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1 © The Delos Partnership 2005
Sales Forecasting and Demand Sales Forecasting and Demand ManagementManagement
The Ideal process
2 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
3 © The Delos Partnership 2005
1. Capture Actual1. Capture Actual
• Each month we need to capture Actual Demand
• Demand means :
– What did customers require for delivery in the month
• Captured from Order Entry Software
4 © The Delos Partnership 2005
1. Capture Actual1. Capture Actual
• May need orders to record required quantity and date
• Should be distinct from promised quantity or shipped quantity and date
• Should not be fudged by supply shortage
5 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
6 © The Delos Partnership 2005
2. Filter Actual Demand2. Filter Actual Demand If forecast to be based at all on history, it is
sometime necessary to rewrite history Look for unusual demand, not going to be
repeated Competitor going out of business World Football cup Mistake
Remove spike caused by stock outsAug 5035Sept 6040Oct 237 StockoutNov 5750
7 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
8 © The Delos Partnership 2005
3. Execute Statistical 3. Execute Statistical ForecastForecast• Forecast should use history to produce
trends and identify patterns
• Key influences to be detected :– Base– Trend– Seasonality
9 © The Delos Partnership 2005
Product Item Forecast
0
50
100
150
200
250
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
Time
Uni
ts
Forecast
Base and TrendBase and Trend
BaseTrend
10 © The Delos Partnership 2005
Framework for Process Framework for Process ReviewReview
Process NameProcess NameInputsInputs Purpose/AgendaPurpose/Agenda OutputsOutputs
PeoplePeople Desired CultureDesired Culture MeasuresMeasures
Systems to support this stepSystems to support this step
Link to otherLink to other
ProcessesProcesses
11 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
12 © The Delos Partnership 2005
““Tell me how you will measure Tell me how you will measure me and I will tell you howme and I will tell you how
I will behave”I will behave”
““Measure me irrationally andMeasure me irrationally andI will behave irrationally”I will behave irrationally”
Behaviour issueBehaviour issue
13 © The Delos Partnership 2005
Forecast AccuracyForecast Accuracy
Definition
Purpose
Horizon
Source of Information
Percent of items within a tolerance
Assess the degree of flexibility required by the supply side and to improve the process
Cumulative lead time (= purchasing plus manufacturing LT)
Forecasting module Sales module
14 © The Delos Partnership 2005
Cumulative Lead Time Cumulative Lead Time is is keykey Forecast Forecast
Cumulative Lead Time
Forecast
made for
hereStore this forecast
Today
July August September
15 © The Delos Partnership 2005
Store the ForecastsStore the Forecasts
Information stored from forecasting system
March 99 - Forecast Prepared by : A Jones
Family A
Family B
Family C
Feb - 99 - ForecastJan 99 - Forecast
Dec 98 - ForecastNov 98 - Forecast
Oct 98 - ForecastSept 98 - Forecast
Aug 98 - ForecastJul 98 - Forecast
16 © The Delos Partnership 2005
Record the ActualRecord the Actual
Actual Demand – September 2000
Family A 143562 75 143678 125 143587 140 143597 20 143276 310
TOTAL 670
Demand = orders received required for despatch in month
17 © The Delos Partnership 2005
Measure Demand - Not Measure Demand - Not SaleSale
Demand = ‘Customer Orders required’ which needs capture of Customer Request date at point of order entry
Jan 10,000Feb 15,000Mar 20,000Apr 2,305
Stockout May 25,000
18 © The Delos Partnership 2005
What Should Be What Should Be Measured?Measured?
• Product Family
• Product Mix Forecast
• Individual Item Forecasts
• Overall Forecasting Process
19 © The Delos Partnership 2005
Product Desc. Forecast Actual Diff % Tol %
Hit/ Miss
12345 Product A 1000 1100 10 10 H
12347 Product B 1200 1260 5 10 H
12349 Product C 100 150 50 10 M
12350 Product D 300 200 - 33 10 M
12360 Product E 2000 1000 - 50 10 M
12379 Product F 4000 4400 10 10 H
12390 Product G 200 150 -25 10 M
Total Family
8800 8260 -6 5 M
Forecast Accuracy Report – by Forecast Accuracy Report – by ToleranceTolerance
Forecast Accuracy = 3/7 = 42 %Forecast Accuracy = 3/7 = 42 %
20 © The Delos Partnership 2005
Forecast Accuracy Report - Forecast Accuracy Report - MADMAD
Group Product Forecast Actual Abs Error % Error
Product Group A
Product 123 100 120 20 20
Product 456 200 150 50 25
Product 789 300 330 30 10
Total 600 600 100 17 %
Product Group B
Product 345 200 300 100 50
Product 567 500 300 200 40
Product 890 600 700 100 17
Product 678 200 400 200 100
Total 1500 1700 600 40 %
21 © The Delos Partnership 2005
Forecast AccuracyForecast Accuracy
Forecast Accuracy by Family
0%
10%
20%
30%
40%
50%
60%
Family A Family B Family C Family D Family E Family F
Family
% accuracyTarget
Above Target
22 © The Delos Partnership 2005
Measure the bias in Measure the bias in ForecastsForecasts
Bias is the biggest cause of either inventory or shortages
Bias also causes mistrust
Forecast Accuracy
90
100
110
120
130
140
150
160
J F M A M J
Month
Unit
s
Fcast
Actual
23 © The Delos Partnership 2005
Impact of Biassed ForecastImpact of Biassed Forecast
Increase resources to meet higher demand
OVERFORECASTING IS AS BAD AS UNDERFORECASTING
More StocksMore Labour
More MaterialsMore Plant
No SalesCost of Goods
increases
OVERFORECASTING
GROSSMARGINGROSSMARGIN
Stocks LowLabour UnavailableShort of CapacityShort of Materials
Lost SalesCost of Goods
increases
GROSSMARGINGROSSMARGIN
UNDERFORECASTING
Resources insufficient tomeet demand
24 © The Delos Partnership 2005
Measure the Bias of the Measure the Bias of the ForecastForecast
Forecast Accuracy
90
100
110
120
130
140
150
160
J F M A M J J
Months
unit
s FcastActual
Actual should be normally distributed around the forecast
Statistics on Safety stock don’t work if not..
25 © The Delos Partnership 2005
Forecast Quality and BiasForecast Quality and Bias
0
5
10
15
20
25
30
35
40
% of Items
Normal
Graph Forecasts to display Bias
Bias
26 © The Delos Partnership 2005
Review Changes in Forecast Over Review Changes in Forecast Over Time –Time –Waterfall ChartWaterfall Chart
Jul Aug Sep Oct Nov Dec Jan Feb Mar
Jul 100 100 100 110 110 120 120 120 120
Aug 90 110 110 110 110 130 130 130 120
Sep 105 110 115 115 115 115 115 120
Oct 115 120 120 115 115 115 115
Nov 130 125 125 125 120 120
Dec 120 125 125 125 130
Jan 115 105 105 130
Feb 90 105 130
Mar 110 130
= Actual
27 © The Delos Partnership 2005
Review forecast accuracy over time
Does forecast accuracy improve/ get worse as it gets closer to a month?
Forecast Accuracy Over Forecast Accuracy Over TimeTime
Accuracy Over Time
0
5
10
15
20
25
Months Before
% A
ccu
racy
Accuracy
28 © The Delos Partnership 2005
AccountabilityAccountability
Sales
Marketing
Demand Manager
Logistics
Manufacturing
Finance
Who is accountable for the Forecast ?
29 © The Delos Partnership 2005
Performance TargetsPerformance Targets
Objective
Target
Milestone
What would your target be ?
Forecast Accuracy
0
20
40
60
80
100
120
-9 -8 -7 -6 -5 -4 -3 -2 -1
Months
% of Items
30 © The Delos Partnership 2005
What to Do With the What to Do With the MeasureMeasure
• Improve sales planning • Improve links to customers• Implement DRP/EDI• Look at product range• Alter design of products• Stock at lower level in BOM• Review safety stocking strategy• Review capacity strategy
31 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
32 © The Delos Partnership 2005
Sales Forecasting: InputsSales Forecasting: Inputs
• New Customers• New Products• Pricing Initiatives• Advertising And Promotions• Cannibalisation• Customers Own Forecast• Competitors Activity• External Factors
33 © The Delos Partnership 2005
New Product Planning New Product Planning IssuesIssues• Forecasting More Difficult
(Volume & Value)
• Shape Of Product Life Cycle
• Impact On Existing Products
• New Process & Technology
• Product Configuration Changes
• Lead Time - Material/packaging
• Demand Often Dependent On Supply
34 © The Delos Partnership 2005
Management of InnovationManagement of Innovation
Stage/Gate Process
Formal Process for Managing Project
Gate0
Gate0
Gate1
Gate1
Gate2
Gate2
Gate3
Gate3
Gate4
Gate4
Stage 0 Stage 1 Stage 2 Stage 3 Stage 4
Review
Investigate FinancialCase
Develop Test Launch
Forecast Entered intoSystem to drive MRP
Forecast Reviewed hereFor accuracy
35 © The Delos Partnership 2005
New Product Plan/New Product Plan/Marketing Activity ReviewMarketing Activity Review
•Review Changes toProjects•Highlight Impact on Supply Chain•Communicate changes
36 © The Delos Partnership 2005
Effect of New Products on Effect of New Products on Old ProductsOld ProductsCannibalisation
Definition: The impact (usually negative)of sales on old product from new product– Assess the impact:-
• Timing• Volume• Finance
– Review impact on run-out of old product – Product Life cycle effect
37 © The Delos Partnership 2005
Effect of New Products on Effect of New Products on Old ProductsOld Products
Item Jul Aug Sep Oct Nov Dec Jan Feb Apr
12453Old
100 120 115 80 20 10 20 5 0
12468New
120 90 70 85 130 150
Total 100 120 115 200 110 80 105 135 150
Pipeline Fill
“Last Time Buys”
38 © The Delos Partnership 2005
Product Proposal FormProduct Proposal Form
Change Note Number : Date of Request : __/__/__ Change Type : Add/Amend/Delete
Originator: Effective Date:-Requested __/__/__-Actual __/__/__
Part number :
Department : BOM Attached ? : Y/N
Other Related Changes :
Reason for Request for change
Notification given to : Tick
Description of Change : Development
Manufacturing
Planning
Financial Consequences of Change : Purchasing
Quality
Sales and Marketing
Approved by : Date of Approval __/__/__ Regulatory
Jul Aug Sep Oct Nov Dec Jan ……
Volume
Value
Cash Flow
39 © The Delos Partnership 2005
Product Proposal FormProduct Proposal Form
Production Quantity on hand: Rework and Scrap Value
Quantity in WIP : Routing Change
Purchasing Supplier : New Part Number
New Cost : New Order Qty
On order : New Safety Stock
Quality Specifications : New Lead Time
Test requirements: Customer Code
Development Reference no,: Vendor Code
BOM Change note: Batch control
Sales Customers Financial Projection attached: Y/N
Quantity on hand
Finance Standard Cost Data Controller :
Regulatory Standards affected
40 © The Delos Partnership 2005
Review Effect of Pricing Review Effect of Pricing InitiativesInitiatives• Pre-announced Price Increases Pull
Forward Orders
• Pricing Structure & Ordering Behaviour Are Directly Related
• Pricing activity depends on assumptions about competitive reaction
41 © The Delos Partnership 2005
Review Impact of Pricing InitiativesReview Impact of Pricing InitiativesWhat do you need to know ?PRICE INCREASE/PRICE DECREASE:
When will it happen? Which SKU’s price will increase? What is the % increase/decrease?
PRICE PROMOTION: When will it start? When will it finish? Which SKUs will be included? What is the % decrease? Is this for every customer?
NATIONAL PROMOTION: When will it start? When will it finish? What sort of promotion is it? Which SKUs will it be? How much will sales increase against
normal sales rate? Will all customers take it?
Needs
Formal
document
42 © The Delos Partnership 2005
Forecast Price and Volume Forecast Price and Volume TogetherTogether
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Volume 100 100 150 100 100 150 100 100 150 120 120 165
Price 10 10 10 10 10 10 10 10 10 9 9 10
Value 1000 1000 1500 1000 1000 1500 1000 1000 1500 1080 1080 1650
Assumptions need to be recorded Assumptions need to be recorded
Residual effect of price decrease ?Residual effect of price decrease ?
HistoryHistory ForecastForecast
43 © The Delos Partnership 2005
Demand CreationDemand Creation
• Demand Facts– Population– Numbers between age 13-16– Children less than 11
• Demand Drivers– Events (Xmas)– Desires– Technology
• Demand Controllers– Pricing– Promotion– Distribution– Advertising– Packaging
ASSUMPTIONS
RESULTS
• Market Share• Market Reach• Frequency of Purchase
44 © The Delos Partnership 2005
Sales and Marketing FocusSales and Marketing Focus
Month 1 Region A Region B
Cust
A
Cust
B
Cust
C
Cust
A
Cust
D
Cust
E
Prod
Group
ABC
Prod 1
Prod 2
Prod 3
Prod
Group XYZ
Prod 4
Prod 5
Prod 6
Month 2 Region A Region B
Cust
A
Cust
B
Cust
C
Cust
A
Cust
D
Cust
E
Prod
Group
ABC
Prod 1
Prod 2
Prod 3
Prod
Group XYZ
Prod 4
Prod 5
Prod 6
Month 3 Region A Region B
Cust
A
Cust
B
Cust
C
Cust
A
Cust
D
Cust
E
Prod
Group
ABC
Prod 1
Prod 2
Prod 3
Prod
Group XYZ
Prod 4
Prod 5
Prod 6
Month 4 Region A Region B
Cust
A
Cust
B
Cust
C
Cust
A
Cust
D
Cust
E
Prod
Group
ABC
Prod 1
Prod 2
Prod 3
Prod
Group XYZ
Prod 4
Prod 5
Prod 6
Month 5 Region A Region B
Cust
A
Cust
B
Cust
C
Cust
A
Cust
D
Cust
E
Prod
Group
ABC
Prod 1
Prod 2
Prod 3
Prod
Group XYZ
Prod 4
Prod 5
Prod 6
Month 6 Region A Region B
Cust
A
Cust
B
Cust
C
Cust
A
Cust
D
Cust
E
Prod
Group
ABC
Prod 1
Prod 2
Prod 3
Prod
Group XYZ
Prod 4
Prod 5
Prod 6
Sales/Account
Managers
Sales/Account
Managers
MarketingMarketing
One
Set of
Numbers
One
Set of
Numbers
45 © The Delos Partnership 2005
Sales Planning ProcessSales Planning Process
EXAMPLE
Sales vision and strategic framework
Carry out channel analysis and identify opportunities
Establish sales development prioritiesand draft channel strategies
Review draft brand plans
Issue long term plans
Develop detailed implementation plans
Monitor implementation
P D
A C
46 © The Delos Partnership 2005
Alignment with CustomersAlignment with Customers
Custo
mer
Company
Customer
CustomerCustomer
Now?
Future! Common Language
Their Financial year data
Common measures Customer Service Customer Profit
Common logistics
Company
Customer
CommonObjectivesCommon
Objectives
47 © The Delos Partnership 2005
Move to Customer Centric Move to Customer Centric Sales PlanningSales Planning
Manufacturing
Distance
Rem
ote
ness
Research &Development
Planning
Marketing
Sales Customer
Traditional
48 © The Delos Partnership 2005
COLLABORATIVE PLANNING - COLLABORATIVE PLANNING - PROGRESSPROGRESS
Data Exchange
Vendor Managed Inventory
Co-ManagedInventory
Trading Partnership
Integrated Planningand Replenishment
•Ability to view customer data•No management process•Possibly available on Internet
•Agreed process for managing inventory (VMI) – supplier’s problem!
•Supplier schedules provided
•Agreed process for managing inventory•Mutual availability of data and plans in joint systems•Supplier schedules provided, and forecasts provided.
•Mutual sharing of long term plans•Full briefing on long term strategy•Joint improvement activities
•Joint forecast review•Joint agreement on business plans and inventory strategy
•Joint improvement activities
Time
49 © The Delos Partnership 2005
COLLABORATIVE COLLABORATIVE FORECASTINGFORECASTING
CPR• Collaborate
• Plan
• Replenish
SEAMLESS
CUSTOMER
OUR COMPANY
InnovationInnovation
VisionVision
StrategyStrategy
PrioritisationPrioritisationDemandDemand
SupportSupport
SupplySupply
One set o
f num
bers !
InnovationInnovation
VisionVision
StrategyStrategy
PrioritisationPrioritisationDemandDemand
SupportSupport
SupplySupply
One set o
f num
bers !
50 © The Delos Partnership 2005
Sales ForecastingSales Forecasting
CompetitorsWhat Competitors Activity Affects Your Forecast?
– Pricing– Listing– Promotions / Advertising– New Product Launch / Re Launch– Distribution Channel / Network– Investment Plans– Acquisition / Divestment
51 © The Delos Partnership 2005
Framework for Process Framework for Process ReviewReview
Process NameProcess NameInputsInputs Purpose/AgendaPurpose/Agenda OutputsOutputs
PeoplePeople Desired CultureDesired Culture MeasuresMeasures
Systems to support this stepSystems to support this step
Link to otherLink to other
ProcessesProcesses
52 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
53 © The Delos Partnership 2005
Sales Forecasting – Sales Forecasting – Review External EventsReview External EventsExternal Influence
DEFINITION: Anything outside the business control that affects the forecast
– Government
– Environmental
– Legislative
– Epidemics
54 © The Delos Partnership 2005
Pre-Planned Epidemic Pre-Planned Epidemic ForecastForecast
2 Forecasts Maintained
0
50
100
150
200
250
1 2 3 4 5 6 7 8 9
Month
Volu
me
'Epidemic'
Normal
55 © The Delos Partnership 2005
Sales Forecasting Review Sales Forecasting Review Exceptional DemandExceptional DemandReview large potential business
– Tenders– New contracts– Large one time demand
Decide whether to include in forecast or not– Avoid probabilities– Decide on hedging strategy– Agree on acceptance of risk
56 © The Delos Partnership 2005
Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process
FilterDemand
Execute Forecast
CaptureActual
C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T
Review Commercial Plans
Review Exceptional
Demand
Hold Demand Review
Assumptions written down and agreed
ReviewAccuracy
57 © The Delos Partnership 2005
Hold Hold CustomerCustomer Review Review MeetingMeeting
1. Review changes2. Agree assumptions and
changes3. Review products4. Review customers5. Review NPD activities6. Review KPI’s7. Sign off the forecast
58 © The Delos Partnership 2005
Customer Relationship Customer Relationship ManagementManagement
Strategy
Demand Planner
Sales and Marketing
SystemForecast
Plan
ManufacturingAnd Purchasing
ERPSystem
Consensus ForecastConsensus Forecast
59 © The Delos Partnership 2005
Role of Demand ManagerRole of Demand Manager
• Co-ordinates Forecast
• Review the numbers
• Challenge not changes the forecast
• Work with Master Scheduler
• Works with Sales and Marketing
• Manages Customer Service levels – 98 % to Req. Date
• Inputs on Safety Stock policies
• Participates in SOP Process
• Decide or facilitates decision on who gets what in Allocation
• Manages the Customer Relationship Management system and process
• Manages the Customer Relationship Planning process
• Enforces good behaviours
60 © The Delos Partnership 2005
Framework for Process Framework for Process ReviewReview
Process NameProcess NameInputsInputs Purpose/AgendaPurpose/Agenda OutputsOutputs
PeoplePeople Desired CultureDesired Culture MeasuresMeasures
Systems to support this stepSystems to support this step
Link to otherLink to other
ProcessesProcesses