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i2 UIntelligent Supply Chain Management
Course
Module Six:Module Six:DemandDemand Planning Planning
2©2001 i2 Technologies Inc CONFIDENTIAL
Supply Chain Management Key Processes
Sales & Operations Planning
Demand Planning
Inventory Planning
Supplier Scheduling
Production Scheduling
Inventory Deployment
Transportation Scheduling
Demand Fulfillment
Supply Chain Execution Monitoring
Strategic Supply Chain
Planning
Master Supply Planning
Procurement
Production Distribution
Transportation
Impact of decisions
_
+
Num
ber o
f dec
isio
ns
+
_
Spec
ifici
ties
by in
dust
ries Length of Planning horizon
Fu
lly
Inte
gra
ted
to
p-d
ow
n d
irec
tio
ns
Fu
lly
Inte
gra
ted
bo
tto
m-u
p f
eed
bac
k
Reaction to changing supply conditions
3©2001 i2 Technologies Inc CONFIDENTIAL
After Completing This Module,You Are Expected to:
Define the key business objectives of the Demand Planning process
Apply “focused forecasting” and “consensus forecasting” logics
Understand the multi-dimensional nature of the Demand Planning process and the underlying enabling technology available
Identify Demand Planning key enablers and their resulting business value
Identify Demand Planning excellence criteria
4©2001 i2 Technologies Inc CONFIDENTIAL
hou
rs
days
wee
ks
mon
ths
year
+
buy
make
move
sell
store
operational tactical strategicscheduling
Demand Planning Process Positioning
5©2001 i2 Technologies Inc CONFIDENTIAL
t
HISTORY FORECASTS
Promotion
Price increaseDownsizing of market expectations
Stock-out
Promotion End of quarter
‘Sales Forecast are Always Inaccurate
6©2001 i2 Technologies Inc CONFIDENTIAL
Clean up historical data Selection of the right forecasting technique Capture all intelligence influencing future demand
– promotions / pricing modifications– phase-in/phase-out
Compare inputs coming from different players using different languages
– Sales manager: sales by region– Marketing manager: sales by product family– Sales rep: sales by clients– Finance/management: global sales– statistical forecast: sales by SKU
Agree on a consensus forecast
Major Challenges of the Demand Planning Process
7©2001 i2 Technologies Inc CONFIDENTIAL
Selection of the Right Forecasting Technique Through the ‘Focused Forecasting’ Logic
time
HISTORY FORECASTS
today- 3 years
-1 year
… each technique is used to generate a “forecast” over the
recent past 2
To identify which forecasting
technique is the right one...
1
The technique with the least error margin with actual sales is used to forecast future sales
3
8©2001 i2 Technologies Inc CONFIDENTIAL
Clean up of historical data Selection of the right forecasting technique Capture all intelligence influencing future demand
– promotions / pricing modifications– phase-in/phase-out
Compare inputs coming from different players using different languages
– Sales manager: sales by region– Marketing manager: sales by product family– Sales rep: sales by clients– Finance/management: global sales– Statistical forecast: sales by SKU
Agree on a consensus forecast
Major Challenges of the Demand Planning Process
9©2001 i2 Technologies Inc CONFIDENTIAL
The Challenge of Capturing, Comparing and Reaching Consensus on a Unique Sales Forecast
Last Year’s Q3was flat because
the weather was wet
The new Wonder Gizmo will hit
the market in June
We will increase salesof big ones by 10%
in Q3 and Q4
My shop will sell 10additional Widgets and
7 Gizmos in JanuaryIf we sell through
e-commerce we can sell 25,000 more but will reduce direct sales by 10%
Any new product cannibalizes demand
for the old one
Our Mega competitormay launch his new
Widget in May
10©2001 i2 Technologies Inc CONFIDENTIAL
Forecasting is a Multi-Dimensional Problem
11©2001 i2 Technologies Inc CONFIDENTIAL
Describing a Product is Multi-Dimensional
All Products -Beverages
Subgroup -Cola -Ginger Ale -Root Beer
Group - Soft Drinks - Ice Teas - Juices
Product -Cola 16 oz. -Diet Cola 16oz. -Cola 32 oz. -Diet Cola 32 oz.
Packaging -Glass -Can
Size -16oz. -32oz. -48oz.
Style -Diet -Regular
12©2001 i2 Technologies Inc CONFIDENTIAL
Describing Time is Multi-Dimensional
WeeklyWeekly
MonthlyMonthly
QuarterlyQuarterly
13©2001 i2 Technologies Inc CONFIDENTIAL
Demand Planning Reality
Various people working in various corporate and product dimensions, in various time increments, using different data and creating different plans
These people need to collaborate with one another
Such collaboration requires a multi-dimensional environment
14©2001 i2 Technologies Inc CONFIDENTIAL
“Top-down”
Budget/Long Range Sales Plan
Key Account Plans
“Bottom-up”
Management• Forecast
Consolidation• Forecast Generation• Adjustments
Geography
Time
Product Product Management/ R&D•Ramp-ups•Ramps-down•Product Life Cycle
Sales Management• Growth/Trends• Sales Actions/
Promotions• New Product Intro
Data Consolidation•Customer Orders•Shipments
Demand Planning Collaboration Requires a Multi-Dimensional Database
15©2001 i2 Technologies Inc CONFIDENTIAL
Product dimension
Geography dimension
Several forecasts or related
information
16©2001 i2 Technologies Inc CONFIDENTIAL
Monthly or Weekly CycleMonthly or Weekly Cycle
Market Market IntelligenceIntelligence
Demand Demand HistoryHistory
Statistically Statistically Derived Derived ForecastForecast
Consensus Forecast MtgConsensus Forecast Mtg
SalesSales
MarketingMarketingFinanceFinance
ManufacturingManufacturing
Typical Collaborative Forecasting Process
17©2001 i2 Technologies Inc CONFIDENTIAL
Example of Multi-Dimensional Complexity:IBM PSG Demand Planning Project
Worldwide Implementation Covering US, Asia Pacific, Canada, Latin America, Europe, Middle East and Africa
48 Users 8,000 SKUs 40 Levels 11 Views 163 Rows
18©2001 i2 Technologies Inc CONFIDENTIAL
Collaborative Demand Planning With Customers
Shared applica
tion
Retailer
Manufacturer
Comparison of both inputs to reach
consensus on sales figures3
Manufacturer publishes its sales forecast, which
includes trade promotions and
advertising campaigns
1
Retailer publishes its forecast requirements, which include
sales promotions and merchandising actions (shelf
space management, delisting, …)
2
19©2001 i2 Technologies Inc CONFIDENTIAL
Demand Planning Process Key Enablers and Related Business Benefits
Best of breed statistical forecasts + “pick best” capability
All influences on future demand captured in a multi-dimensional database
Consensus forecasting enabled by the comparison of multiple forecasts
Collaborative planning tool enabling to compare demand with customer plans
Forecast accuracy
Customer service
Inventory turns
20©2001 i2 Technologies Inc CONFIDENTIAL
Major Roadblocks to Remove in Order to Implement a Best-in-Class Demand Planning Process
Reliability of historical data– history cleaned from past promotions, atypical orders and
stockouts
Availability of historical data at the required level of granularity
Lack of accountability and incentives on forecast accuracy goal– sales people tend to overestimate potential sales to ensure
maximum availability
– or these same people tend to underestimate potential sales to ensure that sales objectives will be met
21©2001 i2 Technologies Inc CONFIDENTIAL
Demand Planning Process Excellence Criteria (1/2)
The frequency of the demand planning process is adapted to the level of demand variability.
A structured workflow organizes the activities of the demand planning process Past data used to extrapolate future demand is reliable and cleaned from
atypical sales conditions (stockouts, promotions…). Times series are long enough to generate reliable extrapolations and trends.
The application of the ‘focused forecasting’ method ensures that the right statistical forecasting technique is applied for each product and each level of aggregation. The people that manipulate these statistical forecasting techniques have a strong expertise in this domain.
As many ‘demand pyramids’ as necessary (with as many aggregation levels as necessary) are modeled in a multi-dimensional database supporting the demand planning process, to enable all people involved in demand planning to adequately provide their input on future demand.
All people with visibility on demand future evolution and/or with activities impacting future sales systematically contribute to the demand planning process.
22©2001 i2 Technologies Inc CONFIDENTIAL
The impact of promotions, shelf management, category management and advertising activities is taken into account in the forecast.
Supply restrictions and allocations by sales channels are taken into account in the final sales plan.
Whenever customers plan their purchases, this information is received directly from them. It either eliminates the need to forecast, or it is compared to the forecast generated internally (in this case, when differences show up, a final number is agreed to by both parties). The company is actively pursuing the expansion of such collaborative demand planning processes.
Forecast of future products are validated jointly by Marketing and R&D. R&D has adequate planning processes that ensure the reliability of the new product launch schedules.
Product phase-out decisions take into account possible costs attributable to unused inventories.
All forecasts are reconciled, and a unique, final consensus demand plan is generated, which is used to drive ALL Supply Chain Management activities.
Demand Planning Process Excellence Criteria (2/2)