Supply Chain Innovations 2017 - The impact of business strategy on forecasting and forecast...

The impact of business strategy on forecasting and forecast performance

Contact person: Prof.dr. Bram [email protected]

+32 497 58 28 60

Customer-Product

Segmentation Strategic Canvas

Product Management

ReviewPLC & Event

Mgmt

Demand Review

Collaborative Forecasting

Inventory Review Policy,

Parameters, Monitoring

Supply Review

Distribution, Production &

Supply Planning

Executive SIOP

Scenarios & Decisions

Globally yours.

Your SiOP software

• Designing and developing SiOP software since 1993

• HQ in Wilmington (De, US), offices in Belgium (Antwerp), India (Mangalore)

Your partner for SiOP

• Experts in designing and implementing SiOP

• European channel partner of Arkieva

• HQ in Belgium

Listed as a challenger in the Magic Quadrant of Gartner.

Listed as a system of reference byLora Cecere of Supply Chain Insights.

service

cash

ROCE

cost

Agenda

• What is Strategy?• What is Supply Chain?• Impact of Forecasting on Supply Chain?• Impact of Strategy on Forecasting?• Conclusions

What is Strategy?

Market leaders are ‘extremely disciplined and focused’ on 1 of 3 strategic options

Treacy & Wiersema, 1995

Operational Excellence Product Leadership Customer Intimacy

‘Best price’ and/or ‘Best access’ (‘fast, easy,

painless’)

‘Best product’ ‘Best service’ and/or ‘Best connectivity’

(‘relationship orientation’)

Efficiency through process thinking

Zero-defect service

Best product through continuous product innovation

Clear innovation strategy: where to place the bets?

Understanding the broader problem

Having expertise about the customer’s business

Customers carefully selected

The operations department drives the company

Attention is paid to process speed and quality

R&D is key: idea management Marketing is also key: educate

people with a missionary zeal Get engineers, designers, and

marketers systematically together

Demonstrate expertise and experience

Strengthen the relationship Build loyalty: focus on

customer retention

What is Supply Chain?

SCM = balancing the SC triangle of service, cost and cash


e.g. reduce cost by sourcing in far East


e.g. increase market share by extending product portfolio


e.g. reduce inventory by lowering safety stocks


Focus/incentives in a typical production company …


Resulting pressure in the triangle

Balancing the triangle = optimizing ROCE

Aligning the supply chain triangle is about maximizing ROCE

Top-line

EBIT

ROCE

Impact of Forecasting on the Supply Chain

Building KPI dashboards

Service

Cost

Cash/Capital Employed

Turnover

Margin

Return

Process / Diagnostic

Forecast Accuracy as a key driver of supply chain performance

Service

Cost


Turnover

Margin

Return

Process / DiagnosticForecast Accuracy Bias (MPE)

Accuracy(1-MAPE)

Impact of Strategy on Forecasting




‘Best price’ and/or ‘Best access’ (‘fast, easy,

painless’)

‘Best product’ ‘Best service’ and/or ‘Best connectivity’

(‘relationship orientation’)

Efficiency through process thinking

Zero-defect service

Best product through continuous product innovation

Clear innovation strategy: where to place the bets?

Understanding the broader problem

Having expertise about the customer’s business

Customers carefully selected

The operations department drives the company

Attention is paid to process speed and quality

R&D is key: idea management Marketing is also key: educate

people with a missionary zeal Get engineers, designers, and

marketers systematically together

Demonstrate expertise and experience

Strengthen the relationship Build loyalty: focus on

customer retention




• Simplicity drives efficiency• Will have the most simple

product portfolio• Will try to ‘stabilize

demand’ to ‘maximize efficiency’ of the operations

• Is driven by ‘customer complexity’

• Will have the broadest product portfolio, in a bid to act as a ‘one-stop shop’

• Will have ‘customer-specific products’

• Is driven by ‘product complexity’

• The product technology is the differentiating factor

• Active in ‘niche markets’ and focused on ‘early adopters’

• Most easy to forecast• Most willing to ‘shape

demand’ in such a way that forecasting becomes easier

• Ultimate fit for statistics?

• Forecasting challenge is dealing with the ‘large number of SKUs’

• There will be a ‘long tail’, there will be ‘customer-specific’ products, ... leading to intermittent demand

• Fit for ‘collaborative’ practices?

• Forecasting challenge is dealing with the ‘market uncertainty’

• New products in new markets?

• Fit for qualitative techniques like Delphi?






















21

Brand New Digital Cinema Laser ProjectorSelling price: appr. 250.000€

How many will we sell??• Assume there are around 100.000 cinema rooms

worldwide• Assume 20% of the cinema rooms is expected to switch

to laser projection over next 5 years: 20.000 laser projectors / 5 = 4.000 per year

• Barco is the current market leader in digital cinema projection, up to 50% market share

• If we serve half of that volume ... That gives 2.000 per year

What if we’re wrong??• if we overestimate with 25%, or 500 projectors• the inventory impact is 62,5Mi€ (assuming 50% gross

margin) ... which is 20% of the current inventory

Forecast Accuracy• Bias may be the biggest challenge here!!






















24

Forecasting a broad product porftolio• Different product ranges, each with a wide range of SKUs with

different specifications (light output, short angle, ...)• Problem of the ‘long tail’ … not all items selling equally well• Problem of ‘accessories’ which are not independent of

projector sales• Being sold via ‘distribution channels’ instead of ‘directly to end

customers’• Challenge to forecast on ‘sell-out’ instead of ‘sell-in’ (and

collecting ‘sell-out’ information!!)• Demand shaping via promotions, end-of-quarter sales peaks• Distributors may be ‘small organizations’ without a

professional staff allowing proper demand forecastingWhat if we’re wrong??• Technology is changing fast, if we have too much inventory,

we mos probably need to write it off (at least partly)• Much of this stuff is produced in Asia … with long

replenishment lead times. Underforecast may lead to lost sales!!

Forecast Accuracy• Next to bias … forecasting the mix is a key challenge!!






















27

Simplify forecasting … or avoid it all together!• Will typically have a small range of basic quality products• We try to avoid ‘peaks’ as to smooth production, as to minimize

cost• May not ‘produce-to-forecast’ but only ‘make-to-order’• In case of ‘produce-to-forecast’ … may ask for commitments and

limit downside or upside• In case of ‘make-to-order’ … may impose big order quantities,

and shipping in full containers

What if we’re wrong?• We stabilize demand, limit downside or upside, or even make-to-

order … limiting the chances that we’re wrong• The ‘burden’ of the forecast error is put on the customer, e.g. the

electronics retailer

Forecast Accuracy• Bias controlled by limit on downside or upside• Mix controlled by limited assortment• Or potentially controlled all together, by working Make-To-Order






















What did we learn today?

Lessons Learned

1. Different strategies lead to different forecasting challenges and hence different accuracy targets

2. Supply chain management is about balancing service, cost and cash

3. Regardless of the strategy, improving the forecast, is key in improving the supply chain performance

Thank you!Prof.dr. Bram [email protected]+32 497 58 28 60

Impact of Strategy on Supply Chain

Supply Chain Triangle in 3 dimensions

service

inventory cost

Higher turns

Lower cost

Higher service

Measuring Service by Gross Margin

service

inventory cost

Higher turns

Higher serviceAs measured by

Gross Margin

Lower cost (excl.COGS)

Mapping Treacy & Wiersema to Service

Product Leadershiphighest spec driving highest marginCustomer intimacyexpertise in solutions drives a premiumOperational Excellenceexcel in the basics

service

inventory cost

Higher turns



Gross Margin

Mapping Treacy & Wiersema to Cost

service

inventory cost

Higher turns



Gross Margin

Product Leadershiphigh cost in R&D and in salesCustomer intimacysolution development is a cost of salesOperational Excellencecost leader in every fibre of the organization

Mapping Treacy & Wiersema to Inventory

service

inventory cost

Higher turns



Gross Margin

Product Leadershiphighest complexity, highest riskCustomer intimacycontrolled complexityOperational Excellence simplicity drives efficiency

Mapping Treacy & Wiersema to the Supply Chain Triangle

Product Leadershiphighest risk with highest potential payoffCustomer intimacyan extra mile at an extra cost and premiumOperational Excellenceexcel in cost and the service basics

service

inventory cost

Higher turns


Gross Margin


Mapping Treacy & Wiersema to the Supply Chain Triangle

service

cost


Gross Margin


EBIT

RETURN ON CAPITAL EMPLOYED (ROCE)

Capital employed

Lower capital employed

Regardless of the strategy … Forecast Accuracy remains a key driver of supply chain performance!

Service

Cost


Turnover

Margin

Return

Process / DiagnosticForecast Accuracy Bias (MPE)

Accuracy(1-MAPE)

Date post:	11-Apr-2017
Category:	Software
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Supply Chain Innovations 2017 - The impact of business strategy on forecasting and forecast...

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