Demand forecasting

Forecast is said by Stevenson to be a basic input in the decision processes of operations

management because they provide information on future demand. The important of forecasting

to operations management cannot be overstate. The primary goal of operations management is to

match supply with demand. Having a forecast is important for determining how much capacity

or supply will be needed to meet demand. There are two important aspects of forecasts. The first

one is the expected level of demand which can a function of some structural variation such as a

trend or seasonal variation. The second aspect is the measurement part which deals with the

function of the ability of forecasters to correctly model demand, random variation and sometimes

unforeseen events (Stevenson, 2009).

Forecasts are made with a reference to a specific time horizon. The time scale may range from

hourly to the next five years depending on the industry. Within the time frame, forecasts are

basis for budgeting, planning capacity, sales, production and inventory, purchasing and more.

“Demand forecasting is essentially a linear process of translating input assumptions into a

forecast of expected sales; demand management, by contrast, is a highly iterative process that

involves driving to a revenue and profit target through prioritization of customers, channels,

products, geographies and the demand stimulation programs available to the enterprise.”

(Aberdeen Group ND).

When considering the traditional distribution system relationships between the manufacturers of

a consumer packaged goods and the retailers who sell the product to the public. Each retailer

must forecast demand for each SKU at the store level. Based on these forecasts and on a

consideration of available inventory, warehouse stocks, lead times, promotion plans, and other

factors, each retailer than develops an "order plan" which contains the timing and size of the

stock replenishment orders that the retailer intends to place on the manufacturer. While this is

going on, the manufacturer is also forecasting its demand for each item by time period. In effect,

the manufacturer is trying to forecast, time period by time period, the effective sum of the order

plans from all of the retailers. In traditional practice, the manufacturer forecasts this total demand

independently, with no input from the retailers. In collaborative forecasting, the retailers would

share their demand forecasts and their current order plans with the manufacturer, and the

manufacturer would aggregate these data to construct and verify its forecasts. Discrepancies

between the retail order plans and the manufacturer forecasts would be identified and resolved.

The final result would be improved forecast accuracy, less total inventory in the system, and a

smoother deployment of the goods into the retail channel.

The central premise of collaborative forecasting has great merit, but there are a number of

potential problems that must be solved to gain the promised benefits. First, there is an issue with

the level of aggregation of the forecasts being shared. Second, there is a communications issue

involving the transfer of these data between firms. Finally, there is an issue with the sheer

volume of data that would be processed in such a system (Armstrong, Green, 2005).

There are several factors affecting demand forecasting in the 21st century, so to explore more the

researcher looked at the IBM Company and how forecast affects their operations at different

level of the processes. This is shown in the figure below.

Below is the brief description of forecasting methods. Forecasting methods and the relationships

between them are shown in the figure below, starting with the primary distinction between

methods that rely on judgment and those that require quantitative data. The Methodology Tree

for Forecasting below classifies all possible types of forecasting methods into different

categories and shows how they relate to one another. Dotted lines represent possible

relationships.

Methodology Tree for Forecasting

As can be seen from the above information that has been collected, forecasting is a wide range

area that demands a huge number of skilled workers, money, and can also rake a lot of time. Due

to this, keeping inventory levels low, costs down and customers happy in a Web-based, now

largely global marketplace requires companies to proactively forecast and manage supply and

demand dynamically – supported by best-of-breed techniques, technologies and practices.

Today, this calls for a delicate balance of art, science and technology.

Forecasting product demand is crucial to any supplier, manufacturer, or retailer. Forecasts of

future demand will determine the quantities that should be purchased, produced, and shipped.

Demand forecasts are necessary since the basic operations process, moving from the suppliers'

raw materials to finished goods in the customers' hands, takes time. Most firms cannot simply

wait for demand to emerge and then react to it. Instead, they must anticipate and plan for future

demand so that they can react immediately to customer orders as they occur. In other words,

most manufacturers "make to stock" rather than "make to order" – they plan ahead and then

deploy inventories of finished goods into field locations. Thus, once a customer order

materializes, it can be fulfilled immediately – since most customers are not willing to wait the

time it would take to actually process their order throughout the supply chain and make the

product based on their order. An order cycle could take weeks or months to go back through part

suppliers and sub-assemblers, through manufacture of the product, and through to the eventual

shipment of the order to the customer (Armstrong, Green, 2005).

Firms that offer rapid delivery to their customers will tend to force all competitors in the market

to keep finished goods inventories in order to provide fast order cycle times. As a result, virtually

every organization involved needs to manufacture or at least order parts based on a forecast of

future demand. The ability to accurately forecast demand also affords the firm opportunities to

control costs through leveling its production quantities, rationalizing its transportation, and

generally planning for efficient logistics operations.

In general practice, accurate demand forecasts lead to efficient operations and high levels of

customer service, while inaccurate forecasts will inevitably lead to inefficient, high cost

operations and/or poor levels of customer service. In many supply chains, the most important

action we can take to improve the efficiency and effectiveness of the logistics process is to

improve the quality of the demand forecasts.

Demand Planning

Demand, is products and services when and where customer needs (Susan L, 2009). Demand

planning is important to basic planning activities in demand and supply network and to establish

the effectiveness of manufacturing and logistics planning, likes capacity and safety stock

planning. There is another definition for demand planning. Demand planning defines as

“improving cash flow and profitability, may become lifeline in recession” (Susan L, 2009).

“Demand planning is the business’s starting point for the planning and use of company resources

in the pursuit of profitability” (Susan L, 2009). Somehow to develop the quality of supply chain

planning, demand planning is fetching the best challenges faced by manufacturers.

The factors affecting demand uncertainty and unpredictable demand information are accelerating

economic cycle intense competition, fickle end user preferences and fast development of product

in supply chain. To control the demand variability, Argon Chen, 2006 said “demand aggregation

is far more effective than statistical forecasting in operations planning for any two demands with

low positive correlation or negative correlation.” Besides, Huang, Chang and Chou, 2006 said

“real option approach (based-forecasting) can effectively deal with the long-term trends and

random variation involved in a given demand stochastic diffusion process” for forecasting

demand during the approaching planning horizon for products with high random volatility on

demand.

According to Susan L, 2009 stated that in term of strategic management, there are four parts is

discussing on demand planning best practices in relation to ongoing, even successful, in the

recessionary period and preparing to come out the other part in best possible financial health.

First of all, make the case for improving demand planning processes with delay. Second,

explaining the best practices in demand planning that are of particular importance in recession.

Third, to implement and operate the processes at peak performance, therefore will discuss the

people implications and change management requirement. At last, improving the layout path

with include implications for other business process, in order to be thriving.

“Beyond simply meeting influential partner’s demands, many enterprises are uncertain about

quantifying total cost of ownership and identifying business objectives. Developing an effective

supply-chain integration strategy for the long term requires that companies address these two

areas before they can realistically justify or refute technology options.” (Yankee Group, 2004).

According to Yankee Group, 2004 stated that Demand planning has enabled companies to more

perfectly forecast what their industry, market and customers will involve. Besides, demand

planning has accept to link and integrate processes transversely networks and facilitate nearer

teamwork among before isolated parties, respond enthusiastically to market and consumer trends

and deliver a better, more satisfying skill across the value chain. In recent times, there are many

firms are focusing on managing demand, rather than simply reacting to it.

Benefits relates to business performance associated with sales and operation planning if it is

being managed in an appropriate way. Advanced planning and scheduling includes demand,

supply or specific S&OP modules with the functionality needed in supporting the S&OP process.

This system helps in frequent rescheduling support modifications of S&OP decisions. Besides

that, there are also greater potential of frequent rescheduling support modifications of S&OP

decisions. At the same time the functions such as of what if simulation, finite scheduling and real

time integrated S&OP work bench being included in the APS systems. Even this system being

practiced in delivery times, inventory levels and utilization rates for higher level of customer

service and major reduction in costs. Hence, there also benefits of using the well working

planning process or without advanced working planning systems support and increases the

understanding of APS support the planning process and which benefits APS give to the process.

This system has been used in the design of advanced algorithms in solving planning and

scheduling problems. Studies have shown that APS are used as descriptive nature and the

benefits obtained will be used of indirect interest. Even some studies shows that APS support

planning in general and but don’t look at specific planning purpose. As it is well known there are

a lot of benefits but is divided into three which are decision support system, planning efficiency

and learning effect. The most common benefit will be the decision support benefits

“visualization of information” has been underestimated by previous research and APS experts.

The case study analysis showed the benefits perceived in the different S&OP activities differed.

Basically, these potential benefits being explained in case unique usage, the cause and effect

relationship between the potential benefits and its antecedents. (Ivert.K. L and Jonsson.P, 2010)

Demand works

Demand works was founded in 1993 as Advanced Planning System. It provides demand and supply

planning solutions in delivering wider scale improvements in forecast accuracy, coordination and asset

deployment. Demand works diverted the focuses on business forecasting, forecast collaboration,

demand planning, and safety stock optimization, inventory management and sales & operation

planning. Business forecasting in engine were designed for the “noisy” tactical data that prevails and

channel based sales and operation planning. It moves well with the difficult to forecast time series

(Source: www.demandworks.com).

Demand planning which is set up for an extreme accurate expected statistical forecast and adds value to

important aspect such as demand consensus, performance and exception management to provide a

comprehensive demand management solution. At the same it gives importance to supply planning

which balances demand scenario with inventories, lead times and capacities to generate actionable sales

and operation plans. Under the aspect of forecasting collaboration it has three primary approaches for

collaborative forecasting with Smoothie and two primary user interfaces which includes Microsoft Excel

and Smoothie Collaborators (Source: www.demandworks.com).

The breakdowns would be desktop collaboration using Excel and Email, automated collaboration with

Excel and Email or Network File Sharing and the automated collaboration with Smoothie Collaborators.

Another solution would be the safety stock optimization which considers the lead times, forecast error

and desired levels to calculate optimal inventories. Next the inventory management which gives full

view to inventories demand and supply throughout the organization’s supply chain. It influences the

forecasts, orders, inventories, in- transits and reorder policies to produce time-phased inventory plans.

It supports multi level DRP, MRP, and kits where demand for one item produces demand for others in

various multiples. The least solution is the sales and operations planning where successful companies

use to anticipate and synchronize supply and demand, and to achieve focus and strategic alignment

among the selling, producing, purchasing, logistics, executive and financial functions within a business

(Source: www.demandworks.com).

The solutions record:

1. Business Forecasting Software

Statistics are forwarded, but don’t have to be a statistician to use Smoothie. Automatic forecasts will be the best and firm has the option to guide the engine by giving opinion in using trended or seasonal models, making top-down changes, or even forecasting with simulated histories without losing visibility to actual demand. Existence of powerful multi level synchronization has improved accuracy and exclusion filtering which highlights items otherwise further attention that customer required. Besides that, this software is developed for “noisy” tactical data which exist in product and channel-based sales and operations planning. In the situation of difficult- to-forecast time-series which exist in industry this software works well. Smmothie’s precision aligned with other commercial statistical engines where it scores tremendous accuracy in such comparisons which had made many customers to benchmark the accuracy. Besides forecasting, Smoothie help businesses optimize inventory levels and prepare for the unexpected by using the error estimates, lead times and required service levels.

(Source: www.demandworks.com)

2. Demand Planning

This image shows spread sheet and graphical view of Smoothie with statistical consensus sales plan and budgeted presented simultaneously for easy comparison. Smoothie can function with other system such as financial planning and budgeting, trade funds, CRM, Excel and other forecasting system. Smoothie too can get along with reference plan which can be automatically aggregated or disaggregated with Smoothie’s statistical or collaborative plans. The image below shows a spreadsheet and graphical view of Smoothie with statistical, consensus, Sales plan and budget presented together for easy comparison. Note that the comparisons incorporate historic performance as well as future expectations

(Source: www.demandworks.com).

2. Forecasting Collaboration -Desktop Collaboration Using Excel and Email

Automated Collaboration with Excel and Email or Network File Sharing

Automated Collaboration with Smoothie Collaborators

Safety Stock Optimization

Inventory Management

3. S&OP

As it is known excel and email hits the higher usage in corporations which

don’t require special IT or infrastructure support. Collaborator training is not required since the

mutual user interface is excel. The contributor contributes as usual by receiving spreadsheets by

changing the figures and sending them back to the demand manager. (But with Smoothie the

process will be much easier and more precise).

Automated Collaboration with Excel and Email or Network File Sharing

With Smoothie Mambo, pre-formatted forecast alliance spreadsheets can be planned for

automatic distribution to users via email, shared directories, or using a Microsoft SharePoint®

shared workspace. It is similar to the desktop approach excluding the security-controlled

spreadsheets are automatically distributed and accounted back into the plan in an automated,

scheduled set of processes. Desktop approach need some IT support for configuring the server

and automation, however it offers the benefits of easy operation and management, a basic

interface for mutual users, and automatic combination of collaborative input into the agreed plan.

Authorization is required for Smoothie Mambo server software and traitor licenses for the joint

users.

Automated Collaboration with Smoothie Collaborators

The elective Smoothie Collaborator client gives end users with a wider functionality for glancing

and adjusting forecasts. Smoothie Collaborator clients permit dealings with plans at flexible

levels of aggregation, using substitute units of measure, prices or costs, etc. They also provide

advanced graphic and spreadsheet-based views, the capability to communicate and 'what-if'

directly with the statistical forecasting functions, possible visibility to reference forecasts and

other related demand information, plus easy viewing and exchange of notes with other users.

Collaborators can even export graphs or spreadsheets.

The Smoothie Mambo server software restricts the details that users can view and/or modify, and

forecast alterations and notes are seamless ly synchronized with the host plan when users connect

to the server. In accordance with spreadsheets, Smoothie Collaborator can be used even there is

no internet connection while traveling or meeting with customers.

Safety Stock Optimization

Smoothie® SP gives importance to lead times, forecast error and desired service levels to

calculate optimal inventories. Calculated safety stocks can be two forms which are time-based or

quantity-based. Minimum inventory levels is being administered with the occurrence of fixed

policies like minimum quantities or days of cover, and statistical together with fixed policies .For

example, the safety stock policy can be the greatest of 100 units or a 98 percent service level.

Each item or item-location in Smoothie can have different replenishment and safety stock

policies. Fixed policies like minimum order quantities or lead times can be imported from the

ERP system, or they can be administered within Smoothie. There are changes in policies and

simulated for groups or classifications of items. While inspiring group or item-specific changes,

the user can immediately evaluate the force on projected inventories in units or inventory cost,

enabling rapid and informed inventory optimizations. Stimulate

Inventory Management

Smoothie® provides entire visibility to inventories, demand and supply throughout your supply

chain. It influences forecasts, orders, inventories, in-transits and reorder policies to produce time-

phased inventory plans. Inventory management in Smoothie SP being handy for multi-level

DRP, MRP, and kits where demand has positive relationship. This means demand of one product

has affects the demand for others in different multiples. New plans can be integrated with your

ERP system to produce demand, or Smoothie will export the requirements into handy

spreadsheet or database formats.

Sales and Operations Planning

Strategic business process that successful companies use to foresee and match supply and

demand, and to accomplish focus and tactical position among the business transactions, logistics,

executive and economic functions within a business can be referred as sales and operations

planning. An effective S&OP process helps in the analysis and direction of business approach,

and it guarantees that the key functions within the business run synchronously (Source:

www.demandworks.com).

People, Process, and Smoothie®

As sales and operation planning is just business process, it is permitted by tools like Smoothie.

Vitality of S& OP process is sales, production and procurement planning. Smoothie lends

accuracy and visibility to supply as well as sales plans. On the demand side, it produces accurate

numerical forecasts and provides an effective construction for forecast collaboration. In the

supply point of view it helps in the founding of valuable supply policies and synchronizes

tactical supply executing with demand and inventory management strategy (Source:

www.demandworks.com).

Sales and operations planning are all about bringing together: this means matching demand with

supply, tactics with strategy, and aligning functions within your business. Smoothie merge

demand and supply with single outcome, highly visible framework. The Pivot Forecasting® in

Smoothie enables matching by making it feasible for different functions in the business to

imagine and implement according to their distinctive perspectives. Some parts of the company

are more focused on channels; such as products, production facilities, distribution and suppliers.

Furthermore, Sales and Finance might work with revenue, while production and logistics work

with units. Different parts of the company have the ability to deal with different units. The plant

may produce in batches of gallons, tons or hectolitres, while logistics plans and distributes cases,

pallets, truck or rail car load (Source: www.demandworks.com).

Smoothie has powerful functionality for supportive perception. It allows automatic and

synchronous alteration of substitute measures, slot in supply as well as demand, and it operates

on various and constant levels of product and channel aggregation. S&OP can be implemented

without tools like Smoothie, but it's very much harder to do and the business enjoys the benefits

which is achieved significantly thus, increase with the effective use of technology.

Smoothie Pricing

Smoothie® by Demand Works is available in different versions to satisfy a range of organizational and business needs. See the Products and Solutions sections for more information about the various editions of Smoothie, or contact Demand Works for specific configuration advice.Standalone Pricing

  Base Price*Price With Required 1-Yr

Maintenance*

Smoothie Learning Edition $500 N/A**

Smoothie$2,500 $3,000

Smoothie Plus$4,000 $4,800

Smoothie SP$5,000 $6,000

Server-Based Configurations

  Base Price*

Smoothie Mambo (per server)***(Requires either Smoothie, Smoothie Plus, or Smoothie SP)

$5,000

Smoothie CollaboratorSupport untethered demand collaboration. Collaborators can review and adjust demand plans. Collaborators can not create new models or perform any other model administration. (Requires Smoothie Mambo)

$1,700 eachor

10 for $12,750or

20 for $22,500

Spreadsheet CollaboratorAutomated distribution of collaboration spreadsheets and

$1,000 eachor

10 for $9,000

consolidation of spreadsheet forecasts and comments with Smoothie Mambo.(Requires Smoothie Mambo)

or20 for $16,000

Read-OnlyCan access demand as well as supply plans, but can not make changes.(Requires Smoothie Mambo)

$800 or10 for $6,000

Kinaxis RapidResponse

Kinaxis RapidResponse combines collaborative and integrated demand-supply planning,

monitoring and response to change to empower front-line supply chain staff with tools for

demand management, supply chain visibility, supply management, sales and operations planning

(S&OP) and supply chain risk management(http://www.kinaxis.com/supply-chain-solutions-

company/index.cfm assessed on 22 November 2010). Besides, it is providing on-demand supply

chain management solutions to help a big range of industries and customers where are aerospace

& defense, automotive, consumer products, high technological, consumer electronics and

medicals devices markets. Kinaxis RapidResponse is helping to close that gap and balance

demand and supply that can deliver to customers need. The supply chain company wants to

increase customer service meanwhile reducing inventory risk, therefore RapidResponse is an on-

demand supply chain management service that provide speedy and collaborative supply chain

planning, continuous monitoring of performance to the plan and instant response to demand and

supply misalignments. With this software, that can respond to plan variations rapidly and

successfully to accomplish greatest financial performance and higher customer fulfillment.

(Source: http://www.husdal.com/about/kinaxis-rapid-response/ assessed on 28 November 2010)

There are few successful world’s leading manufacturing companies are using Kinaxis

RapidResponse to establish superior responsiveness within their fulfillment networks and supply

chains and gain competitive advantage as well as to improve supply chain efficiency and

customer service levels such as Casio, Research in Motion (RIM), Toshiba, Raytheon and Jabil.

There are two products provide by Kinaxis RapidResponse – RapidResponse Sales and

Operation Planning (S&OP) edition and RapidResponse Supply Chain Management (SCM)

edition.

RapidResponse Supply Chain Management (SCM) Edition

The world’s market leading manufacturing companies use RapidRespones SCM edition to

improve supply chain efficiency and customer service levels. The reason why customers chose

RapidResponse to over solution by ERP vendors is tuned supply chain analytics, extensive

collaboration tools and multi enterprise supply chain visibility and invincibility computational

speed. RapidResponse SCM edition make it possible for create a supply chain plan and actively

monitor performance to that plan and coordinate a response when the plan is at risk immediately.

Besides, it is enables to instantly understand the impact on operations of a change in demand

supply or product and the co-operation across the organization can collaborate on multiple action

alternatives to make quick and informed decision.

Dealing the biggest supply chain management and S&OP challenges with a single service that

provides:

Visibility into critical date – Get a single view of the truth

Alerts and Event management – Focus on urgent issues, before they turn into major

problems

Rapid Calculations – see outcomes in seconds

What-if analysis – collaborate to determine the best supply chain decision possible

Score carding – Rank and align decisions with goals in real time.

RapidResponse Operational Scorecard

(Source: http://www.kinaxis.com/downloads/pdf/RapidResponse-Brochure.pdf )

RapidResponse Sales and Operation Planning (S&OP) edition

Sales and operations planning is an integrated business management process through the

leadership team to achieve focus, alignment and synchronization among all function of the

company and also supports effective supply chain management. RapidResponse Sales and

Operation Planning (S&OP) edition is strong enterprise application that drives mature S&OP

processes. Simultaneously, it is balancing demand and supply, weigh financial and operational

objectives and perform both volume and mix planning from a system. Besides, this system also

assist maximize business opportunities and minimize supply chain risk by ensuring the plan are

feasible and always in update. Below are the controlling sales and operation planning in

RapidResponse:

To support the stages found in S&OP: S&OP cycle kick off, demand planning, supply planning,

financial review, executive meeting and publishing the S&OP plan, RapidResponse S&OP

edition are providing resources and functionality. Despite the RapidResponese offer a roadmap

to organization that can follow the process and usage of the solution is flexible and adaptable.

There are not limited to a sequential process with RapidResponse. Therefore, also enables

continuous, event driven S&OP – the state of current plan is actively implement and appropriate

people are notified when the plan is at risk, thus can take action to course correct immediately.

Dashboards and workbooks – are the worksheets that provide a role based view of key

metrics for evaluating the Sales and Operating Planning at vary stages of the process and

it is evaluating the data in the S&OP dashboards against financial and operation goals.

The S&OP edition workbooks are allowing modifying and reviewing the data in S&OP

process.

Scenarios – deep scenario simulation capabilities are include for managing the S&OP

process. Scenarios are enable organization to create few versions of S&OP plan quickly.

Scenarios are evaluated against key metrics, and each party can review their results and

commit their best scenario.

Multiple Hierarchies – can view data at a high or lower, aggregate level in the workbooks

and dashboards for S&OP, as well as can view the intersection of two or more

hierarchies.

RapidResponse compare edition features

(Source: http://www.kinaxis.com/supply-chain-management-products/rapidresponse-features.cfm )