A Roadmap for Improving Forecasting in Demand Planning and S&OP Processes

Transcription

1 A Roadmap for Improving Forecasting in Demand Planning and S&OP Processes Presented by James Berry Senior Consultant Business Forecast Systems, Inc. Business Forecast Systems, Inc. 68 Leonard Street Belmont, MA USA (617)

2 James Berry Senior Consultant at Business Forecast Systems, Inc. (BFS). Holds a degree in Economics from the University of Chicago. During his 9 year tenure with the firm, James has worked with numerous clients representing a wide range of industries, helping them to implement and improve their forecasting processes. His current clients include Thermo Fisher Scientific, FedEx Ground, Arysta Life Sciences, Irving Oil and Crown Bolt.

3 What We ll Cover Introductions Role of the Forecast in the S&OP Process Data Forecasting Techniques Adjusting the Forecast Summary Q&A

4 Role of the Forecast in the S&OP Process

5 Demand Plan The output of the S&OP process is a Consensus Business Plan. This is a guide for the next 6-18 months that will be updated on a periodic basis. This drives the Demand Plan which is used to plan production, sales, and supply.

6 Simple Plan A single Demand Planner produces the Demand Plan. He may check in with Sales or Production for any special orders coming up.

7 Comprehensive Scenario The Demand Plan is produced with collaborative input from managers from multiple functional divisions Production, Supply, Sales, Marketing, and Finance. Each group brings their own domain knowledge and a consensus forecast is produced through a series of collaborative meetings.

8 Comprehensive Scenario Production Supply Sales & Marketing Finance Demand Plan Consensus Business Plan

9 Demand Plan Process Generate Demand Plan Update Historical Data Generate Baseline Statistical Forecast Form Consensus Gather Business Intelligence

10 How to Generate a Baseline Forecast The focus of this session will be on the generation of a demand forecast the forecast numbers that drive the demand plan. Prior to preparing forecasts a number of questions must be answered: What data to use? Sales, Orders, Production, Shipments Who is going to run this process? Sales, Production, Finance, Planning How is the data going to be organized? Hierarchy structure Product classification What methodologies are going to be used? Forecasting models

11 Data

12 What Data to Use? The goal is to forecast demand. What data best represents your demand? Sales: Usually the easiest to access. Can be skewed by large, 1-time sales and end of quarter selling. Orders: Good for supply side forecasts. Has a tendency to be intermittent as large orders come in at different times. Production: Good for production planning. May be subject to interruptions in production as priorities change. Shipments: Tends to be less volatile than orders. But items with long lead-times could be lagging behind short lead-time items.

13 What Data to Use? In deciding what data to use, there are important considerations: What data do I have historical records for? Who is going to consume the forecasts? What is the forecast going to be used for? Production plan, financial plan, etc. What data will produce the most accurate forecast?

14 Forecasting Techniques

15 There is no best method. Different methods are useful for different types of data. Established, High-Volume Items: Your most important items where forecast accuracy is a must. Methods to forecast include: Exponential Smoothing Box Jenkins Dynamic Regression Low-Volume, Intermittent Items: Items with sporadic and random sales. The most difficult type of data to forecast. Methods to forecast include: Croston s Intermittent Demand Model New Products: Items that have been, or are about to be introduced. Methods to forecast include: Forecasting by Analogy Bass Model There is no Best Method

16 Adjusting the Forecast

17 Overriding the Baseline Forecast Regardless of how well your baseline models are performing, they are tied to the history. There will be events occurring in the future that are under the control of the company. These can include: New Promotions Special Orders Business Interruptions Mergers/Acquisitions Entry into New Markets This business intelligence is important and will need to be addressed in the forecast.

18 Sequential Review Demand Planner The Demand Planner meets with each relevant department manager individually and discusses the forecast. They make any necessary changes. Sales Production Supply The important part is this is routine and the Demand Planner is in charge of making appropriate adjustments to the forecast.

19 Team Review Demand Plan All team members meet together and discuss the forecast together. The team comes to a consensus and this becomes the agreed upon Demand Plan.

20 Collaboration Regardless of which review method your company takes, it is important that any known events that can impact future demand are discussed, and included in the final Demand Plan. It is also important for someone to have ownership of the final forecast and Demand Plan.

21 Performance It is also important to measure forecast performance over time. This way you can spot issues and try to correct for them during the review process. You can monitor: Forecast Accuracy Historical Outliers Exceptions Upcoming Orders

22 Conclusions

23 Conclusions Demand Plans are driven by forecasting. In order to produce a good Demand Plan you need: The right data Routine baseline forecast generation using reliable software Review of the forecasts to make sure the appropriate methods are used A way to add business intelligence to the baseline forecast Track performance over time

24 Our Next Webinar Tailoring Your Forecasting Methods to Improve Accuracy October 18, :30 p.m. EDT Nada Sanders Visit to sign up!

25 Forecast Pro Training and Workshops BFS offers forecasting webinars and product training workshops. On-site, and remote-based (via WebEx) classes are available. Learn more at

26 Forecast Pro Examples from today s Webinar used Forecast Pro. To learn more about Forecast Pro: Request a live WebEx demo for your team (submit your request as a question right now) Visit Call us at

27 Questions?

28 Thank You for Attending!