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The impact of business strategy on forecasting and forecast performance
Contact person: Prof.dr. Bram Desmet
+32 497 58 28 60
My name is Bram …
• Academic• 1998, Master in Mathematics, Gent• 2002-2004, Executive MBA, Vlerick Business School• 2006-2009, PhD in Operations Research, Gent, “safety stock optimization in multi-echelon supply
chains”• 2010-…, Adjunct Professor at the Vlerick Business School• Co-promotor of a Phd on “Demand forecasting using exogenous leading indicators”, with Dr. Nikos
Kourentzes• Working on a book on “Supply Chain Strategy and Financial Metrics”
• Business• 1998 - 2003: IT manager, Arcelor-Mittal, Gent (Sidmar)• 2003 - 2016: Partner Strategy – SupplyChain – Operations, MÖBIUS• 2010 - …: CEO, Solventure, S&OP software and software based services• Sector experience: aftermarket, chemical/pharma, consumer goods, discrete/high-tech, metals,
retail, recycling, SME's (+50 companies)
• Contact info• [email protected], +32.497.58.28.60
Customer-Product
Segmentation
Strategic Canvas
Product Management
Review
PLC & Event Mgmt
DemandReview
CollaborativeForecasting
Inventory Review
Policy, Parameters, Monitoring
Supply Review
Distribution, Production &
Supply Planning
Executive SIOP
Scenarios & Decisions
Globally yours.
Your SiOP software
• Designing and developing SiOPsoftware 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 theMagic 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
SCM = balancing the SC triangle of service, cost and cash
e.g. reduce cost by
sourcing in far East
SCM = balancing the SC triangle of service, cost and cash
e.g. increase market
share by extending
product portfolio
SCM = balancing the SC triangle of service, cost and cash
e.g. reduce inventory
by lowering safety
stocks
SCM = balancing the SC triangle of service, cost and cash
Focus/incentives in a
typical production
company …
SCM = balancing the SC triangle of service, cost and cash
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 theSupply 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
Cash/Capital
Employed
Turnover
Margin
Return
Process / Diagnostic
Forecast
AccuracyBias (MPE)
Accuracy
(1-MAPE)
Impact of Strategy on Forecasting
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
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• 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?
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• 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?
22
Brand New Digital Cinema Laser Projector
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 …
Forecast Accuracy
• Bias may be the biggest challenge here!!
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• 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?
25
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 forecasting
What 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!!
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• 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?
28
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
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• 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?
What did we learn today?
Lessons Learned
1. Different strategies lead to different forecastingchallenges 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