demand planning 7.0 mark k williams, cfpim, cscpfebruary 12, 2013 qad global supply chain planning...

Demand Planning 7.0

Mark K Williams, CFPIM, CSCPFebruary 12, 2013

QAD Global Supply Chain Planning Practice

QAD West Coast User Group

2

• Introduction to DynaSys

• Introduction to forecasting

• Demand Planning 7.0 attributes

• Easy On Boarding

Agenda

Introduction

3

Introduction to DynaSys

“Offer to our customers,a Comprehensive and Effective Planning Solution

dedicated to Supply Chain Excellence,

benefiting from our 27 years of expertise.”

The Mission of DynaSysIntroduction to DynaSys

Durability Expertise Partnership Loyalty

5

A Few DynaSys Customers

Global Customers With Multiple Sites

Introduction to DynaSys

Baxter Healthcare : 25 sites

Essilor : 18 sitesIpsen : 110 sites

Mapa/Spontex : 27 sites

Everris : 32 sites

DynaSys Customer Base

Introduction to DynaSys

7

Food & Beverage

39%

Pharma14%

Retail19%

Industry14%

Luxury14%

Tacti

cal

Str

ate

gic

Demand Planning

DistributionPlanning

ProductionPlanning

ProcurementPlanning

SUPPLIER

CUSTOMER

InternetCollaboration

Integration KPI’s

Op

era

tion

al

Procurement Production Distribution Sales

Supply Chain Planning Suite

Introduction to DynaSys

Master PlanningNetwork & Inventory Optimisation

Not Yet!

9

Introduction to Forecasting

Detailed monthly forecasting process

Importations Corrections Life cycle

Calculation collaboration

Metrics & validation

history Forecasts

0

10

20

30

40

50

60

70

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Upper Limit

Forecast

Lower Limit

An Industry Supply Chain

Introduction

Physical Supply Chain

Information Supply Chain

NaturalResources Suppliers Production Distribution Retail Consumers

An estimate of future demand. A forecast can be constructed using quantitative methods, qualitative methods, or a combination of methods, and it can be based on extrinsic (external) or intrinsic (internal) factors. Various forecasting techniques attempt to predict one or more of the four components of demand: cyclical, random, seasonal, and trend.

APICS Dictionary

What is a Forecast?

Introduction

4 Components of Demand

TrendTrend

New!

CyclicalCyclicalRandomRandom

New Product

Follows Economy

SeasonalSeasonal Daily (fast food)Annually (snow plows)

Mature Product

Outlier

Forecasts Are More Accurate When Aggregated

Introduction

How Many Brown,Size 10 Shoes Will We Sell Thursday?

Not Very Accurate – Just a Wild Guess

How Many Shoes Will

We Sell This Month?

Better Chance Of Being Accurate – Can Use Data

0

10

20

30

40

50

60

70

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Upper Limit

Forecast

Lower Limit

Forecasts Become Less Accurate With Time

Introduction

To Improve Forecast Accuracy, Involve Your Customers & Major Stakeholders

Introduction

16

It All Sounds Good, But….

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Sr. Managers Meet To Discuss Forecasting

Introduction

18

• “We have 42,000 SKU’s and a limited budget for personnel to do forecasting. How do we get the most bang for the buck??”

• “Sales, Marketing & Demand Planning all think they are better at forecasting promotions. Who is right?”

• “My old company kept 2 weeks of Safety Stock on hand for each item. Isn’t that enough?”

• “Which products are behind budget?”• “The forecast is always wrong, why bother?”

Senior Management Discussion Overheard…

Introduction

19

“The Forecast Is Always Wrong, Why Bother?”

Senior Management Overheard….

Forecasting Rule #1

Why Forecast?

The Forecast Is WRONG

• To anticipate change- Promotions- New products - Product retirements- Customer buying habits

• To anticipate inventory and capacity demands• To procure materials in a timely manner• To project costs of operations into budgeting

processes & manage cash flow

Why Forecast?

Why Forecast?

22

The Quandary

Why Forecast?

Overseas

Supplier

Supplier Lead Time

ItemScanne

d

Delivery Expected

Customer Lead Time

East Coast DC

• Often have employees that work overtime for months, followed by layoffs

• Are poor users of manufacturing capacity• Are unable to fulfill “surprise” customer orders• Face huge expediting charges• Have excessive inventory write-offs• Have the dreaded combination of a poor

customer service level and too much inventory!

• Disappoint customers by not responding to promotions on time

Companies That Do Not Adequately Forecast:

Why Forecast?

Total

Milk

Beer

Cookies & Crackers

Salty Snacks

Soft Drinks

Frozen Pizza

70% 75% 80% 85% 90% 95% 100%

92.7%

96.8%

95.0%

94.0%

94.0%

93.9%

90.1%

85.1%

88.7%

79.4%

85.8%

86.1%

89.5%

75.3%

Promoted Items All Items

Out of Stock Rates Double on Promoted Items

Introduction

Source: Stax, Inc. Store Audits

Average On-Shelf Availability Levels

Value Proposition and ROI

• Reduced costs- Inventory reductions 8-10% in 6 months, 12-70% over 2-

3 yrs- Reduced obsolescence and inventory write-offs 30-50%- Total cost reductions 1-2%

• Improved Performance- On-time delivery to customers improvement 10-40% - Plant efficiency improved between 2 and 33%- Improvement in forecast accuracy – 5-20%- Improved profitability 1-3%

Source: IIF and other industry sources

25

Why Forecast?

26

“We have 42,000 SKU’s and a limited budget for personnel in forecasting. How do we get the most bang for the buck??”

Senior Management Overheard….

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• Isolating importation errors• Identification of items behaving badly• Identification and correction of historical

anomalies• Superior Forecast Engine• ABC Analysis to separate the critical from the

trivial • Multi-level forecasting

DP 7.0 Answers….

Overcoming Limited Resources

Statistical Forecasting Interface

QAD Demand Planning 7.0

Shortcuts

CollaborativeMessages

Excel

LikeGrid

Graphs

Controls

29

Isolating Importation Errors

Overcoming Limited Resources

30

• When importing data, problems can occur

• DP 7.0 makes it easy to identify problems that the user can fix

• DP 7.0 automatically highlights items with high forecast error – major time saver

Importation & Correction

Introduction

31

1. Click items without standard cost

2. Select Unit Conversion Issues

3. The list of 30 items appears

Fix a problem once, & it is fixed permanently

Identifying Import Problems

Isolating Importation Errors

1

2

3

32

Identifying Import Problems

Isolating Importation Errors

1

32

33

Identification Of Items Behaving Badly

Overcoming Limited Resources

34

Last Month’s Alerts Highlight Forecast Problems

Identification of Items Behaving Badly

Last Month’s Forecast Was Very Wrong – User Should

Review

35

Modifying Alert Parameters

Identification of Items Behaving Badly

• Deviation Gap set at 10% will generate no alert• Change Deviation Gap to 5% generates an alert

36

Identification And Correction Of Historical Anomalies

Overcoming Limited Resources

37

• Forecasts are built on pattern recognition• What if your sales history included:

- Extraordinary demand caused by a competitor’s stockouts?

- A weather driven surge or absence of demand?- A drop in orders caused by your prolonged

stockout?- Would you want the future to reflect that past?

• DP 7.0 provides statistical boundaries that help identify these anomalies, allowing you to accept or modify them

Why Modify History?

Identification & Correction of Historical Anomalies

38

Outliers In Sales History

Identification & Correction of Historical Anomalies

39

Options for Outliers

Identification & Correction of Historical Anomalies

A. Item looks

suspicious

B. Modify history

C. Accept history

Actual History

Modified HistorySuspicious

Quantity

Validation

Modification

40

Superior Forecast Engine

Overcoming Limited Resources

• Method used to select the “best fit” time series forecasting techniques for your data

• Judged to be one of the most accurate in the world

• There are over 30 other forecasting methods available including:- Curve Fitting- Exponential Smoothing- Regression- New Product - Lifecycle

• One size DOES NOT fit all!

Forecast Pro

Superior Forecast Engine

42

ABC Analysis To Separate The Critical From The Trivial

Overcoming Limited Resources

• First noted by Vilfredo Pareto• Items are classified as:

- A items (fastest movers)• 20% = 80% of sales or usage

- B items (middle-range movers)• 30% = 15% of sales or usage

- C items (slow movers)• 50% = 5% of sales

• Focus on fast moving items• Useful in many applications

- In forecasting, where we want to keep our attention

ABC Inventory Management

ABC Analysis To Separate The Critical From The Trivial

44

Tighter Alert Parameters For “A” Items

ABC Analysis To Separate The Critical From The Trivial

• Deviation Gap set at 10% will generate no alert• Change Deviation Gap to 5% generates an alert

ABC Classification

ABC Analysis To Separate The Critical From The Trivial

A=80%

9Items

ABC Classification

ABC Analysis To Separate The Critical From The Trivial

6Items

A=60%

47

Multi-Level Forecasting

Overcoming Limited Resources

48

• Number of SKU’s• Aggregation improves accuracy• Forecasting resources• Collaboration

Why Not Forecast At The Item Level?

Multi-Level Forecasting

49

Bottom Up – Top-Down Forecasting

Multi-Level Forecasting

Product Group

ItemForecast(Units) Cost

DollarForecast

XR-24 2,876 2.98$ 8,570.48$ XR-34 4,578 4.98$ 22,798.44$ ::::::Total XR PG 91,684 1,127,715.66$ Total BH PG 276,908 3,465,098.00$ Total TW PG 39,489 1,975,843.00$

Total Business Unit 1 6,568,657$

Total Business Unit 2 3,972,805$ Total Company 10,541,462$

Corporate Sales Forecast 12,000,000$ Percent Difference 13.84%

Determine Difference Lower & Upper Forecasts

Multi-Level Forecasting

ItemForecast(Units)

OriginalForecast

Revised Forecast

XR-24 2,876 8,570.48$ 9,756.31$ XR-34 4,578 22,798.44$ 25,952.88$

::::::

Total XR PG 91,684 1,127,716$ 1,283,749$ Total BH PG 276,908 3,465,098$ 3,944,536$ Total TW PG 39,489 1,975,843$ 2,249,225$

Total Business Unit 1 6,568,657$ 7,477,510$

Total Business Unit 2 3,972,805$ 4,522,490$ Total Company 10,541,462$ 12,000,000$

Revised Forecast

Multi-Level Forecasting

52

“Sales, Marketing & Demand Planning all think they are better at forecasting promotions. Who is right?”

Senior Management Overheard….

Demand Plan

Statistical Forecast

Sales Input

Marketing Input

Customer Input

New Product

Development

Collaboration in the Demand Planning Process

Forecasting Promotions

54

• Enable Collaboration• Retain each collaborators input• Measure each collaborators accuracy

DP 7.0 Answers

Forecasting Promotions

55

Original, Non-Promotional Forecast

Forecasting Promotions

Original Forecast27,271

56

1st Collaborator – Marketing

Forecasting Promotions

Marketing Forecast

35,000

57

2nd Collaborator - Sales

Forecasting Promotions

Sales Forecast60,000

58

3rd Collaborator – Demand Planning

Forecasting Promotions

DP Forecast45,000

59

• Each collaborator inputs their forecast

• A predefined hierarchy determines which forecast has precedence in determining the final forecast

• All forecasts are stored in the system

• After the promotion the system can determine which of the forecasts was the most accurate

When Forecasting Promotions

Forecasting Promotions

60

“My Old Company Kept 2 Weeks Of Safety Stock On Hand For Each Item. Isn’t That Enough?”

Senior Management Overheard….

61

How Do You Determine Safety Stock Levels?

Part No. Jan Feb Mar Apr May Jun Total AverageForecast 98 96 103 99 105 99 600 100Actual 98 96 103 99 105 99 600 100

• Based on producing 1 months average sales and the “2 Week Safety Stock” philosophy, is the amount of inventory appropriate? Could it be improved?

Calculating Safety Stock

Production Qty = 1 Month AverageSafety Stock = 2 Weeks

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How Do You Determine Safety Stock Levels?

Part No. Jan Feb Mar Apr May Jun Total AverageForecast 98 96 103 99 105 99 600 100Actual 285 40 220 30 10 15 600 100

• Like the previous example, the forecast & actual totaled 600 for six months

• Based on producing 1 months average sales and the “2 Week Safety Stock” philosophy, is the amount of inventory appropriate? Could it be improved?

Calculating

Production Qty = 1 Month AverageSafety Stock = 2 Weeks

63

How Do You Determine Safety Stock Levels?

Part No. Jan Feb Mar Apr May Jun Total AverageForecast 98 96 103 99 105 99 600 100Actual 98 96 103 99 105 99 600 100

• The best way to calculate safety stock is based on:

- Forecast accuracy

- Desired service level

- Lead time

Calculating Safety Stock

Part No. Jan Feb Mar Apr May Jun Total AverageForecast 98 96 103 99 105 99 600 100Actual 285 40 220 30 10 15 600 100

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Safety Stock Screen

Calculating Safety Stock

65

Impact of Desired Service Level

Calculating Safety Stock

66

Impact of Differing Lead Times

Calculating Safety Stock

67

Replace Safety Stock In EA

Calculating Safety Stock

• Current Safety Stock imported from EA• EA Safety Stock compared to Calculated Safety

Stock• After reviewing the computed Safety Stock levels,

you can have them exported back to EA, or you can ignore them

CalculatedSafety Stock

CurrentSafety Stock

In EA

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Easy On Boarding

DP 7.0

Detailed monthly forecasting process

Importations Corrections Life cycle

Calculation collaboration

Metrics & validation

history Forecasts

0

10

20

30

40

50

60

70

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Upper Limit

Forecast

Lower Limit

69

Why EOB?

Easy On Boarding

DP 7.0 Configurability Strength• Can adapt to almost

every business process• Can be fine tuned to

suit user requirements

DP 7.0 Configurability Weakness• Complex• Longer setup time• Higher learning

curve for customer

70

• DP 7.0 is a highly configurable tool- EOB is designed to meet 90% of customer

requirements “out of the box”- Reduces implementation time- Speeds the process of the customer getting value

from the software • EOB is a preconfigured database that includes:

- Hierarchies mapped to QAD EA- Standard import / export with QAD EA- Standardized process & parameters- Standardized screens- Standardized KPI’s

What is EOB?

Easy On Boarding

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Integration

QAD Enterprise QADDP DataHub

QAD DP 7.0 database

SSIS PackageQAD DP-EA

DP

7.0

Impo

rt T

ask

dmtrfcst.csv

Direct ODBC connection

DP 7.0 Export Task

36.5

.9.2

Dem

and

Plan

ning

Impo

rt

Sambashared folder

orFTP transfer

Easy On Boarding

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Join us in San Antonio, TXMay 6-9, 2013Early Bird Ends Soon!

Building theEffective Enterprise

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Mark K. Williams, CFPIM, CSCP m3w@qad.com

QAD Global Supply Chain Practice

www.qad.com© 2013 QAD Inc

Demand Planning 7.0

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