1 © The Delos Partnership 2005 Sales Forecasting and Demand Management The Ideal process.

1 © The Delos Partnership 2005

Sales Forecasting and Demand Sales Forecasting and Demand ManagementManagement

The Ideal process


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


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


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



FilterDemand

Execute Forecast

CaptureActual



Review Exceptional

Demand

Hold Demand Review


ReviewAccuracy


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



FilterDemand

Execute Forecast

CaptureActual



Review Exceptional

Demand

Hold Demand Review


ReviewAccuracy


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


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


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



FilterDemand

Execute Forecast

CaptureActual



Review Exceptional

Demand

Hold Demand Review


ReviewAccuracy


““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


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


Cumulative Lead Time Cumulative Lead Time is is keykey Forecast Forecast

Cumulative Lead Time

Forecast

made for

hereStore this forecast

Today

July August September


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


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


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


What Should Be What Should Be Measured?Measured?

• Product Family

• Product Mix Forecast

• Individual Item Forecasts

• Overall Forecasting Process


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 %


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 %


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


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


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


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..


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


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


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


AccountabilityAccountability

Sales

Marketing

Demand Manager

Logistics

Manufacturing

Finance

Who is accountable for the Forecast ?


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


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



FilterDemand

Execute Forecast

CaptureActual



Review Exceptional

Demand

Hold Demand Review


ReviewAccuracy


Sales Forecasting: InputsSales Forecasting: Inputs

• New Customers• New Products• Pricing Initiatives• Advertising And Promotions• Cannibalisation• Customers Own Forecast• Competitors Activity• External Factors


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


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


New Product Plan/New Product Plan/Marketing Activity ReviewMarketing Activity Review

•Review Changes toProjects•Highlight Impact on Supply Chain•Communicate changes


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


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”


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Move to Customer Centric Move to Customer Centric Sales PlanningSales Planning

Manufacturing

Distance

Rem

ote

ness

Research &Development

Planning

Marketing

Sales Customer

Traditional


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


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 !


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







ProcessesProcesses



FilterDemand

Execute Forecast

CaptureActual



Review Exceptional

Demand

Hold Demand Review


ReviewAccuracy


Sales Forecasting – Sales Forecasting – Review External EventsReview External EventsExternal Influence

DEFINITION: Anything outside the business control that affects the forecast

– Government

– Environmental

– Legislative

– Epidemics


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


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



FilterDemand

Execute Forecast

CaptureActual



Review Exceptional

Demand

Hold Demand Review


ReviewAccuracy


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


Customer Relationship Customer Relationship ManagementManagement

Strategy

Demand Planner

Sales and Marketing

SystemForecast

Plan

ManufacturingAnd Purchasing

ERPSystem

Consensus ForecastConsensus Forecast


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







ProcessesProcesses

Date post:	19-Jan-2016
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1 © The Delos Partnership 2005 Sales Forecasting and Demand Management The Ideal process.

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