Customer

IBP Special Topic Webinar

Statistical Forecasting
Tod Stenger and Anna Linden
February 17, 2016
Agenda

Forecasting Processes

What can IBP do?

Demonstration

What is in each IBP module

Wrap-up

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 2

Forecasting Processes
SAP Integrated Business Planning solution

Supply Chain Control Tower

“End-to-End Visibility, Monitoring and Alerting”

IBP for Sales & Operations

“Strategic and Tactical Decision Processes“

IBP for Supply

IBP for Demand IBP for Inventory IBP for Response *
“Constrained and
“Demand Sensing and “Multi-Stage Inventory “Allocations Planning and
Unconstrained Supply
Statistical Forecasting” Optimization” Order Rescheduling”
Planning”

Unified SAP HANA Platform for Cloud Deployment

*Planned
© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 4
Why Forecast?

 Lead time for decision making Time Series based Forecasting

120

 Forecast external, uncontrollable 110

events such as economies or 100

competitors 90

 Align decisions with internal 80

70
events, such as price strategies or
60
marketing campaigns

M10
M11
M12
M13
M14
M15
M16
M17
M18
M19
M20
M21
M22
M23
M24
M25
M26
M27
M28
M29
M30
M31
M32
M33
M34
M35
M36
M1
M2
M3
M4
M5
M6
M7
M8
M9
History Forecast Expost Forecast
 Establish linkages among the
forecasts made in different
divisons and align with the overall
company goals

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 5

Stakeholders for Forecasts

“Demand Planners aren’t, and shouldn’t be, statisticians.”

Management
“We need to align our demand plan with our sales and operations plan.”

“I really need to focus on adding business insights to the forecast.”

Demand Planner
“The system should pick the best statistical model.”

“I need more powerful statistical tools.”

Data Scientist

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 6

From Statistical Forecasting to a Consensus Demand Plan
Granularity: Demand Planning or S&OP (Weekly or Monthly)

Statistical Consensus
Sales History and
other historic data
Forecast Demand
(Output from Algorithms) Plan

Input from Input from Input from local

Sales Marketing Demand
Departments Departments Planners

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 7

From Statistical Forecasting to a Consensus Demand Plan
Granularity: Daily

Consensus Daily Sensed

SAP‘s Demand
Demand Sensing Algorithms
Demand
Plan Plan

Shipments Sales Orders Trade POS Data …

Promotions (Future)
(Planned)

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 8

Statistical Forecasting Methods - classification

Different univariate Constant Causal Analysis

forecasting methods A Single Exponential smoothing
U  Multiple Linear Regression (MLR)
can be assigned T
Moving average
 Influence variables
Weighted moving average
based on regular and O  Climate (e.g., temperature)
intermittent demand M  Price
A Trend  Advertising
patterns T Double Exponential smoothing  Distribution
E
Linear regression  ...
D

P Trend - Season
I Exponential smoothing
C Composite Forecast
K
Others
B Croston (sporadic demand)  Combine different forecasts
E  Weight each forecast
S
T

© SAP AG 2011 / 9
© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 9
What can IBP do?
Forecasting in IBP

SAP Integrated Business Planning (IBP)

=
IBP for sales and
operations “Traditional” Demand Planning
+ (mid- or long-term forecasting)
IBP for demand
+
IBP for demand Demand Sensing
(short-term forecasting)
+
Vision: Predictive / Forecasting Analytics Techniques

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 11

Demand Planning vs. Demand Sensing
Periodicity and Planning Period

Demand Planning: For example, executed monthly in weekly or monthly buckets

Demand Sensing: In general done daily in daily buckets
Difference between short-term forecast and consensus mid-long-term forecast

Forecast

wk 1 wk 2 wk 3 wk 4 … wk 52 Time

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 12

Statistical Forecasting Methods in IBP

Pre-Processing Regression based

Time Series algorithms:
algorithms: algorithms:

 Substitute missing values  Single Exponential Smoothing  Multiple Linear

 Outlier correction  Adaptive Response Rate Single Regression (MLR)
 Promotion Elimination Exponential Smoothing  …
(Planned)  Double Exponential Smoothing
 …  Triple Exponential Smoothing
 Automated Exponential Smoothing with
parameter optimization (Planned)
 Croston’s Method
 Simple Average
 Simple Moving Average
 Weighted Average
PAL Help Portal:
 Weighted Moving Average http://help.sap.com/hana/SAP_HA
 …. NA_Predictive_Analysis_Library_P
AL_en.pdf

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 13

Algorithms available for Demand Sensing

Pre-Processing
Demand Sensing algorithms:
algorithms:

Promotion Elimination Demand Sensing (Full)

Planned for Q1/2016 Run Weekly
Calculation of regression weights

Demand Sensing (Update)

Scheduled Daily
Uses regression weights from Weekly run
Updates sensed demand based on new
information

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 14

Outlier Correction with Ex-Post Method

QTY

Historic Data
Ex-Post Forecast
Tolerance Area

Toda
y

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 15

Demand Sensing - example

Daily
Replenishment East DC
Schedule w/ East Daily Demand
updated forecast Trend

National DC

W…
T…

T…
M…

Fri
West DC
Weekly forecast of
40 units West Daily Demand
Trend

W…
T…

T…
M…

Fri
© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 16
Demand Sensing – example

Daily
Replenishment East DC
Schedule w/ East Daily Demand
updated forecast Trend

National DC

W…
T…

T…
M…

Fri
Sales trends are picked up with
Demand Sensing and updates short
West DC term forecast.
Weekly forecast of
40 units West Daily Demand
Trend

W…
T…

T…
M…

Fri
© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 17
What planning processes does Demand Sensing impact?
Illustration of the different planning horizons

Inventory Optimization

Deployment and Production and

Material
transportation packaging
purchasing
decisions sequences

Today
Short Term Planning Horizon

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 18

Process - Step 1 : Load Historic Sales Data

Load historic sales information Load historic sales information

(e.g. Sales Orders, Confirmed (e.g. Confirmed QTY,
QTY, Delivered QRY, etc) via Delivered QTY, etc) via the
the WebUI HANA Cloud Integration (HCI)

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 19

Process - Step 2: SAP Fiori apps for Forecast Model Assignment &
Forecast Model Maintenance

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 20

Process - Step 3: Run Statistical Forecasting via the Excel Add-In

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 21

Process - Step 4: Solve Alerts and Adjust Statistical Forecast

Alerts reported via Monitor Alerts app*

Additional input manually added in Excel

Sales
Marketing
Other departments

Final consensus demand plan can be a calculated key

figure

*Supply Chain Control Tower required for some alerts

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 22
Step 5: Load Planned Independent Requirements to APO SNP

The mid-to long- term demand plan, generated in SAP Integrated Business
Planning for demand, can be loaded as Planned Independent Requirements in
APO SNP (Supply Network Planning) for further processing.

The integration is done via SAP HANA Cloud Integration (HCI):

IBP for Demand

SCM
Staging Tables
Data Load
DP

HCI Agent
https

HCI
web service https
SNP Core Tables
Write-back
7
5 Calculation View

6
Customer environment Firewall SAP cloud environment

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 23

Demonstration
What is in each IBP module?
Statistical Forecasting Functionality
IBP for sales and operations

Pre-Processing Statistical Algorithms Post-Processing

None Simple Moving average RMSE
Single Exponential smoothing
Double Exponential smoothing
Triple Exponential Smoothing

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 26

Statistical Forecasting Functionality
IBP for demand

Pre-Processing Statistical Algorithms Demand Sensing Post-Processing

Outlier Detection Automated Exponential Alorithms MPE
Substitute Smoothing (Planned) Demand Sensing (Full) MAPE
Missing Values Single Exponential Smoothing Demand Sensing (Update) RMSE
Promotion Double Exponential Smoothing MSE
Elimination Triple Exponential Smoothing MAD
(Planned)
Simple Moving Average Error Total
Simple Average MASE
Weighted Moving Average WMAPE
Weighted Average
Croston’s Method
Multiple Linear Regression
Demand Sensing
© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 27
IBP for Demand vs IBP for Sales & Operations

Algorithm IBP for Demand IBP for Sales and

Operations
Automated Exponential Smoothing
Single Exponential Smoothing
Adaptive Response Rate Single Exponential Smoothing
Double Exponential Smoothing
Triple Exponential Smoothing
Simple Moving Average + Simple Average
Simple Averge, Weighted Moving Average &
Weighted Average
Demand Sensing
Croston Method
Multi Linear Regression

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 28

Thank you
Contact information:

Tod Stenger
Supply Chain Solution
Management
Tod.stenger@sap.com

Anna Linden
Supply Chain Product
Management
Anna.linden@sap.com
© 2016 SAP SE or an SAP affiliate company. All rights reserved.

No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP SE or an SAP affiliate company.

SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP SE (or an SAP affiliate
company) in Germany and other countries. Please see http://global12.sap.com/corporate-en/legal/copyright/index.epx for additional trademark information and notices.

Some software products marketed by SAP SE and its distributors contain proprietary software components of other software vendors.

National product specifications may vary.

These materials are provided by SAP SE or an SAP affiliate company for informational purposes only, without representation or warranty of any kind, and SAP SE or its
affiliated companies shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP SE or SAP affiliate company products and
services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as
constituting an additional warranty.

In particular, SAP SE or its affiliated companies have no obligation to pursue any course of business outlined in this document or any related presentation, or to develop
or release any functionality mentioned therein. This document, or any related presentation, and SAP SE’s or its affiliated companies’ strategy and possible future
developments, products, and/or platform directions and functionality are all subject to change and may be changed by SAP SE or its affiliated companies at any time
for any reason without notice. The information in this document is not a commitment, promise, or legal obligation to deliver any material, code, or functionality. All forward-
looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their dates, and they should not be relied upon in making purchasing decisions.

© 2016 SAP SE or an SAP affiliate company. All rights reserved. Customer 30