI CPFR


Vendor Managed Inventory VMI

Collaboration Process of Manufacturer and Distributor/Retailer

Optimization of Supply Chain performance

Manufacturer responsible for maintaining the levels of inventory at Distributor’s location(s)

Manufacturer has access to Distributor’s inventory data and generates POs


Collaborative Planning, Forecasting and Replenishment (CPFR)

Communication and Sharing of Demand Plans with External Partners.

CPFR combines the intelligence of multiple trading partners in the planning and fulfillment of customer demand.

Links sales and marketing best practices to supply chain planning and execution processes.

Objective: Increase availability to the customer. Reduce inventory, transportation and

logistics costs.

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Collaborative Planning, Forecasting and Replenishment

PUSH

ConsumptionShipments = 31%

more than consumption

PULL

Consumption

Shipments = 98% of consumption

Before CPFR

With CPFR

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Questions that are answered through collaboration with customers / distributors What is my company

impact on my sales due to retail price?

Which of my items are on each planogram?

What stores are not selling my key items?

How do various store groups/regions perform with my product portfolio?

Which store has which planogram?

What are the top 20% of stores contributing to 80% of my business loss?

What are my SKUs performing at this retailer and where should I look for distribution gains?

How do my SKUs perform on ad and various price points?

What were my sales last week? Last month?

Are my innovation SKUs getting to shelf edge quickly?

How do my sales compare to previous timeframes?

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Vendor Reporting

Stores not selling SKU rank Speed to market Planogram crosstab

by store Planogram crosstab

by item Store performance

report

Vendor scorecard Pricing and

promotional analysis Store cluster

comparison Performance trends Weekly sales raw data

Types of reports that enhance Domain Knowledge and support Demand Sensing and Shaping process.

What information you can get from your distributors or customers? What

information can you share upstream in your supply chain?

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Forecasting Outside-inLinking Market Data to Shipments – Simplified Example



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MTCA – Multi-Tiered Causal Analysis

Past constraints are becoming non-issue today: Data collection and storage Computing power available Data synchronization capabilities Analytical expertise

MTCA, a process of nesting causal models together using data and analytics, considers marketing and replenishment strategies jointly, rather than creating two separate forecasts.

“Integrating consumer demand into the demand forecasting process to improve shipment (supply) forecasts has become a high priority in the FMCG/CPG industry as well as in many other industries over the past several years.” Charles Chase, SAS


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Growth brand – traditional forecasting approach

What do you think? Pretty good forecast – isn't it?Not so fast …

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MTCA – Multi-Tiered Causal Analysis

Market data from ACNielsenFactory shipments

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1. Data Analysis

Comparisson of category consumption and forecast with all outlet consumption for brand. Strong correlation between the two variables is confirming origninal assumptions of category influencing brand consumption.

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2. Development of Consumption Forecast

Regression 1: Last 4 Periods Out of Sampleb 0.670646293 114991.935 a

SE X 0.01659508 43476.00362 SE YR2 0.989098563 57723.81787 SE

F 1633.158501 18 df Residual

SS Reg 5.44175E+12 59976704694 SS Residual

t 40.41235579

Out of SampleForecast Bias % Bias Abs Error APE4,247,556 329,111 7% 329111.089 7%1,997,206 (131,092) -7% 131091.571 7%1,772,187 (44,406) -3% 44405.9146 3%1,724,543 (11,602) -1% 11601.8607 1%

ME -1% MAPE 4%

Regression 2: All Data In Sampleb 0.716448119 -987.7474012 a

SE X 0.015630716 44552.36932 SE YR2 0.989636968 78137.09794 SE

F 2100.930716 22 df Residual

SS Reg 1.2827E+13 1.34319E+11 SS Residual

t 45.83591076

Running two regressions: first to validate the model, second to use the model to generate forecast for the brand‘s consumption.

1

2

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3. Development of Shipment Forecast Based on Consumption ForecastDetection of lag/lead relationship of

factory shipments and consumption.

Shipment forecast based on consumption.

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4. Linking Consumption Forecast to Supply Chain and Internal Marketing/Sales Programs

Adding supply events and TV advertising (dummy variables) plus marketing promotions (past history and forecast) as final variables to the consumption based factory shipment forecast.

Final forecast (green) based on consumption, supply chain constraints, marketing and sales activity.

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Comparison of traditional forecasting approach (blue) versus MTCA (red).

What would it mean to supply chain if only statistical shipment forecast was used?

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Why Haven’t Companies Embraced the Concept of Demand-Driven?

IncentivesTraditional view of supply chain excellence

Leadership Focus: Inside out, not outside in

Vertical rewards versus horizontal processes

Focus on transactions not relationships


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Why Haven’t Companies Embraced the Concept of Demand-Driven? Incentives:

As long as sales is incented only for volume sold and marketing only for market share, companies will never become demand driven. To make the transition to demand-driven, companies must focus on profitable sales growth through the channel.

Traditional view of supply chain excellence. For demand-driven initiatives to succeed, they must extend from the customer's customer to supplier’s

supplier. Customer and supplier initiatives usually are managed in separate initiatives largely driven by cost.

Leadership. The concepts of demand latency, demand sensing, demand shaping, demand translation, and demand

orchestration are not widely understood. As a result, they are not included in the definition of corporate strategy.

Focus: Inside out, not outside in. Process focus is (today) from the inside of the organization out, as opposed to from the outside (market

driven) back. In demand-driven processes, the design of the processes if from the market back, based on sensing and shaping demand.

Vertical rewards versus horizontal processes. In supply-based organizations, the supply chain is incented based on cost reduction, procurement is

incented based on the lowest purchased cost, distribution/logistics is rewarded fro on-time shipments with the lowest costs, sales is rewarded for sell-in volume into the channel, and marketing is rewarded for market share. These incentives cannot be aligned to maximize true value.

Focus on transactions not relationships. Today, the connecting processes of the enterprise – selling and purchasing – are focused on

transactional efficiency. As a result, the greater value that can happen through relationships – acceleration of time to market through innovation, breakthrough thinking in sustainability, and sharing of demand data – never materializes.


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Recommendations Understand Demand

By better understanding demand, companies can plan production capacity and inventory level in a more accurate fashion, minimizing the risk of lost sales opportunities.

Collaboration and Integration The ability to share information between departments within

the business is essential to improving supply chain. Without internal communication processes in place (Demand

Planning, S&OP), the company as a whole cannot effectively collaborate with the outside entities, whether they are supplier or customers.

Supply Chain Management Increased visibility into supply decisions and constraints by

providing input in the demand shaping and shifting activity will help ensure the product is available at the right place at the right time.


Thank You

Charles Novak & Pavel Černý[email protected]@jaguar-aps.eu www.jaguar-aps.com

Our Solutions• Training Programs• Opportunity Assessment• Business Transformation – S&OP/IBP• Forecast Software Selection and Implementation• On-Demand

http://www.jaguar-aps.com/services/index.html

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