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A Roadmap for Improving Forecasting
in Demand Planning and S&OP Processes
Presented by James Berry Senior Consultant Business Forecast Systems, Inc. [email protected]
Business Forecast Systems, Inc. 68 Leonard Street Belmont, MA 02478 USA (617) 484-5050 www.forecastpro.com
© 2012, Business Forecast Systems, Inc. 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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
What We’ll Cover
Introductions
Role of the Forecast in the S&OP Process
Forecasting Techniques
Adjusting the Forecast
Data
Summary
Q&A
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Role of the Forecast
in the S&OP Process
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Comprehensive Scenario
Demand Plan
Production Supply Sales &
Marketing Finance
Consensus Business Plan
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Demand Plan Process
Update Historical
Data
Gather Business
Intelligence
Form Consensus
Generate Demand
Plan
Generate Baseline
Statistical 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 methodologies are going to be used?
Forecasting models
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
How to Generate a Baseline Forecast
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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?
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:
Croston’s Intermittent Demand Model
New Products: Items that have been, or are about to be introduced. Methods to forecast include:
Forecasting by Analogy
Bass Model
There is no Best Method
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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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Overriding the Baseline Forecast
Demand Planner
Sales Production Supply
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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Sequential Review
All team members meet together and
discuss the forecast together. The
team comes to a consensus and this
becomes the agreed upon Demand
Plan.
Demand Plan
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Team Review
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.
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Collaboration
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
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Performance
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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!
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
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
© 2012, Business Forecast Systems, Inc. www.forecastpro.com
Forecast Pro
Examples from today’s 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