© The Delos Partnership 2007 page 1 Creating the visibility to manage the crisis Developing a...

© The Delos Partnership 2007 page 1

Creating the visibility to manage the crisis

Developing a proper Demand Planning and Management

process


Balancing the objectives

Inventory

Customer Service

ManufacturingCosts

ManufacturingFlexibility


Why is a Forecast needed ?

Design

Purchase

Intermediate Manufacture

Sub-assemble

Finish

Distribute

Cumulative Lead Time

Customer PlacesOrder here

Forecast needed to cover this


Forecasts Provide Business Plan

ForecastsForecasts

Vision and strategy

Finance

Shareholders

Resources


Forecasting – Definition

A forecast is a formal request to the Supply Management function…

From Sales and Marketing to

have the product, materials andCapacity available according to the quantity

and

At the time

that they anticipate the demand will occur from the Customer to ship the product to their premises


The Delos ModelFor Business Integration

Innovation

Vision

Strategy

Prioritisation

Demand

Support

Supply

One set o

f num

bers !


Demand Management

Sometimes actual demand is different from forecast demand !

• Abnormal demand should be identified• A realistic promise should be given to

customers• Risk of losing customer needs to be

balanced against upsetting others!


The Forecast is the Driver of the BusinessThe Forecast is the Driver of the Business

The Role of a Forecast

Helps• Plan resources (equipment, people, materials, services)• Develop and support sales targets• Capture marketing information• Reach consensus on the support needed • Strategic and Business planning

Vital for communication


The Ten Rules of Forecasting

1. A forecast is never going to be right

2. A forecast is necessary for planning supply, supporting financial and business plans

3. Accountability for the forecast rests with Sales and Marketing

4. A forecast is wrong because the assumptions were wrong

5. Forecasting needs an application of intelligence

6. More accurate forecasting comes from your customers’ customer

7. Forecasts at an aggregate level are more accurate than the detail

8. Effective management of demand is key to managing forecast inaccuracy

9. A written policy for managing flexibility is essential

10. Measuring forecast accuracy will improve the process


Forecasting Needs a Simple Process

Filter Demand

Computeforecast

CaptureActual

C O N S E N S U S F O R E C A S T

C O N S E N S U S F O R E C A S T

Hold Demand Review

Agree commercial plans

AgreeExceptional demand

Assumptions written down and

agreed

Assumptions written down and

agreed

ReviewAccuracy


3. Execute Statistical Forecast

• Forecast should use history to produce trends and identify patterns

• Key influences to be detected : Base Trend Seasonality

• A Statistical Forecast is useful in saving time for high volume items


Forecast Accuracy Report - MAPE

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 %


Sales Forecasting: Inputs

• New Customers• New Products• Cannibalisation• Pricing Plans• Promotions/Advertising• Customers Own Forecast/Plans• Competitors’ Activity• Government legislation• Economic Factors – interest rates/Exchange

rates


Customers’ Own Plans

1. Where possible get forecast from customer to feed direct into own ERP system

2. Use ATP logic to “protect demand”.

3. Manage changes to demand through formal process.


Assumptions

Assumption Owner

Pricing

Economy

Brand position

Competition

……………..

……………..


COLLABORATIVE FORECASTING

CPR• Collaborate• Plan• Replenish

SEAMLESS

CUSTOMER

OUR COMPANY

Innovation

VisionStrategy

PrioritisationDemand

Support

Supply

One set o

f num

bers !

Innovation

VisionStrategy

PrioritisationDemand

Support

Supply

One set o

f num

bers !


Simulation – a key to better planning

What if upside ?

What if downside ?


ItemExternal SalesTrading AllowancesMaterial and Labour Costs

£ ‘000

Gross MarginPromotional Spend

Net ContributionManufacturing OverheadAdmin Overhead

Trading ProfitManagement Interest

NET PROFIT

FORECAST

DistributionResourcesPlanning

MasterProductionSchedule

MaterialRequirements

Planning

CapacityRequirements

Planning

VendorScheduling

MarketingSales

LogisticsFinance

ProductionPurchasing

FinancialPlanning

CostManagement

CostManagement

Volume Value

One Business Forecast


Demand Control

CheckForecast

Check AbnormalDemand

Receive Order

100 % delivery to promise100 % delivery to promise

Give Customer a promise

Check ATP

Agree Lead time forAbnormal demand

ConsumeForecast

It wasNot

In the forecast


All incoming customer orders should be screened (evaluated)

for normal/abnormal demand characteristics.

Abnormal Demand


Abnormal Demand Policy

Company needs to have a policy that states the process and mechanism for identifying and dealing with abnormal demands

Accountability needs to be established with Sales and Marketing - the originators of the Forecast !

Abnormal Demand Policy


Demand Planning versus Demand Control

PLANMANAGEEXECUTE

Cumulative Lead TimeCumulative Lead Time

Add or subtractTo capacity

Strong Link to

Integrated EnterprisePlanning Process

Capacity andMaterials“firm”

Release Orders

Demand Controller Demand Planner


Objectives of Integrated Enterprise Leadership

Vision and Strategy supported by :• One set of numbers at all times• Integrated Plans• Realistic Plans

Visibility and transparency [3-5 years]

Teamwork

Decisions made in timely fashion

More planning, less fire-fighting

Consistent performance measures

Delivery of the strategy

Top Down and bottom up


The Delos ModelFor Business Integration

Innovation

Vision

Strategy

Prioritisation

Demand

Support

Supply


Integrated Enterprise Leadership

ACTION

ACTION

Week 1 Week 2 Week 3 Week 4

InnovationReview

InnovationReview

CustomerDemandReview

CustomerDemandReview

SupplyPlan

Review

SupplyPlan

Review

PriorityReview

PriorityReview

STAGE 1

STAGE 2

SeniorTeam

Review

SeniorTeam

Review

STAGE 5

STAGE 7

STAGE 4STAGE 3

SupportSupport

STAGE 6


Characteristics of IEL process

• Formal set of meetings• Agendas “pre-set”• Linked series of meetings• Focus on right decisions being made at

right level• Preparation not “thank goodness for the

last minute”• Facts not opinions• Focus on Long-term and not short-term.

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