business value driven by integrated business …...figure adusted based on: integrated business...

Business value driven by Integrated Business Planning Transformation, trends in Czech Republic

8th November 2018

Ondrej Zak, Jan Burian EY CZMail: [email protected]

mailto:[email protected]

Confidential — All Rights Reserved — EY 2018

Agenda (first part)

Value potential of SOP

Digital era impacts on supply chain

SOP - typical issues on the market

Exercise – maturity assessment

Recommended approach


We are here today because of PERFORMANCEThe value of integrated planning

Figure adusted based on: Integrated Business Planning Kepczynski, 2018 Springer

Simultaneous improvement of end to end value chain performance through orchestrated planning and synchronization at all levels, horizons and silos.

Revenue increase: more availability of the right product in the right place.

Service level increase: improved customer service by delivering to promise.

Cost reduction: reduced fire fighting, bullwhip effect and rush orders.

Inventory reduction: reduced bullwhip effect through improved coordination and synchronization


Case studyA consumer products company uses SOP to reduce inventory and production variability

Before S&OP

• Erratic production levels• High inventory levels

After S&OP

• Stable production levels• Stable inventory levels

Project Description: A global consumer products company implemented a S&OP process, introduced clearly defined product segmentation and applied correct system parameter settings. As a result, the organization saw a reduction in unnecessary demand forecast changes, greater confidence to dip into safety stocks, and stabilized weekly production carefully synchronized with demand.

Key results:• 48% reduction in production variability• 28% reduction in inventory• 12% increase in responsiveness (measured by frequency of replenishment to market at SKU level)


Digital era impacts on supply chain


Value chains are being disrupted by digital sources

There are several key trends driving the growth of Integrated Digital Planning

Increasing product complexity and customer expectationsThe expectation of customers to receive more individualized production in less time leads to increasing product complexity in Value Chains.

Companies need to respond promptly. Key success factors in high-performing value chains include cost efficiency, flexibility, speed and responsiveness.

2

New planning technologies and AIThe availability of new technologies makes it possible to use completely different planning procedures. Cloud-based solutions enable

unprecedented transparency of planning and decision-relevant data. Robots and automated algorithms relieve planners and decision-makers of routine activities, AI and Deep Learning algorithms enable exception based faster and better planning decisions.

4

The changing role of companies in their ecosystems The role of Value Chains in company ecosystems will change dramatically as more and more partners will participate thus causing the structure

of value chains to become increasingly dynamic.1

Accelerated and faster planning cyclesCompanies need to stay ahead of disruption and proactively adapt to changing market conditions and customer requirements. Planning cycles and their frequency needs to be reflective to market needs. Companies need to ensure long-term planning for strategic investment decisions,

medium-term tactical planning tasks to synchronize demand and supply, and to operational planning decisions for short-term changes.

3


Markets are changingeCommerce, new entrants, vertical killers, nothing is sure


Although we have been “digitizing” for many years, the pace and variety and power of new disruptive technologies is unlike anything we have

New Materials HD Imagery Genomics 3D Printing Autonomous vehicles

Drones Advanced Robotics

Cognitive Computing

Quantum Computing

RPA

Blockchain IoT Solar & Storage Sensors Bandwidth

Social & Gaming

Cloud Computing

Processing Power

Storage

Mobile

Databases

Utilities

Tools

ERP (e.g.GW)

ApplicationsWeb

3270

RPA

Industrial

Internet 4.0Smart

Products

Physical Web

(Augmented Reality)

Data-Driven

Business Models

Application/Industry Clouds Smart ServicesTechnology core & analytics core

IoT

Services

People

ThingsAnalytics

Personal &

Wearables

Connected

Vehicles

Connected

Homes

Smart

Factories

Smart

Logistics

Transportation

Healthcare

Connected

Lifestyle &

Consumer

Smart

Cities

Utilities

Personal

Wellness

Self-Driving

Cars

Car as

Smart Phone

Personal

Education

Healthcare as

a Service

Remote

Surgery

Smart Washing

Machine/Fridge Predictive

Logistics

Drones

Smart

Production

Predictive

Maintenance

Mobility

as a Service

Smart

Station

Smart

Bus

Smart

Grid

Smart

BuildingRoads

Lighting

Waste

Management

Location

Marketing

Lifestyle as

Experience

AI


Connect – automate – smart will shape the future business models

ArtificialIntelligence

Automation

Business model

Connectivity

Customer Experience Innovation

Operating model


Key takeaways from EY´s projects

• One common S&OP

• Seamless integration with relevant systems

• Increase quality of the inputs – customer & market intelligence

• Quality of the data (Frontline)

• Data visibility (inventories -suppliers)

• Real-time availability

• Data flow (Frontline - Backline)

• Processes

• Underestimated process area

• Low forecast accuracy -„it´s just market!“

• Not sufficient IT tools – poor enterprise IT landscape

• Absence of the seamless flow

• Not proper IT tools in place / legacy IT

As-Is situation1

What to focus on2

Best practice3


S&OPChallenges in the market


Increase of efficiency and effectiveness comes from alignment of planning types to their characteristicsAvoid execution of the process on non value added level

Corporate strategy

Su

pp

lie

rs

Transportation, distribution, and logistics

Cu

sto

me

rs

Discussion focus

Plan

Sales and Operations Planning (S&OP)

Demand review Supply review Integration and reconciliation Management business reviewPortfolio management review

Demand Planning

Prepare data Create base forecast Unconstrained forecast Constrained forecastIncorporate eventsReview forecast

accuracy

Supply Planning

Strategic supply planning DC and branch planning Inventory managementLead time calculation and

management

Pro

cu

rem

en

t


Monthly cycle should be a continuous improvement process. We can start simple…


The SOP process helps to ensure all functions are rowing in the same direction

Finance: “Working capital is too high, we need to reduce

inventory by 20%”

Sales: “I will place multiple

orders to make sure my

customer does not get shorted.”

New Product Development: “I can guarantee that this new product will fly

off out of the warehouse once it is

available.”

TDL: “We will require excessive overtime

and airfreight to accomplish what is being asked of us”

Marketing: “There’s a new promotion we

need to do next week.”

Manufacturing: “Sales are highly overstated, we will figure out

what to decrease”

Demand Planning: “Our high forecast

accuracy error is not my fault – I just enter what sales tells me.”

Supply Planning: “We will need to rapidly expand

our manufacturing capacity to achieve the

plan.”

Cu

stom

er

DPSPMktMfg

TDLSalesFinc NPD

S&OP

The SOP process provides the forum and measures to enable supply chain functions to all “row” in the same direction and

cross the “finish line” each month.

Imagine a company competing in a rowing race yet the strokes are not synchronized…

An SOP process can help ensure the supply chain team is synchronized


Power of KPI’s - how to balance customer and shareholder facing goals?

Trade-off alignment problem:► Lack of tradeoff alignment causes a

mixed massaging from leadership.

► This culminates in conflicting goals between silos and unnecessary changes of direction that cost time and money.

► Five key supply chain attributes, three customer facing (flexibility, speed, reliability) and two shareholder facing (cost to serve, and asset efficiency), measure overall value chain performance and can be intrinsically opposed.

► A trade-off is required of what are the most important goals of the value chain, and what is the relative importance of one over the other.

The speed at which a supply chain provides products to the customer

Speed

The ability to perform tasks as expected. Reliability focuses on thepredictability of the outcome of a process

Reliability

The cost of operating the supply chain end to end processes. Total cost to serve.

Cost to Serve

The ability to efficiently utilize assets. Optimal capacity and inventory.

Asset Efficiency

Ability of the supply chain to react to changes (volume, data, mix) without incurrent in costs nor hampering service.

Flexibility


Master data management is still a keyBut more advanced methods are needed to generate required insights


Maturity assessment


10 questions – maturity assessment

1. Do you know well the end customer?

2. Is the client forecast reliable / accurate? How big is the gap between planning and execution?

3. Do you miss any data (or are unreliable) to make better forecasts?

4. Is your SOP aligned with a strategy, financial plans, KPI’s of organization units are aligned?

5. Is your SOP process fast enough and capable to react on changes (avoid over reaction)?

6. Is necessary information / insight visible across your organization?

7. Are your suppliers flexible enough to react on changes?

6. Do you consider your SOP as a continuously improving process?

7. Do you use advanced data analytics to identify patterns?

8. Is your SOP tool advanced enough?


Recommended approach


EY EPIC methodology

EY has developed an extended model covering all business related

planning activities. It is called Enterprise Performance Management

Improvement and Control “EPIC”. The main idea of the EPIC approach

is looking at next step-change improvement, which is not from doing

SOP better but from doing SOP differently.

Established planning preconditions

Established accomplishment principles

Established project management3

1

2

Financial Planning

Sales and Operations Planning

Strategic Planning

Supply Planning Demand Planning

Business and Functional Planning

Execution and Performance management

Pe

rform

ance

Man

agem

en

t

Risk M

anage

me

nt

Imp

rove

me

nt M

anage

me

nt

31

2

EPIC

Leading Practice SOP

Planning Sophistication

Pla

nn

ing

Va

lue


There are many factors that are needed to ensure a successful SOP process

SOP depends on simplicity and discipline to ensure success

Executive support: Sales and marketing organizations often struggle with new processes, requirements and accountabilities; senior management must visibly support and enforce expectations

Performance measurement: To support formal and measurable processes, accountable involvement and exception based decision making, a clear and concise view of relevant, actionable targets and performance is needed

High quality team members: Ensure project resources are the best in their area, can perform as change agents, help build consensus and are prepared to lead new processes

“Mastery” of master data: Decision-support tools rely on ERP/ transaction systems for data; project delays, lost value propositions and inaccurate results are often attributed to ignoring, underestimating or failing to acknowledge poor data

Seek simplicity that drives value: Must guard against “over-engineering;” the power of advanced supply chain applications can often result in over complicated designs and attempts to proceed to advanced techniques basics are in place


Tools and accelerators


Keep it simple: Synchronize – Optimize - Organize

► Definition of a set of issues thata company may face.

► More specifically, it supportsthe identification of thepotential causes for the issuesthat a SOP initiative might helpto solve

► It provides guidance on whatdata/analysis might benecessary to prove or disprovethem.

► The aim is to facilitatediscussion around the client’sfocus issues and potential rootcauses of identified issues.

Insufficient

Service Level

Products are delivered with

delays with respect to

promises

Contingency for manufacturing and delivery issue

Poor coordination of handoffs between functions

Root Cause Hypothesis Example Data / Analysis Required

• Analyse system breakdown statistics and maintenance procedures

• Analyse risk and event management policies for planning (SOP)

• Perform end to end process audit around handoffs and timings

• Assess interlock between planning and fulfilment and ownership of the components of customer metrics

Stock out

Poor or insufficiently detailed demand plan / forecast

Operations doesn’t follow demand plan

Safety stock or contingency not properly defined

Missed or late delivery by suppliers

• Perform review of the demand forecasting and capacity planning processes around planning level, horizon,

granularity

• Compare demand forecasts with supply execution inc plan and schedule adherence

• Review how SOP outcome plans are implemented

• Perform safety stock calculation methodology and level review – check linkages between planning assumptions,

• Perform analysis of requested delivery time against actual delivery time by suppliers

• Check if / how suppliers receive plan information (lead time) and actual orders

Root Analysis

Integrated Business Planning enabled on SAP IBP

8th November 2018

Robert Kepczynski & Vasileios Ieronymakis, EY CHMail: [email protected]



Integrated Business Planning


Long Term Planning

Marketing & Sales Planning

Demand Planning

Supply Planning

Sales & OperationsPlanning

Co

llab

ora

tio

n

Co

llab

ora

tion

Long Term (often Strategic and Financial Planning)

SUPPLIER CUSTOMERFactory –Production

LocalWarehouse

CentralWarehouse

Su

pp

ly

Re

spo

nse

De

ma

nd

C

on

sen

sus

Tactical

Execution

Longterm

Operational

Material Req. Planning, Supplier Collaboration

Capacity Planning

Distribution Planning

Inventory Planning

End User

Harmonized Integrated Planning ProcessEnabled by fit for purpose organization/skills, connected planning processes and SAP IBP

Detail Scheduling, Demand Sensing, Order based supply response & deployment

Financial integration


Product line-region-Asset type

Month/ year

3-10years

Annual Planning, Monthly Strategic Product Planning

Value

SKU-Customer-Resource

Day / week

4-12 weeks

Campaigns, Limited life offers, Peak season

Volume

Product grp-Country-Plant

Month

12-36 months

Monthly S&OP

Volume & Value

LongTermTacticalOperational

Increase of efficiency and effectiveness comes from alignment of planning types to their characteristicsAvoid execution of the process on non value added level

Typical Granularity

Time buckets

Horizon

Use Case

Unit


Vo

lum

e /

va

lue

Samples

New

products, phase-

in / phase-out

Constraints &

allocations

Pre-S&OP

risks, currency

provisions

Integrated

Business

Plan

Write-off

provisions Pre-S&OP

opportunities

(incl. demand

shaping)

Product review

Consensus

unconstrained

forecast

(incl. demand

sensing)

Credit

availability

Licenses

Demand review Supply reviewIntegrated

Reconciliation

Management

Business Review

IBP Volume

IBP Value

Budget

Tactical S&OP as foundation of Integrated Business PlanningEnabled end to end view, e.g. management of risk and opportunities, financial integration

Figure adjusted and based on Integrated Business Planning, Implementing Integrated Business Planning, Kepczynski … Springer 2018


Way to operate Integrated Business PlanningBiggest value can be extracted operating planning on levels aligned to insights and process types

Brand / Channel

Business Field/ Customer Grp

DC-Plants / Customer type

SKU / Customer

Global/Regional/CountryDemand Plan Initialization

Country/Brand enrichmentof Demand plan Supply Planning

Align on Demand + Supply Plan,

tactical allocation planning.

Integrated reconciliation

Executive S&OP Meeting

Turnover

Sales Volume1

2 3

5

4

0Product / Customer / Services Management

DATA & SYSTEM INTEGRATION

COLLABORATION

PRICE – MARGIN - PROFIT

ANALYTICS-DASHBOARDSEXEPTION MANAGEMENT

GLOBAL – REGIONAL - COUNTRY

CLOUD

RISK & OPPORTUNITIES WITH REAL-TIME SCENARIO PLANNING

VOLUME


Product• Registrations• Phase-ins & -outs• Long termsubstitutions• Operational

substitutions

• Price tactics• Promotions / campaigns• New business gains• Business lost• Competition activities• Profitability optimization

Demand

Finance• Credit availability /

exposure• Currency fluctuations• Provisions for inventory

write-offs, returns• COGS fluctuations

Supply• Product availability• Manpower, Machine, Material

constraints and extra availability

• Internal & External manufacturing and operations

“What if“ end to end

scenario

planning

Business requires end to end view on risk and opportunitiesIBP brings what if scenario planning which can connect all functions



Projection of price, costs, margins embedded in processes & accountabilities

Alignment & integration between strategic, tactical and operational processes

Tight integration of product, customer, services planning

What-if business scenario planning to model risks & opportunities in product/demand/supply/finance.

Budget, Forecast, Plans gap identification and management

Granularity, frequency aligned to process horizon. Ways of working and level linked to best

insights.

Fit for purpose organizational structures, roles & capabilities

Integrated Business Planning value driversThis is what makes a difference ….



IBP Process on SAP IBP.Selected customer stories.


SAP IBP functionality overviewSAP brings value add concepts into the tool 4 times a year e.g. DDMRP

Supply Chain Control Tower

IBP for Sales and Operations Planning

IBP for Inventory IBP for Demand

IBP for Response & Supply

SAP Integrated Business Planning

Excel UI Web UI Fiori Apps JAM Collaboration

HANA Platform

► Multi-echelon inventory optimisation tool with proven “Smartops” algorithms

► Safety stock planning

► DDMRP

► Auto-outlier correction

► Statistical forecasting algorithms

► Segmentation (ABC / XYZ)

► Forecast error measurement

► Short-term demand sensing and integration with PoS data

► S&OP and IBP processes, strategic, tactical & operational.

► Includes simplified heuristics, opens doors for new use cases e.g. budgeting input, financial planning, what-if simulations

► Exception management process

► From alerts to action workflow cases supported by JAM collaboration

► Extended SC collaboration, reporting & analytics

► In-memory database

► Algorithms platform for all applications, enabling scenario and version planning.

► Unified planning area

► Connectivity to Extendibility SAP Cloud Platform

► Constrained and unconstrained supply planning (demand propagation cross network, BOM etc., supply propagation cross network to customer / market level)

► Supply optimizer in time series data model

► Distribution planning & capable to match in order based data model, sales order confirmations, transfer orders …


Long Term planning

Tactical S&OP planning

Operational planning


Sales & Operations Planning (S&OP)

SAP HANA Platform


InventoryDemand sensing

Response

Supply

Demand planning


SAP HANA Platform



Response

Supply


Demand planning



SAP HANA Platform



ResponseSupply

Demand planning

How you can connect planning processes with SAP IBPMaximize business return gradually



Operational Planning

Tactical Planning

Long Term

Planning

Long Term Planning


End to end risks & opportunities simulations supports strategic decisionsEasy to model changes in network, sales, financials (1/3)

Long term strategic end to end simulation

► In strategic long term horizon it is extremely important to have flexibility to modeling uncertinity

► Modelling new sales channels, big accounts, market acquisition can be coupled with simulation of the impact on supply chain and operations network

► We have seen often that strategic model has to be analyzed end to end with financial impact

► Strategic scenarios are explained with assumptions behind it

► Financial model can impact ex-change rates, average prices, average costs

► Strategic scenarios normally are executed on aggregated level

Strategic model

Plant 1

Warehouse 1

Channel 1

Supplier 1

Scenario A : Baseline Scenario B : Growth

Channel 2

Warehouse 1

Channel 1

Supplier 1

Channel 2

Plant 1 Subcontractor

Channel 3

Current Integrated Business Plan Growth Plan



Commercial and Supply Chain sides of the strategic modelCombine drivers in one scenario (2/3)

Commercial & Supply Chain in end to end long term strategic simulation

Commercial

► Modelling of new channel, market entry, competitor acquisition can be entered on aggregated level

► We have seen that Compound Annual Growth Rate (CAGR) indicator helps to quickly understand top line impact

Supply Chain & Operations

► Use of existing network and product info can help to assess manufacturing, operations capabilities over long term strategic horizon

► We can identify overutilization of assets, to understand, capture options how you can solve it in long term horizon.



Connecting all dots to see fin. impact

► Supply chain and operations extension can consider new subcontractor introduction to simulate volumetric and cost impact

► Long term currency ex-change rates modeling helps to have full visibility on operating profit strategic scenario projections

► Operating profit impact can be analyzed on aggregated level with drill down options

Model risk and opportunity with financial impactSupply chain assets extension and its fin impact (3/3)



Active Ingredient

Formulation 1

Formulation2Finished Product

1000L

Finished Product 200L

Finished Product 10L

Finished Product 5L

Finished Product Tanker

Market Bottom Up AI forecast

Plant Top down:

forecast for active ingredient calculated based on active ingredient consumption / direct sales transactions

Consensus forecast & plan for Active Ingredient

Market Bottom Up:

Independent demand / forecast of finished goods is exploded with component usage stored in BOM resulting in dependent demand for active ingredient.

Sourcing Plant Top Down AI forecast

Forecasting and Planning strategic product formStrategic attention is needed to product which build up to 80% of finished good cost (1/2)

Forecasting and Planning Strategic Form of Products

► Strategic form of the product often builds up very significant portion of the finished product cost e.g. 70% in chemical or up to 80& in pharma industry.

► Forecasting and planning for strategic products is often done bottom up and top down

► Bottom up reflects market trends

► Top down is done based on consumption

► Reconciliation between top down & bottom happens in strategic long term horizon and impacts allocation planning affecting market performance



Forecasting and Planning Strategic Form of Products

► Reconciliation between top down and bottom up very often needs to be supported by scenario planning.

► Scenario planning helps business to address discrepancies, understand root causes of top down-bottom up forecasts and plans for greater impact on company performance

► Forecasting of dependent demand can be often done with help of statistical forecast algorithm which on that level often are fed in with seasonal data.

Forecasting and Planning strategic product formReconciliation and simulations become key in solving challenges on strategic products (2/2)



Tactical S&OP – Demand – Supply - Inventory Planning


Tactical Planning

Lon Term

Planning


Z

Y

X

A B C D

Margin / Revenue / Cost / Volume contribution

Va

ria

bilit

y

High Low

High

Low

Portfolio rationalization

Reorder point

Make to Order Make to StockLate customization on lower

BOM level

Demand planner & demand manager

Review draft and agree final segmentation

Adjust segmentation for phase ins & outs

Create draft segmentationConfirm level data,

methods …

Prepare Review and Sign Off Implement

Apply segmentation in operational, tactical,

strategic S&OP

Use

Demand planner Marketing & Sales Demand plannerDemand planner & demand manager

Product review, segmentation

► Product, services, customer review is a cross functional and first step in S&OP

► It can serve as way to evaluate profitability of products services, helps you to understand cost to serve

► Segmentation principles should be embedded into to demand, supply, inventory planning to achieve alignment with strategic objectives can drive segmentation e.g. profitable growth.

Sales & operations planning – Product reviewSegmentation of Product/services/customers can support execution of your strategy



Direct customer

Consumer

Invoice netted with returns

Low

Invoice Low

Shipments Medium

Historical Sales Orders, Customer

schedulesMedium to high

IBP maturity and benefits

IBP demand prediction error

Category of selling Demand driven transformation

direction

Customer Selling type

Direct customer

Sell in

Sell through

Demand signal,

Point of Sales dataHigh

Low High

Low Medium

Low to medium Medium

Medium to high Low

High Low

IBP transparencyType of primary data input

Customer of your customer

Sell out

Historical Sales Orders, Customer

schedulesHigh High Low

Sales & operations planning – Demand reviewKnowing what you forecast and what you should forecast is essential (1/2)



Invoiced quantity

Shipped quantity

Ordered quantity

Demand Quantity

Invoiced quantity netted with return quantity

Direct customer

Customer of your customer,

consumer

0 pcs 80 pcs

0 pcs 100 pcs

60 pcs 40 pcs

120 pcs 0 pcs

120 pcs 0 pcs

February March

-20Return qty

0 pcs

0 pcs

0 pcs

0 pcs

10 pcs

January Demand driven transformation

direction

Primary Data InputCustomer type

Sales & operations planning – Demand reviewKnowing what you forecast and what you should forecast is essential (2/2)

Knowing what you forecast

► Deciding right data input for your forecast is essential to product availability, customer service and financial performance

► Demand qty of 10-120 January-February vs 80 in March makes a difference and impacts your operations



Benefits of improved forecast strategies

Service level improvement Inventory reduction

- 2%

Simple statisticsAdvanced statistics

Market-driven process

Monitoring process

25% 35% 55% 70% 80%

Forecast accuracy (SKU level)

Based on results Corus Tubes case, Bram DeSmet

+4%

+9%

+7%

+4%

- 5%

- 10%

- 5%

Simple statisticsAdvanced statistics

Forecasting

► Statistical forecasting combined with analytics should not be treated as black box, since then it will deliver expected outcome

► More manual efforts doe not mean better forecast

► More advanced ways to make statistical forecasting including “FORECASTING AS SERVICE” bring huge benefits.

Sales & operations planning – Demand reviewDemand planning does not have to be very labor intensive, time consuming with highly questionable outputs



IBP algorithms Forecasting efforts Stable demand Intermittent demand Trend Season Cycle

Simple average Low

Simple moving average Low

Weighted average Low

Weighted moving average Low

Single exponential smoothing Low

Adaptive-Response-Rate-Single Exponential smoothing

Low

Double exponential smoothing

Medium

Triple exponential smoothing Medium

Automated exponential smoothing

Medium

Croston method

Medium

Multiple linear regression High

Brown’s linear smoothing algorithm

Medium

ARIMAHigh

SARIMA High

Sales & operations planning – Demand reviewLarge set of algorithms combined with analytical knowledge bring significant forecast improvements

Figure adjusted and based on Improving Forecasting with Integrated Business Planning Sankaran, … Kepczynski Springer 2019


Sales & operations planning – Demand reviewModelling future can be dependent on many variables e.g. weather, price, gross national product per capita, marketing budget … (1/3)



Multilinear regression

► Modeling of forecast variables and their impact is normally scenario dependent

► Scenarios for forecast calculated with different variables can be compared and impact on top / bottom lined can be assessed.



Assumptions

► Scenario planning for modelling forecast variables and their impact normally is supported with evaluation of assumptions

► Assumptions can be captured in SAP JAM e.g. as Pro and Cons

► Assumptions give meaning to the figures and make decision making process transparent




Sales Input

► Forecast can be provided from sales representative, sales leader, manger to sales director level

► Adjustments can be exception based.

► All inputs can be measured to evaluate value add of the adjustments

► We recommend to protect each entry

Sales & operations planning – Demand reviewQualitative input provided by sales team can be aligned to commercial org. structures


Marketing Input

► Product, Brand, Channel managers provide forecast on level which speaks to them e.g. product group, brand, families, sales channel, SKU if needed.

► Marketing in forecasting process can be organized in country, regional, global structures.

► They make adjustments to forecast on specific month or quarters

► SAP IBP Aggregation/Disaggregation flexible rules can help to align their inputs to marketing team best insights level. They are not forced to work on e.g. SKU-Plant-CustomerShipTo level.

Sales & operations planning – Demand reviewQualitative input provided by marketing is aligned to best insights level


Z Sales & Marketing Marketing

YDemand Planning

X

A B C D

ZMedium Target

Low TargetY

X High Target

A B C D

Z

S&M Input

S&M Input

M.input

M.InputY Stat. Fcst

X Statistical f.cst

A B C D

Demand planning capabilities

Statistical forecasting

Product/CustomerSegmentation

Process measurement

Techniques

Responsibility

Targets

Qualitative forecast inputs

Pre

dic

tab

ilit

y

High

Low

Margin/Revenue/Cost contribution

High Low


High Low


High Low

Pre

dic

tab

ilit

y

High

Low

Pre

dic

tab

ilit

y

High

Low

Sales & operations planning – Demand reviewWalk away of one size fit all forecasting, improve efficiency and effectiveness with segmentation



Unconstrained Supply Planning Optimized and Constrained Supply Planning

Propagates demand across the supply chain network, bill of material levels, lead-times

Determines capacity required to fulfill demand and inventory target

Determines feasible supply plan that minimizes the total costs of the supply chain or maximizes delivery

availability

Assumes Demand can be fully metCan project negative stocks

Capacity utilization can be >100% No financial drives are considered

Brings transparency on whole network

Identifies which demand can not be metMaximizes stock availabilityUtilizes capacity up to 100%

Cost and profit maximizes drivers are consideredOptimizes whole supply chain network

Planner manually adjusts proposed production plans to respect capacity constraints and resolve shortages

Planner understand cost/revenue drivers leading to alternative supply plan proposals

Planner reviews and fine-tune the supply plans

Sales & operations planning – Supply reviewUnconstrained and Optimized / constrained planning engine support effective decision making process



Demand Propagation cross supply network, BoM, lead-times…

Supply propagation resulting in projected stock, constraints, demand fulfilment …

Sales & operations planning – Supply reviewDemand is being propagated upstream and optimized supply plan is propagated downstream



Supply heuristics

► Heuristics propagatesdemand, runs netting and loads utilization of sites and resources

► You can identify where there are gaps in capacity

► You can change parameters driving capacity like no of shifts, hours per shift, resource efficiency.

► You can run simulation of heuristic unconstrained planning with new set of parameters stored per scenario and compare them.

Sales & operations planning – Supply reviewUnconstrained supply plan can help to identify bottlenecks



Sales & operations planning – Supply reviewOptimized/constrained supply plan will help you to understand impact on market / customer level

Supply optimizer

► Optimizer makes the best of given capacitites and maximizes eigher profit or availability.

► Optimizer can schedule preproduction, manage plan for scheduled maintenance

► Select suppliers with lower cost, select own production lines to optimize profit

► Results of optimization are translated from manufacturing assets level to markets / customers.



Net demand quantity after re-planning,

Provision calculation

Supply quantity correction and provision calculationAggregated projected calculation of auxiliary inventory

Batch level projected stock

Sales & operations planning – Supply reviewShelf life planning considers batch data and impacts financial provisions for future expired stock



• Maintained to avoid stock-out conditions due to demand and supply uncertainty

• The aim is to provide a cushion for the exceptional scenario and not to be used as replenishment

• Should maintain the target value

• Average amount of inventory required to meet customer demand

• Cycle stock level decreases with consumption against demand

• During the review period, orders may be placed to match the actual inventory position against the target one

• Stock in-transit

• Pipeline stock level increases with the additional sales volume and with longer lead times

Safety stock Cycle stock Pipeline stock

Time

Quantity

Safety stock

Cycle stock

Pipeline stock

Multi-stage calculations

Single-stage optimization

• Isolated planning results in over-buffering of inventory across the supply chain

• Determining postponement strategy is challenging (to stock at upstream or downstream warehouse)

2

StageS S S

C C C

1

3

• Coordinated planning eliminates over-buffering of inventory and ensures service level objectives are met

S S S

C C C

2

Stage

1

3

Sales & operations planning – Supply reviewMulti-echelon Inventory Optimization engine calculates required stock types considering whole network and BOM levels



Inventory Optimization

► Inventory optimization essentially works on drivers linked to demand / demand variability and to supply / supply variability

► Inventory Optimization normally is executed per scenario with various service levels, lead-times, forecast error and then compare each other.

► IO is connected to financial implication calculation

► SAP JAM can be used to capture assumption for greater transparency

Sales & operations planning – Supply reviewInventory Optimization is an iterative process where changes of inventory drivers can be simulated



Supplier collaboration

► SAP IBP has native integration with SAP Aribasupplier network collaboration platform.

► Supply heuristic or optimizer propagates requirement in SAP IBP which are assigned to specific supplier (sometimes as well based on optimization) and then transferred to SAP Ariba

► Once requirements are in ARIBA supplier commits or not, to them and confirmation is transferred back to SAP IBP to build realistic supply plan

Sales & operations planning – Supply reviewSupplier collaboration is enabled with native integration SAP IBP - SAP ARIBA



Supplier collaboration

► Confirmation of the supplier requirement are taken into supply planning, deviations are being assessed and impact being communicated from supply points to market / customer level.

► Supply planner gets unique and up to date information from whole supplier network in digital way.

Sales & operations planning – Supply reviewSupplier collaboration makes supply planning more reliable, more responsive



Sales & operations planning – Financial integrationFinance and Pricing team plays vital role in IBP process. Thanks to their involvement in IBP we can achieve to have one set of figures driving business.


Product Review Demand Review Supply ReviewIntegrated

ReconciliationManagement

Business Review

1. Valuation of business risk and opportunities linked to profitable allocation planning

2. Forecasting Supply chain and operations costs fluctuations incl. warehousing, transportation costs

3. Valuation of provisions linked to supply obsolescence and non standard cost drivers

4. Forecasting external procurement cost and currency ex-rate impact

5. Forecasting external manufacturing costs

6. Forecasting costs of delivery to customers

1. Valuation of end to end business risk and opportunities for Integrated Business Plan

2. Full year rolling results and integrated plan valuation

3. Budget revenue, profit, volume gap exposure

4. Budget gap closure risk & opportunities end to end scenarios forecasting

5. Connecting sales, supply and operations business models into coherent financial view

6. Integration of financial elements for profitability levels

1. Valuation of non-standard revenue sources

2. Valuation of credit availability impact on unconstrained value forecast

3. Valuation of forecast for standard and consignment sales models

4. Full monetization of unconstrained forecast -top line revenue

5. Valuation of business risk and opportunities linked to unconstrained consensus demand

6. Financial impact of sales and marketing campaigns incl. price elasticity and impact simulations

7. Valuation of commercial provisions

1. Forecasting currency ex-rates and multicurrency valuations

2. Forecasting of selling prices in product / customer / geo segments

3. Forecasting of costs

4. Forecasting of margins even in profitability levels

5. Valuation of business risk and opportunities linked to product introduction

6. Link product/customer segmentation to financial company objectives

7. Regular joint review of product, customer, services portfolio

1. Valuation of integrated business plan performance

2. Joint recommendation to management of scenarios to manage end to end IBP risks & opportunities

3. Valuation of forecast error, inventory obsolesce, process errors and inefficiencies, other key cost drivers impact on business performance

4. Coordination of budget gap closure activities

5. Coordination of activities to ensure “one set of numbers are used to manage business”


Sales forecast quantity

Marketing forecast quantity

Price

Cost / Margin

Sales / marketing forecast revenue

Sales / marketing forecast profit

Consensus quantity

Consensus revenue

Consensus profit

Credit availabilityVS

Ag

ree

me

nt

Inp

ut

Sa

les

/ M

ark

eti

ng

Financial integration

► On top prices, costs,currency ex-rates finance can help to build realistic consensus demand plan by considering commercial constraints like credit availability on aggregated level

► Validation of consensus demand may result in set of actions for customer service, sales representatives in order to prompt for payments.

Sales & operations planning – Financial integrationValidation of consensus forecast versus aggregated credit availability



Financial impact

► Price, cost, margin forecasted changes can be embed in end to end scenario planning

► Scenario can cover impact analysis on revenue, profit, gaps to budget.

► Management is equipped with powerful instrument to simulate financial impact on executive S&OP meeting.

Sales & operations planning – Financial integrationBusiness risks & opportunities connected to price, cost, margin, currency ex-rates simulations make financial impact planning more realistic




Tactical Planning

Long TermPlanning



time

Consensus forecast

Sensed forecast

Inventory optimizationForecastt re-deployment

and transportation

Improved sequencing of

packaging

Sensed demand

Week1 Week 2 Week 3 Week 4

Sensed Demand Consensus monthly forecast

Sensed forecast

Cumulative volume

Gap

now

Impacted areas:

Demand sensing

► Demand sensing helps organization who can operationalize short term forecast optimization in inventory, transportation, distribution, late customization, production

► Demand sensing fits very well for products which are sold continuously like in FMCG

► Demand sensing will improve short term forecast, proven cases are above 10-15%

► Demand sensing is a process which can be used on top of monthly consensus demand forecasting.

Operational Planning – Demand sensingDemand sensing optimizes in fast pace and short term horizon, consensus demand plan from S&OP process



Key figures

Settings

Detect Bias1Recognize Order

Patterns2

Calculate Weekly

Sensed Demand3

Determine Daily

Distribution Factors4

Bias horizonsOrder quantity ratio calculation horizon

Min/max forecast adjustment bandwidth

Daily average calculation horizon

LagsMinimum accuracy

improvement thresholdWorking days

Historical data for forecasting

Future order quantity Sensed demand Delivery quantity

Consensus revisions / snapshots

Historical order quantity Adjusted sensed demandAdjusted delivery

quantity

Operational Planning – Demand sensingDemand sensing works on pattern recognition while detects bias in forecast , ups and downs in sales order pipeline



Demand Sensing

► Demand sensing produces daily forecast on product/site/customer-ship-to level.

► Sensed demand can be used for distribution planning and execution, optimization of transportation and inventory in case of shortages for continuously sold products.

► Sensed demand is easily compared with consensus demand plan.

21%

19%

20%

20%

10%

10%

0%

Daily Distribution Split Projection

Mon

Tue

Wed

Thu

Fri

Sat

Sun

Operational Planning – Demand sensingDemand sensing projects daily forecast on stocking point level



Analyze

Adjust

PublishPeriodic

Data Load

Prioritize Demands

Run Plan

Hourly / Daily Periodic

Confirmation Cycle

Supplies

SalesOrders

Sourcing Rules

Constraints

SupplierCommits

Forecast

…PlannedOrders

Confirmations Stock Transfer Requests

Purchase Requisitions

Priorities

1. New Product Introductions

2. High-Profile Customers

3. Key Regions

4. Previous Commits

5. Demand types…

Short term responsiveness

► Response optimization works in short term horizon on highly granular data / orders.

► Response optimization helps to improve responsiveness in distribution order to cash process

► Response optimization directly connects to SAP S/4 almost in real time.

Operational Planning – Supply order based responsivenessBeing responsive is must, daily process helps to maximize business return and follow priorities



Short term responsiveness

► Response engine creates sales order confirmation based on user defined rules

► Demand confirmation are populated cross “network” or orders and connected to each other with aim of re-scheduling and impact analysis

► Customer services can use gating factor analysis to navigate trough bottlenecks and confirmation in exception based manner.

Operational Planning – Supply order based responsivenessSAP IBP for response is integrated with sales order in ERP to make feasible rule based confirmations


Integrated Business PlanningHow to generate value with EY

8th November 2018

Robert Kepczynski & Vasileios Ieronymakis, EY CHMail: [email protected]



Projection of price, costs, margins embedded in processes & accountabilities

Alignment & integration between strategic, tactical and operational processes

Tight integration of product, customer, services planning

What-if business scenario planning to model risks & opportunities in product/demand/supply/finance.

Budget, Forecast, Plans gap identification and management

Granularity, frequency aligned to process horizon. Ways of working and level

linked to best insights.

Fit for purpose organizational structures, roles & capabilities

Value realization from Integrated Business Planning process frameworkEnabled by fit for purpose organization/skills, connected planning processes and SAP IBP.



30% Error

Demand Planner focus Demand Manager / (S&OP Manager) focus

Risk & opportunities Assumptions

Focus with segmentation

Efficiency with statistical

forecasting

IBP process integration

Forecast effectiveness Plan effectiveness

Monetization of forecast and plans

Volumetric consensus forecast

Product

Customers

Services

review

Demandreview

Supplyreview

Integrated Re-conciliation

Management Business review

Finance controller focus

Effective constraints assessment

Profit/fare-share allocation planning

IBP vs

Budget

95%

Value realization from organizational / competencies IBP designRoles should enable vertical and horizontal integration for end to end IBP



Direct CoE with x-functional representation

Demand

planning

excellence

IBP CoE

Sales and

marketing

excellence

Supply &

operations

excellence

Finance

excellence

IT excellence

Demand Sales and

Marketing

Supply &

operationsFinance

IT

IBP CoE

Virtual CoE with x-functional experience links

Value realization can be sustained with IBP Center Of ExpertiseTransformation project value has to be sustain in the business, IT



Files

TPM

CBP

DSiM

IBP Value realization can be achieved from data & system integrationWe may need to integrated data from commercial/finance systems (SAP & NON SAP) to make end to end informed decision



2. To-Be State Design

“E2E Integrated Planning”concept review

Design of to-be Planning processes, optionally build SAP

IBP prototype model.

Leading practices

Benchmarking

1. Current State Review

SC analytics

Interviews &workshops

3. Implementation Planning

Feasible implementationroadmap, prioritization

Final report & decision paper for Ex. Committee

Amend process mapping

Impact assessment (organization/capabilities,

processes, SAP IBP)

Benefitsassessment

SAP IBP knowledge, Connected projects, prioritizationEY Analytical tool, Process maps

Leading practices, applicable from other industries.

Value realization - 2 phased approached for effective Digital Integrated business Planning Transformation1st Phase: As Is / To-Be / Transformation plan


SAP IBP S&OP is a user-driven tool – implementation and requires a more iterative and collaborative design approach to gain greater user acceptance

Iterative design and prototype enables:

Quick paper design iterations

Quick solution design and configuration in iterations to allow for user feedback

Review of the solution before it is fully developed

Heavy user participation and user ownership of the solution design and development

Productive final development (avoid re-design of the configuration and models)

Effective testing and knowledge transfer

HypercareTraining & User

Acceptance Tests

Project Preparation

Technical Design

Evaluation

Cut-Over and

Go-Live

1,..., n Sprints

Agile Design Build & Data management

Agile Design Build & Data management

Value realization - 2 phased approached for effective Digital Integrated business Planning Transformation2nd Phase: Technical design / Deployment / Operational transformation

Milestone

Main Project Phase


More than 100 predefined analyses

• end-to-end supply chain processes

• interactive root-cause analyses

• standardized data requests

• transactional data based

• multi-year data sets

Lead time reduction

Inventory reduction

in 4-6 months

Improvement of forecast accuracy

Deliveryperformance

Annual supply chain cost reduction

> 30% pts21% 18% 26% 21% pts

Proven results at other customers

Findings Generator

Improvement potentials+


SAP HANA Platform



Response

Supply


Demand planning

Process and SAP IBP deployment

Value realization from 2 phased approach in Digital IBP TransformationTangible positive impact

As-is, Analytics


Value Realization - Automated “ Lights out planning” journeyEY process steps

Planning hubs & Center of Excellence

Segmentation, synchronization &

optimization

Sensing demand and creating flow

across the segmented value chain

Exception-based agile decision-making in the connected value chains

Focus planning efforts and gain efficiencies

Establishing lights-out planning

With intelligent automation based on cognitive and artificial

intelligence, RPA

Transforming S&OP to IDP to enterprise business planning

Low or no touch planning

High intervention –manual planning

Today Future

Digital disruption efficiency step change

Enabling and enabled by increasing levels of automation

1

2

3

4

5

% touchless planning

EY’s Integrated Digital Planning solution is a journey which starts from a “high-intervention and manual” planning process and advances to a “low/no-touch/lights out” planning process. In order to achieve IDP excellence, we have outlined a five-phase approach:


Highly automatized forecastingDifferentiated forecasting as tailored way to control degree of forecasting automatization incl. ML

► CX,CY,BX products

Automation

► Automation rules can be

product segment specific

and with time of

development of new SAP

IBP functionality supported

broadly by machine learning

like Demand Sensing.

► AZ, BZ, AYproducts

Segmentation

Phase in / Phase out / Samples

Simplified product price/cost forecasting

Machine learning in Demand Sensing (1-2 M)

Automatic forecasting level detection*

Automatic/ Manual algorithm selection*

PoS Data collection, cleansing … in DSiM

Automatic Data series components analysis for SKU algorithm assignment

Optimization based on order pattern, delivery, forecast error and soon on PoS Data

Outlier Detection

Outlier Correction

Detail / aggregated / Stat. forecast run

Market insights

Bottom up

Promotional uplifts / promotion planning

Demand Shaping e.g. Price tactics impact with MLR

Combine Sensed demand with mid term forecast

Consensus forecast 1-24 M

Other forecast inputs e.g., weighted combined forecast

Simplified Monetization of forecast

Process measurement

“Lights out planning”

Reporting, Exception management

21 3 4 4 5 13 13 14 15

6 7 8 9 11 11 12 1210

Segmentation

Phase in / Phase out / Samples

Machine learning in Demand Sensing (1-2 M)

Automatic forecasting level detection*

Automatic/ Manual algorithm selection*

PoS Data collection, cleansing … in DSiM

Automatic Data series components analysis for SKU algorithm assignment

Optimization based on order pattern, delivery, forecast error and soon on PoS Data

Outlier Detection

Outlier Correction

Detail / aggregated / Stat. forecast run

Market insights

Bottom up

Promotional uplifts / promotion planning

Demand Shaping e.g. Price tactics impact with MLR

Combine Sensed demand with mid term forecast

Consensus forecast 1-24 M

Other forecast inputs e.g., weighted combined forecast

What-if monetization of forecast scenarios

Process measurement

“Lights out planning”

Reporting, Exception management

21 3 4 4 5 13 13 14 15

12 1210

Forecast product price, cost. Ex. Change rate

Top down

986 7 11 11

► Automated step

► Manual step

10 ► Skipped step


Market trend in Automated “ Lights out planning” planningExample of automatization process framework

Machine learning algorithms

Consumer data

Product data

Big data repository & analytics

Multidimensional dynamic clustering

Clusters

How shall I handle exceptions ?

Let us go cluster by cluster and analyse

insights gathered

I display relevant data

Ok let start from North region and

beverages

Cluster processing thresholds

Automatic forecasting & planning

Guided exception based forecasting & planning

Differentiated forecasting & planning

Artificial Intelligence assistant

Planner

Hi John, We need to review whole forecast and plan today, lets get us started.

Artificial Intelligence

Guided planning



EY global thought leadership in Integrated Business Planning, built on business and technology hands on experience, market trends

Implementing IBP concept on SAP

IBP

Foundations of Integrated Business

PlanningRobert Kepczynski

(your presenter), is

main author of book

written from business

and technology

practitioners view.

Book explains what

integrated business

planning is about, how to

prepare transformation

journey in organization,

skills , processes design.

How to leverage SAP

IBP technology.

Available on the market

Amazon, Springer

Robert Kepczynski (your

presenter), is main author

of book written from

business and technology

practitioners view.

Book explains with rich set

of process context and SAP

IBP use cases, how to

implement Integrated

Business Planning in

operational, tactical and

long term planning

processes with use of SAP

IBP.

Available on the market

Amazon, Springer

Integrated Business Planning

improves forecasting

Robert Kepczynski (your

presenter) is co-author of the

book about “How to make

short, mid and long term

forecasting efficient and

effective with SAP IBP”.

Book explains statistical

forecasting, demand sensing

and custom methods for

seasonal and intermittent

products with wealth of SAP

IBP use cases.

Anticipated on the market in

Q1/Q2 2019.

Our selected publications

http://www.anrdoezrs.net/links/8845291/type/dlg/https:/www.springer.com/de/book/9783319756646




business value driven by integrated business …...figure adusted based on: integrated business...

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