The 5 Keys to Demand Planning Success

transcript

Single Line of Sight: Plan, Perform, Profit

April 29, 2014

Today’s Presenter

Background

Doug Dedman brings more than 20 years of services, operations, supply chain

planning and S&OP expertise to Steelwedge. Prior to joining Steelwedge, Doug spent

18 years at DBM Systems.

While there, he was responsible for the development and growth of a global Sales and

Operations Planning (S&OP) consulting practice that specialized in helping

multinational corporations develop effective executive S&OP processes. He also held

roles in General Management, Program Management and operations and supply

chain consulting.

Doug has also served in the role of Senior Director Customer Management at

Steelwedge, with responsibility for executive sponsorship and overall customer

satisfaction and project quality. He holds a bachelor of arts in Honors Economics from

the University of Waterloo as well as an MBA from the Odette School of Business.

Doug Dedman VP, Global Services

Steelwedge Software Inc.

3825 Hopyard Rd

Pleasanton, CA 94588

Tel : (949) 460-1700

ddedman@steelwedge.com

Introduction

Separating Demand by Demand Type

Ensuring Accountability For Demand Plan

Prudent Use of Statistical Forecasting

Collaboration

Real Time Visibility Across Business

Summary and QA

Agenda

What is the purpose of Demand Planning?

• Input into developing a Financial Forecast

• Develop an unconstrained market driven Booking and

Shipment Plan

• Set targets to meet market expectations

• lead time, product offering, pricing, service etc.

• Set targets for operational buffers

• Backlog and Finished Goods Inventory

• Input and Output of S&OP process

• Constrain or increase the Demand Plan based on S&OP feedback (supply plan) – shape demand

What are the Keys to Demand Planning Success?

1. Separating Demand by Demand type

2. Ensuring Accountability for Demand Plan

3. Use Statistical Forecasts where appropriate

4. Collaborate to develop the Demand Plan

5. Real time visibility across business

Demand Streams

• Break the Demand Plan into streams

based on:

• Demand characteristics

• Accountability

Purpose To better understand your demand

Result Improve the accuracy of your future plans

Demand Streams

• Typical breakdowns:

• Region (Geography)

• Normal vs. Abnormal Demand (Flow vs. Project)

• Distribution Centre vs. Direct

• Large Customer(s) versus Small Customers

Demand Streams

• Demand characteristics may be different by stream

• Seasonality and/or Order Cycles

• Normal vs. Abnormal Demand

• Intelligent Demand

• Major Customer

• Product mix may be different by demand stream

• Specific items for specific customers

• Demand Planning tools should support:

• Bringing demand streams in from different sources: CRM, Customer Collaboration, MRO demand

• Support accuracy measurement by stream

• Support collaboration and consollidation

Insert SPB screenshots here

Link to

Opportunity Pipeline via

Sales Pipeline Bridge

Opportunity Pipeline for S&OP Planning

2.42 Acct Mgr RE Laptops Max Stores-M

Opportunity Pipeline via

Sales Pipeline Bridge

Opportunity Pipeline Detail

Confirmed S&OP Sales Plan

Consolidating Demand Streams

Sum up the demand stream plans for the Executive Meeting

CRM(Region 1)

CRM(Region 2)

CRM(Region 3)

Flow Demand

Demand Plan(Region 1)MU - Spain

Demand Plan(Region 2)

MU - Turkey

Flow DemandFlow Demand

Demand Plan(Region 3)MU - UK

Consolidated Demand Plan(Center Node)

(ENPE)

5-Section Sheet(Center Node)

(ENPE)

Detail

Level for

Demand

Detail

Level for

Executive

Meeting

Demand Streams

• Breaking out demand streams allows better

management of the demand plan

• Statistical forecast where applicable

• Intelligent schedules where applicable

• CRM based project forecasts where applicable

• Breaking out demand streams allows you to assign

accountability

• It won’t improve unless a specific person is responsible and

accountable

• Measure accuracy at this level in the demand cycle of S&OP

Holding Accountability to Demand Plan

A Common Organizational Challenge!

In Order to improve Demand Planning, I need

to hold someone accountable for the demand

Why is this so difficult?

Accountability

• Need to measure demand plan on something that is not a shared result:

• Bookings - Output of Sales/Marketing (Demand Side)

• Shipments – Result of demand (orders) and supply (inventory, production)

• Need to measure at a level of responsibility

• Region

• Customer

• Distribution/Direct

• Breaking out demand streams allows you to assign accountability

• It won’t improve unless a specific person is responsible and accountable

• Measure accuracy at this level in the demand cycle of S&OP

Accountability Includes Measurement of Change

• Need ability to see change in plan (month over month)

• Drill down as required to see what caused change:

• product/customer/demand planning role

• Accountability not only includes accuracy but net change

• Tie measurement back to supply capability

What is the impact of

downturn in demand

one month out?

Example Customer: Program Objectives and Deliverables

Example Customer: Quantitative Assessment

Target Savings: $5M - $10M per $1B in revenue

Inventory Reduction

10-20% reduction through more accurate demand plan

Customer Satisfaction

10-30% improvement in customer satisfaction through reduced stock-outs

Demand Plan Accuracy

15-30% improvement through collaboration

Planning Cycle Time

50-70% reduction via integration and process automation

Revenue and Margins

5% lift through reduced stock-outs and better cost management

Use Statistical Forecast to Improve Demand

Normal Vs. Abnormal Demand

• Normal Demand – past performance (mix and volume) is a good

indicator of Future Forecast - FLOW

• Statistical forecast based on history

• Modified by future plans – promotion, price change, new markets

• Abnormal Demand – a single transaction drives a significant

portion of business - PROJECT

• Past sales are not an indication of future sales – lumpy demand

– Forecast on a case by case basis

– Use an Opportunity Management Process - CRM

• Historical mix ratios will not apply

• May include more than one product family

“Manage” the Projects - “Forecast” the Flow.

Normal Vs. Abnormal Demand

• Types:

• Flow vs. Project

• MRO vs. Project

• Flow vs. New Distribution Center

• Domestic vs. Large Export

• Regular vs. Lumpy

• Trying to statistically forecast the right hand side is

extremely difficult and may give misleading results

• Break the demand planning into the different inputs and run

forecast against items on the left

Keep in Mind: You will most likely have different

fulfillment strategies based on the type of demand.

Identifying Abnormal Demand

• Determine the “size” of

opportunity that is abnormal

• Evaluate historical bookings to

determine order size relative to

volume

• Find the balance between:

– Number of opportunities

– Large opportunities that upset

the normal supply flow

If in doubt, pick a lower

number of opportunities

to manage.

Statistical Forecast Analysis

• Understand the quality of the demand data, i.e. active periods, sparse, etc.

• Generate multiple hierarchy level forecasts and analyze results

• Understand the forecast error by levels, i.e. MAPE and Weighted MAPE

• Assess the forecast growth and inflation

• Recommend the optimal forecast level

Product Segmentation Analysis – Demand Policy Take the efficient approach - Understand complexity and its impacts

Volatility

Statistical

Forecast

Collab &

Exception

Stocking Strategy: Min/Max, Safety

Stock, etc

Demand Policy

Collaboration

Why Collaboration?

Demand Planning is an Integral Part of S&OP.

S&OP is a collaborative process to arrive at a balanced demand and

supply plan.

Using collaboration to arrive at Demand Planning provides a better

signal to the S&OP/IBP process

Strategic Plan

Master Schedule

Demand Plan

Production and Material Plan

Three to five year strategic plan for the family. Typically updated annually

12 month or more, rolling plan from the family. Updated monthly

12 month or more, rolling demand plan for the family. Updated monthly

Detailed schedule for specific items in the family. Authorized by the S&OP production plan. Typically updated daily or weekly.

Detailed production and material plans linked directly to the master schedule.

Why Collaboration is important?

• Demand Planning is about predicting future results.

• Because we are dealing with the future, by definition we will be wrong!

• You want to use the best information possible to develop the demand

plan – pull in from multiple sources.

• Examples of Collaboration

• Customer Collaboration

• Partner Collaboration

• Internal Collaboration

– Multi-level demand plan

– Vertical integration

Collaborative Business Planning Process GoPro S&OP Sales Demand Planning

Sales ManagerForecast

DemandForecast

Inputs

Account

Forecast

Sales Orders

Master Data

Customer Data

Sales Territory

Forecast

Demand

Review

Consensus

Forecast

Planning Processes

Transaction

Marketing

Demand

Planning

Account

Manager

Management

Sales/Ops

Consensus Exec

Inputs & Outputs

ConsensusForecast

Historical Demand Analysis

Performance

Current Plan

Finance

Waterfall

KPI Dashboard

Collaboration

S&OP Sales

S&OP Ops

Executive S&OP

Collaboration

MarketingForecast

New Product Forecasting

SOFEForecast

Locked

Consensus

Forecast

LockedConsensus

Forecast

Screen Shots – Account Manager

Screen Shots – Sales Manager

Screen Shots – Sales Ops

Screen Shots – S&OP

Real Time Visibility Across Business

Real Time Visibility Across the Business

• Demand Planning is one key input to S&OP Process.

• Needs to support an S&OP process that is:

• Run on a regular monthly cadence

• Establishing clear accountability for all plans (demand and supply)

• Looking at business by product family – across demand and supply

• Link demand plans and supply constraints

• A learning process – monthly feedback and continuous improvement

• Include Key Business Levers

– Bookings, Backlog, Shipments, Inventory, Supply (Production)

• Supported by common definitions across the business

Best Practice Enabled by Technology

• Single version of the Truth – from across multiple systems

• CRM, Orders, Forecast, Collaborative Demand view

• Integration to Finance (Monthly Financial Plan)

• Visibility of Budget in process

• Measurement of gap to Budget

• Use S&OP process to inform budget

• Ability to convert between units and dollars – will tell two different stories

• Earn and report in dollars – make and sell in units

• Ability to analyze data to determine RCA on out of tolerance plans and

recognize bias

• Capability to drill down below family to lower level drivers/issues

• Linked to system of record – aligned to execution plan

Holistic View – Supported by Collaborative Process

• Need to view Demand Planning as an input to the overall demand and supply balancing process

• Tools need to support integration and timely data access

• Eliminate the time required to consolidate and manage data – Utilize this time for analysis

Outcomes

Results/Benefits

First time in Company B’s history they are able to view demand in a single source system with a common understanding on how the numbers are generated

Challenges and Lessons Learned

Sophistication of their NetSuite ERP solution

SW2 project is uncovering gaps in their original ERP implementation

Next Phase

Multi-Phased roll out of S&OP Ops, Executive S&OP and Insight

Planned in the form of “Release Drops” versus a structured series of individual SOWs

Recap: Keys to Demand Planning Success.

1. Separating Demand by Demand type

2. Ensuring Accountability for Demand Plan

3. Use Statistical Forecasts where appropriate:

4. Collaborate to develop the Demand Plan

5. Real time visibility across business