Powerfully Simple

in a Demand Driven World

April 10, 2015

Getting the Most Out of SAP APO

ERP systems are the backbone of many organizations. Yet when it comes to supply chain planning, tools such as SAP APO often fall flat. This presentation sheds light on why this occurs and howtargeted investment in demand modeling analytics can make a bigdifference in getting back to revenuegrowth.

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Overview

What’s Changed: Increasing Long Tail of Demand

The “top down” approach to forecasting embedded in SAP APO does not capture long tail / variable demand as effectively as a “bottom-up” approach.

Managing forecast accuracy may be sufficient here from SAP APO ….

…. but does not work as well here…..

…. and this part is growing every year

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Drivers•Closer to demand consumption•Shorter product life cycles•SKU proliferation•More responsive – high granularityreplenishment cycles (daily/intra-day time buckets)•Forecasting at SKU-location daily

What’s Changed: The Need to be Demand Driven

SAP APO views the world in only one dimension

The one number view provides unattainable

and impractical outcomes

Demand modeling analytics can overcome the

limitation of a one number view

The one dimension is a time series forecast that is derived from historical shipments.

The reality is that the explosion of transactional data (web, promotions, NDI, POS, etc.) and “non-

traditional” demand signals need to be interpreted into a range of possible demand outcomes – NOT a single view to deliver growth and profitability to the business.

This demand-driven process analyzes multiple demand streams to understand the predictability (a

range of possibilities and confidence) of future demand consumption.

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What’s Changed: It is No Longer Just Forecasting

This is a reasonable approach for those itemsin the ‘head’ of the tail - but the reality is thatoperational forecasting needs to be about twosimultaneous outcomes.

1)2)

Forecast reliabilityUnderstanding of demand volatility

The details of the demand behavior go beyonda one number time series forecast.

Demand-driven demand modeling synthesizesthe various components of demand tounderstand what is true signal vs. noise.

Signal being forecast reliability, noise being theuncertainty or probability range of how futuredemand could materialize in the short, mediumand long term horizons.

APO applies a ‘best fit approach’ with a rudimentary ‘top-down’ SKU-level forecast

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Demand driven takes a probabilistic approach working from the bottom up

The Solution: Augmenting SAP APO

Augmenting SAP APO with demand modeling dramatically improves the quality of the demand signal.

The output from the modeling feeds inventory stocking, production planning, and logistics decisions.

Plus augmenting SAP APO is a minimally invasive way to scale capabilities towards a more sophisticated approach to planning

Without augmentation,

SAP APO is“stuck” here

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//

Service levels increased by 16%

Inventory turnover Increased by 25%

Positive market share growth

Moving from a national stocking

model to a hub- and-spoke model with 55

shipping and 161 selling locations

A 250% increase in

physical locations

450,000 SKU-Locations consisting

of both parts and finished goods

High product availability

targets-Some customers need

'Same Day' pickup

Balance service levels with inventory cost

Let’s Use Lennox as an Example

Lennox is a major HVAC supplier with highly seasonal demand and long tail inventory items (some items have to be in stock for 15 years post-manufacturing to meet service requirements). As the example below shows, implementing an enhanced solution to SAP APO can have a major effect on service and growth.

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Simulate Model both seasonality Sales

Highly variable Highly seasonal Many new network and variable demand increased

Independent demand demand product changes patterns reliably using by 50%(AC and heating) introductions machine learning

So What Does This Mean to You?

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Enhancing SAP APO (or other ERP system) with 3rd party solutions such as ToolsGroup’s SO99+ can significantly improve your forecasts, revenue, and cost structure. Ask yourself these questions and see if you are ready to enhance your planning process.

1. How much of my inventory is tied up in long tail, intermittent demand items?

2. How many items do I have where forecasting delivers little to no value in trying to plan such items?

3. What obstacles exist in SAP APO that prevent me from attaining my goals?

4. Am I overly dependent on excel spreadsheets to glean insights from my supply chain?

Additional Reference Sources

If you want to learn more about improving your forecasting with demand modeling analytics, ToolsGroup has an extensive resource library. Check out any of the links below to learn more.

Ar#cle Descrip#on Link

How ToolsGroup’s SO99+ Complements SAP APO

Detailed white paper on SAP APO expanding on what is contained in this high level deck bit.ly/1GZwEVh

SystagenixCase Study on how a healthcare company using SAP APO achieved significant improvements in forecast accuracy, inventory turns, and level of effort

bit.ly/1z3phrj

Next- GeneraSon‐ ForecasSng is Closer than you Might Think

Surrounded by an explosion of data, most forecasSng systems have no way to leverage or take advantage of it. bit.ly/1v0gtjI

PredicSve Commerce

Learn how PredicSve Commerce helps companies return to growth and accelerate their business performance by connecSng upstream demand sensing with downstream supply chain planning and execuSon, all in a single model

bit.ly/1r7inDV

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ToolsGroup Contact Information

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ToolsGroup75 Federal Street

Boston, MA 02110

Toolsgroup.com

Pat Smith, General Manager Psmith@toolsgroup.com

617-600-7522