procurement forecasting
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8/11/2019 Procurement Forecasting
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Demand-Driven Procurement
PROJECT PROCUREMENT AND CONTRACT MANAGEMENTLECTURE # 2
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© 2011 SAP AG. All rights reserved. 2
Objectives
Understanding of the froecasting procurement process.
How to forecast the procurement
Central + distributed application
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Requirements Planning: Forecasting Model
Basic value
Basic valueTrend value
Basic valueSeason indices
Constant modelTrend modelsSeasonal modelsSeasonal trend models
Manual
Models Parameters
Automatic
Model selection
Automatic
T: Test for trend
S: Test for season
A: Test for trendand season
Manual model selection with additional automatic test
Selection
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Requirements Planning: Overview
RP type
Requirements
Planning
Consumption
values
10/2000 98711/2000 100012/2000 1251
PurchaseRequisition
Item 10
Item 20
Purchase Order
Item 10
Item 20
Forecastindicator ?
Articles Articles
Forecast
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Forecast Applications
Forecast Application
Calculation of the reorder
point and the safetystock by the forecast.
The forecast values are
copied as requirements
and replace the reorder
point.
Calculation of the reorderpoint and the safety
stock by the forecast.
Reorder Point
Planning
The forecast values are
copied as requirements.
The planning run is only
carried out on predefined
dates. Time-Phased planning can
be applied in combination
with Reorder Point
planning.
Forecast-BasedPlanning Time-PhasedPlanning
Reorder PointPlanning
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Demand Forecas t ing : Time Series Models
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Forecasting Horizons
Long Term
5+ years into the future
R&D, plant location, product planning
Principally judgement-based
Medium Term
1 season to 2 years
Aggregate planning, capacity planning, sales forecasts
Mixture of quantitative methods and judgement
Short Term
1 day to 1 year, less than 1 season
Demand forecasting, staffing levels, purchasing, inventory levels
Quantitative methods
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Short Term Forecasting:
Needs and Uses
Scheduling existing resources
How many employees do we need and when?
How much product should we make in anticipation of demand? Acquiring additional resources
When are we going to run out of capacity?
How many more people will we need?
How large will our back-orders be?
Determining what resources are needed
What kind of machines will we require?
Which services are growing in demand? declining?
What kind of people should we be hiring?
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Types of Forecasting Models
Types of Forecasts Qualitative --- based on experience, judgement, knowledge;
Quantitative --- based on data, statistics;
Methods of Forecasting
Naive Methods --- eye-balling the numbers;
Formal Methods --- systematically reduce forecasting errors;
time series models (e.g. exponential smoothing);
causal models (e.g. regression).
Focus here on Formal Methods
Assumptions of Time Series Models
There is information about the past;
This information can be quantified in the form of data;
The pattern of the past will continue into the future.
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Simple Moving Average
Include n most recent observations
Weight equally
Ignore older observations
weight
today
123...n
1/n
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Moving Average
Internet Unicycle Sales
0
50
100
150
200
250
300
350
400
450
Apr-01 Sep-02 Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13
Month
U n i t s
n = 3
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Time-Series Data
Numerical data obtained at regular time intervals
The time intervals can be annually, quarterly, monthly, weekly,
daily, hourly, etc.
Example:
Year: 2000 2001 2002 2003 2004
Sales: 75.3 74.2 78.5 79.7 80.2
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Moving Averages
Used for smoothing
A series of arithmetic means over time
Result dependent upon choice of L (length of period for computing
means)
Last moving average of length L can be extrapolated one period intofuture for a short term forecast
Examples:
For a 5 period moving average, L = 5
For a 7 period moving average, L = 7
Etc.
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Moving Averages
Example: Five-year moving average
First average:
Second average:
etc.
(continued)
5YYYYYMA(5) 54321
5
YYYYYMA(5) 65432
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Example: Annual Data
Year Sales
1
2
3
4
5
6
7
8
9
10
11
etc…
23
40
25
27
32
48
33
37
37
50
40
etc…
Annual Sales
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11
Year
S a l e s
…
…
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Calculating Moving Averages
Each moving average is for aconsecutive block of 5 years
Year Sales
1 23
2 40
3 25
4 27
5 32
6 48
7 33
8 379 37
10 50
11 40
AverageYear
5-YearMovingAverage
3 29.4
4 34.4
5 33.0
6 35.4
7 37.4
8 41.0
9 39.4
… …
5
543213
5
322725402329.4
etc…
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Annual vs. 5-Year Moving Average
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11
Year
S a l e s
Annual 5-Year Moving Average
Annual vs. Moving Average
The 5-year moving
average smoothes
the data and makes it
easier to see theunderlying trend
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Sales vs. Smoothed Sales
Fluctuations havebeen smoothed
NOTE: the smoothed
value in this case is
generally a little low,
since the trend isupward sloping and the
weighting factor is only
.2
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10Time Period
S a l e s
Sales Smoothed
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Linear Trend Forecasting
Estimate a trend line using regression analysis
Year
TimePeriod
(X)Sales(Y)
1999
2000
2001
2002
20032004
0
1
2
3
45
20
40
30
50
7065
Use time (X) as the
independent variable:
In least squares linear, non-linear, andexponential modeling, time periods are
numbered starting with 0 and increasing
by 1 for each time period.
bmX Y ˆ
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Linear Trend Forecasting
The linear trend forecasting equation is:
Year
TimePeriod (X) Sales (Y)
1999
2000
2001
2002
2003
2004
0
1
2
3
4
5
20
40
30
50
70
65
(continued)
ii X9.571421.905Y
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Linear Trend Forecasting
Forecast for time period 6:
Year
TimePeriod (X) Sales (y)
1999
2000
2001
2002
2003
2004
2005
0
1
2
3
4
5
6
20
40
30
50
70
65
??
(continued)
Sales trend
0
10
20
30
40
50
60
70
80
0 1 2 3 4 5 6
Year
s a l e s
79.33
(6)9.571421.905Y
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Source Determination
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Purchase Order: Supply Source Determination
Quota arrangement Quota arrangement ?? 60% 60% 40% 40%
2 Source list
Source list
Outline agreementsPurch .info records
Regular vendor
Purch . requisitionWITHOUTsupply source
Article PCS-04-MRP201for VZ01 50 ea
?3
MITSupply source ind .
1
Stock transfer deliv -ery schedules
Supplying sites
• Find external source ofsupply only• Find internal source of
supply only• Find internal supply source
first , then external• Find external supply source
first , then internal
Purch . orderVendor PCS-V201
Art. 3214 20 ea
Art. 5110 15 ea
PReqVendor ?? Art. 321420 pc Art. 511015 pc
Article Article
5
4 Supply
region ? Vendor R3001 Vendor PCS-V201
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Order Processing
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Planning Workbench
Select worklist
- Site
- Vendor
Material selection- Stock planner
- Merchandise category
Default data
- Item category
- Account assignment
category
Control data
- Sort algorithms
Application settings- Display
Worklist settings
- Sequence
- Hide processed worklist
Manual Planning
- Expand levels with one
element
- Display symbols
Start variant
General Settings Internet Services
www
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Planning Workbench: Manual Planning
Planning workbench with integrated manual planning
Worklist personalization
Simple display navigation in tree format
Display of additional information, for example, site or vendor master data
Direct access to the Internet or mail system
Worklist view personalization
Manual planning
Display of consumption and/or forecast data
Use of restriction profiles
Automatically generated purchase requisitions
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Order Optimizing
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Quantity Optimizing: Rounding Profiles
0 No rounding1 Round up to a multiple of the order units/sales
units2 Round up to order/sales/logistical units of
measure3 Round up to order/sales/logistical units of
measure, or log. unit of measure, zero qty fororder units only
Check the permitted units of measure
used by vendors or recipients
• Rounding method
• Rounding rule
• Unit of measure group
Dynamic profile
AUn % Up % Down
CAR 70.0 10.0
LAY 80.0 10.0
PAL 90.0 10.0
Dynamic Rounding Profiles
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Investment Buying: Purpose
Investment buying is a method of determining procurement
proposals that take account of future price increases, and are
to be covered by external procurement
The aim of Investment buying is to purchase articles
in suitable quantities
in good time
as cheaply as possible
taking account of various influencing factors
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Investment Buying: Overview
OpenPO quantities
Stock on-hand
ROI Parameters
Forecast
InvestmentBuying
Analysis
ProtokollLog of items
found relevant to
Purchasing
Purchase
requisitions
-
Worklist
Purchase
orders
Purchase priceconditions
Purchase price
higher than
future price
Actual ROI
is lower than
required ROI
Calculate
order quantity
Select condition changes
Select relevant articles(Info Record)
Simulate
purchase price
Calculate ROI
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Load Building
Load building is a process used to group together purchase
orders and other requirements, while taking account of
procurement restrictions, thereby reducing procurement
costs.
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Load Building Overview
EDI to vendor
Req. Planning Purch. Req.. ...
Purch. req . ...Purch. Req.. ...
Purch. order ...Lieferant 326
Purch. Order...Vendor 326
Without existing
requirement
elements
Req. Planning
Automatic load building
process
Simulation list process
Manual load building
Req. Planning Promotion Orders
Other order
processes
Purchase Requisitions
EDI to Vendor
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Goods Receipt Capacity Check
Up to now, there was no check for sufficient capacity for the delivery date of a
planned delivery in the goods receipt area of a warehouse. If the goods are deliveredto a warehouse door that does not have any free capacity, there can be a bottleneck
in the goods receipt area of a warehouse. At the same time, another warehouse door
might have enough capacity.
Advantages for Retailer and Vendor
Taking the goods receipt capacity into account prevents potential bottlenecks.
The vendor's delivery date planning utilizes the capacity of the retailer's goods
receipt areas.
The vendor can schedule the deliveries better since the planned time window for
inbound deliveries is binding.
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Vendor Evaluation
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Functions in Vendor Evaluation
Quality audits
Vendor C
Regular vendorfor
Article 1 ?
Vendor A Vendor B Vendor C
Vendor Evaluation
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Automatic Subcriteria: Overview
Main Criteria
Price
Quality
Delivery
Service
Subcriteria
Price level
Price development
GR inspectionComplaints
Audit
On-time delivery
Quantity reliability
Shipping instructions
Confirmation
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Analyses for Vendor Evaluation
Evaluation for Article 1 General Vendor Evaluation
84 75 92 88 81 Vendor A
General Vendor Evaluation
Total Preis Price Qual Qual . . Lief Dlvy . . Service Service
90
84
81
92
75
90
90
92
76
93
88
74
85
81
84
Analysis for Article/ Merchandise category
Vendor Evaluation Evaluation
Total Preis Price Qual Qual . . Lief Dlvy . Service Service
88
81
81
90
93
76
92
74
86
84
Vendor A
Vendor C
Evaluation Comparison
Total Preis Price Qual Qual . . Lief Dlvy . Service Service
Vendor B
Vendor A
Vendor C
Total Preis Price Qual Qual . . Dlvy. Service Service
88 81 93 92 86
HIT LIST
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ASSIGNMENT NO.1
SUBMISSION DATE: NEXT SUNDAY (You can submit late with a penalty of -5
points per class)
POINTS:50
SUBMISSION STYLE: A4 SIZE, HARD COPIES, IN CLASS ONLY.
This assignment requires you to surf the resources and come up with a sample
SOP and a sample RFQ….
What you can do is that you should look at some of the SOPs and RFQs availableon internet , quote the references, and then develop your own SOP and RFQ for
your project…
State briefly your project in Project Background
Then develop SOP and RFQs
Points will not be awarded on length but on including as many dimensions of SOP
and RFQs as possible…
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