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

Presented by James Berry Senior Consultant Business Forecast Systems, Inc. jberry@forecastpro.com

Business Forecast Systems, Inc. 68 Leonard Street Belmont, MA 02478 USA (617) 484-5050 www.forecastpro.com

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.

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What Well Cover

Introductions
Role of the Forecast in the S&OP Process

Data

Forecasting Techniques
Adjusting the Forecast

Summary
Q&A
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Role of the Forecast in the S&OP Process

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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.

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

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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.

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Comprehensive Scenario
Production Supply Sales & Marketing Finance

Demand Plan

Consensus Business Plan

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Demand Plan Process

Update Historical Data

Generate Demand Plan

Gather Business
Intelligence

Generate Baseline Statistical Forecast

Form Consensus

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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
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Data

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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.
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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?

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Forecasting Techniques

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There is no Best Method

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: Crostons Intermittent Demand Model New Products: Items that have been, or are about to be introduced. Methods to forecast include: Forecasting by Analogy Bass Model
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Adjusting the Forecast

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

Sales

Production

Supply

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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.

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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.

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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

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Conclusions

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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

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Our Next Webinar

Tailoring Your Forecasting Methods to Improve Accuracy October 18, 2012 1:30 p.m. EDT Nada Sanders Visit www.forecastpro.com to sign up!

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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 www.forecastpro.com

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Forecast Pro
Examples from todays 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 www.forecastpro.com
Call us at 617-484-5050

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Questions?

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Thank You for Attending!

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