white paper-business-forecasting - s&op - biel - 04-19-11

1 of1lBusiness Forecasting

B:u ilding:a:Colle'tsbi iVe.:.:nO:rqoasti:ngi:: PfooeSSConnecting the Short-Term & Long-Term

(Jim Biel, 4t19111l,

i.and:i:#Cfioril Fdl*fi$6s:..ufit:hoiw

The...full.:Ut/Jrite:,.Faperwhich:follofiS,contaf,hs,,;a;rather,,briefr:::bulpt$olntH;.gra$h:i:c:oii€'ntEddisGrrssrioni::of::Eusiiless::;FCIr-e;crStifiUi::::::lt:::i$i:ila'i:tl,S,:,rninute.,,ieafl:i Please contact me at 847.687.5379 (cell) [email protected] if you would like to discuss further.

Summary

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A.hi$h-p9rfo.r,r,r+ing,,BU$i,nesp:F.o,rbbasti:ng:.:Bf0Cg$5.:provlOes::speed'i:':UCCUia'oy; and::irnpfoVeU:.:eercision;rn,eking,

,Fureca$tltng.:,Bedi;::piaaiCbS:.,Sirou.ta.buioe,:ruiuie:,:irrpiu-vdment.ahu.:.uevetupmi6nt:::6fiiffi!tst,ixry':'proCesci:

The *ve,:,BU'iding.l.iprinoiplle$l./best.t.praCtiCes incluOe: (1) Focus on process excellence, then technology, (2) Create areal forecasting / planning process; (3) Use intelligence, not algorithms; (4) Use every source of data; (5) Collaborateinternally and eternally.

Kcy':i$.udbe:g$;.lFeoi6ts include: (1)Multi-functional collaboration; (2)Clear roles & responsibilities; (3)Metric driven; (4)Speed; (5) Accuracy; (6) Forecast Fewest Number of SKUs / Customers <efficiency>; (7) Assumptions, lssues, ActionItems are documented; (8) Forecast against logical demand streams - (a) Retail Channel; (b) Bto-B Channel; (c)Alternative Channels, etc. Large customers like Wal-Mart could be treated as a unique demand sub-stream withinindividual channels due to its size, importance, segregation, and focus within the organization.

The,,De.rn,anA,.;foteca*ing:::proCes$::$ttoU.1e..:$C,.,1€iilitatedi:b!4:..e..tproCeps,,speci:at1St;..tedoniin$,,,to,,,a,;;Der,nahd

tlie::6v€feii.:;EusineS$,.,FQi,epa.sting,..plocess;, An existing Business Forecasting group could bring expertise from forecastingimplementations from prior experience, and experience gained within their current organization.

tititi2ind,,,e,,, 5t:prabtiCesi:aipBioach::ih'the:Bnoceds;,:is,,,kh14;;,,,,Frode5S'first;, then:tbohnology::

An..,ihtegfa1'...part.:ot.the.Busi.nes5,,.pr:sCex,,ls atwoiieieo..bu$iness,:meeti+0,:,StfUdiufei: rlei,+; a,weekltimeetihgfocu,fir,lg:::ofi:::the:::rlee:fitenn (last month, current month, and nex month). ldentifying and understanding gapsto key shipment performance benchmarks (last forecast, budget) in the near-term, and determiningappropriate tactical actions to address the gaps are the primary goal of the weekly meetings. T:fle:::sec6rndtier,of,,rm,effing$i,is,i.ei.imo'rith!t:r,neeting,,,Whicn focUses,bn,,the,totting,1,8-36.i.rmdhih,:,fof€Cadti The monthlymeeting incorporates the learnings and actions from the weekly meetings.

ToolS,&,teehnologies::shCIu:ld::be:::ApUii.ed.i'sdai.ndt.:.S:.iwefil.iVeltedi.:Dfocess.i. current toors for consideration,development, and integration could include Trade.:.Pfomdtioh,,.M'anag,ement:,5VStemS;.ERP.sy.sfbmsl..,a.nd,..otheiInAnEgg.$lgnI:isySFrn$,i, The tools intersect as follows: the trade promotion system should be a key input for the ERPsystem, which helps to define / model the forecast, which is a key input for a Business Process Management (BPM)System.

The recommended transition / project plan for a slart;Lrp- plo-je-..cl or plgcess lmprov-eme_lt pfojggj..fgfale_d to

e5sessrnentjjfoeusins,:{il5,..!t..qin'.'pfoeess:;::::fdll6wi1rg:::Wittl::worE::eg:ein$:r:huBi:ness,::op6:ralionS;::::dreta:i:slruGtufes::1

m:eneg€mgnti,,,and,,,tg*nnica!:,:ere,as:i

cdrnpletedl:::fhb::cunent,$roceis should:,be;rnaihtaine0,until,S,,paialle-!,,tt5'n5ition,:Bf:an:::o-- - -"-eloeed:i.

Bus-Frcsting-Process-White-Paper-Biel-04-1 9-1 1, of 1 1

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] n ked I n P rof i I e : h!!p ://.www-lj n Kedj n..cqmlin4imhiel

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Business ForecastingBuilding a Collaborative Forecasting Process - A White Paper

Connecting the Short-Term & Long-Term(Jim Biel, 21181091

1. Business Forecasting supports:

o Operational Planningo Monthly Rolling & LE Forecasts Requirementso Annual Budgeto Long-Range Planning (Financial & Capital Planning)

2. Development of the Most Probable Forecast3. ldentification of Risks / Opportunities to Forecast4. Actions Defined & Executed to Fill Volume & Profit Gaps

o Speed, Accuracy, & lmproved Decision Making Are the Outcomes

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1. Develop and lmprove Business Forecasting capabilities, delivering the following benefits andvalue:

2. lncreased forecast accuracy improves business performance:

a. Working Capital improvement through

i. Decreased "dump and destroy" levels of Finished and Raw Materialsii. Decreased Safety Stock Levels of Finished and Raw Materials

3. Enhanced long-term Capital lnvestment Decision Making (Plant lnvestment based on Demand)

4. Enhanced Business Decision Support & Risk Management Environment

5. lmproves quality, accuracy, and cycle time of monthly and annual financialforecasting /planning

6. Provides on-going and future sustainability for a critical business process (forecasting)

7. Centrally supported tools and processes serving multiple business users and channels

8. Shortens process cycle time and improves productivity - gleans more value from existingheadcount

9. Business Outcome: The Business is Managed Using One Forecast Number

Bus-Frcsting-Process-White-Paper-Biel-0.21-1 9-1 1, of 1 1

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] ked I n P rof il e : http ://.www-lj n Kedj n..Cq!:nlindimhie!

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1. Focus on process excellence, then technology2. Create a real forecasting / planning process3. Use intelligence, not just algorithms4. Use every source ofdata5. Collaborate internally and externally

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ooo

Develop accurate forecasts at a more granular product (sku), and customer levellntegrate promotion lift factorsMake systems more responsive to increased demand visibility

o Enable sales, marketing, and finance to actively participate in the processo Monitor progress toward the goals set forth in the annual operating plano lnitiate demand-creation activities when the current forecast is falling short of plano lnclude exception-based alerts into the process to identify problems before they become

shortfalls

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o Use POS Data, lRl Data, and other data sources to create more accurate forecastso lntegrate volume forecasts for promoted itemso Consider the cannibalization effects from promotions on other SKUso Route exceptions discovered at any step of the process to whoever can resolve the problem

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o POS / lRl Datao Sales Historyo ConsumerDemographicso Syndicated Datao National Weather Serviceo Other

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o Add richness to the traditional historical data used to forecast future demand byincluding:

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Planned promotionsExtraordinary eventsCapacity constraintsNew product introductionsDiscontinued productsOperational problems

(Note: The Best Practices discussion found on this page is sourced from a September, 2006 Oracle White Paper titled,"The Transformation to Demand-Driven lndustry Leader".), www.oracle-comi us/products/applications/ebusiness/scm/0621 1 0. pdf


Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] ked I n P rofi I e : hftp.//.tryy441-ljn kedjn eqmlin4im.biel

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1. Collaborative (lnvolves Supply Chain, Business Mgt, Sales, lRl Specialists, Promotion Mgt, andFinance)

2. Process Accountabilities - Clear Roles & Responsibilities3. Metric Driven (Forecast Accuracy, Promotion Notification Compliance, Dump/Destroy $)4. Speed, Accuracy5. Forecast Fewest Number of SKUs and Customers to Gain Critical Mass6. Business Assumptions, lssues, & Actions ltems Are Documented7. Forecast Against Logical Demand Channels & Demand Streams. An example of a forecasting

channel breakdown for a produce manufacturer/supplier follows:

e Wal-Mart (Large Podion of overall Volume)B Non-Wal-Mad

o Organicso Non-Organics

D Wal-Marttr Non-Wal-Mart

F Food ServiceD National AccountsD Broadline / Street Distributors

8. Facilitated By An lndependent 3'd Party Process Specialist Group (Business Forecasting)

F:oftqgsf:::E,+::$:KU rune re Poss i ue). A Relative Few Number of SKUs Could Account For A Majority of Volume. Example, 40 SKUs = 75o/o of Retail Volume. Forecast These ltems Plus a Few Key Others = Critical Mass

FrlfEiadt,:Bv:Custorrbi::{g:hihtTol (Where Possibte). A Relative Few Number of Ship-To Customers Could Account For A Majority of Volume. Example, 50 Customers = 507o of Retail Volume. Key on These Customers to Gain Control / Understanding of Forecast Volatility

C:qh$ider::l+artlhq:::en:Exi$tiriU:::BUCihe$s:iFbreitistind':.Gioil6:':FaGiiltaie:thb::F eS$ (or create asmall. lean centralized qroup)

. Report to a Demand Leader (Sales or Marketing) - Why?, Demand starts the process, e(

. lf Full 3'd Party lndependence is Desired (Functionally Neutral - Neutralizes Bias), create asmall, lean centralized group reporting to the GM

. Leverages This Group's Existing Forecasting Process Best Practice Knowledge & Expertise

. Leverages This Group's Experience With lmplementing Forecasting Processes


Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] n ked I n P rof i I e : hSp://.y444ry-I n Kedj n..cqmlin4im.biel

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:Businms:i::RteGgsS

. Process First, Then Tools / Technology

. Tools / Technologies Supports / Enables the Process.l; ;,: g$B : pp6:6e55. .Best.:.Piectideis::iin I

P,roCe5$,,,Des+g n. Tools Technologies Include = Leverage Existing Systems & Tools:1::', : : :rwo,fjemCi:Sei::of::Eusiness ::M:edti ngs:l:(WEekry,:::&,Mo,ntttllf)

i,i,,,,,,,,WeetiV:::GCIliebibratiV6,,norecasti ng . M.e:eii ngo Focus: Near-Term = Last Month, Current Month, Next Montho ldentify Gaps to Last Forecast & Budgeto ldentify Gap Fill Actions

e;,,.::,:,M.ontrrlV,,O,o!lab;orativb.foreCaSq.h$..Meeti;ngo Demand -) Supply -) Finance Process Flowo Builds on Weekly Collaborative Meetingo,,,,,,,Fuq11gi:i:Ruffirrg,J,$.36,,Monthso Long-Term Strategic Discussiono ldentify Gaps to Last Forecast & Budgeto ldentify Gap FillActions

t:l::ut{:.:l{Gi r:l::::lt:t uE:-::ln:vFnefsl::i:e:ppf0aoh',,sh,0uf di:iSe:::r Flow$

. Timeframe of focus is what changes from weekly to monthly reviews

. Weekly Focus = Near-Term: Last, Current, Next Month

. Monthly Focus = Longer-Term Focus: Rolling 18-36 Months

sGE,C+|ARil.,,AFilER,,,NE*fi,.FAG:E,.*.,MCINTI{LY.MEEfri.NG,fli0W.'.9!l#Rf;. Highlights Demand, Supply, & Finance lnteraction & Sequencing


Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] kedl n P rofile: h!!p://.www-ljn Kedj.n..Cqnlinljlm.biel

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Business Forecasting Best PracticesForecast Development

Basic Premise: Product Stratification & Focus on Exceptions(J. Biel, 4122111)

'why?. Future Forecast

lmpact?

------€

i----------"i . Details &i ttlectrve lJatesi

i . lmpact on Otheri Products (Lift/i Decline)

i . DetailedEvaluation of CoreProduct Line. BusinessAssumptions

. Focus onExceptions

. BusinessAssumptions

ii The Process Actions ldentified Above Are The Key.I The Best Practices Are The Constant, Not The Toolsi Stay As Constant As Possible

Any Supporting Tools only Enable the Best Practices. i

The Tools and People Can Change, The Process Shouldj

Bus-Frcsting-Process-White-Paper-Biel-0zl-1 9-1 1, of 1 1

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] n ked I n P rofi I e : http ://.wwwlj n kedjn.eqmlin4imhiel

CURRENT PERIODFORECAST REVIEW

(Variance: Actuals vs.Last Forecast)

NEW PRODUCTSREVIEW

PRODUCTDISCONTINUATION

REVIEW

REVIEW PRODUCT KEYSEGMENTS

FULL DIAGNOSTICREVIEW

(Focus: All OtherProducts Outside theKey Product Segments)

OUTCOMES : (1) Most Probable Forecast

(2) Risks / Opportunities to Forecast Defined

Demand Review/Cases / Units/Revenue $/36 Month Window/Business Assumptions/Metrics

Finance Review/Business Group

Financial Review

/ Rough Cut Capacity/ Dem / Supp Balancing{ F inal " C apacilizati on"

/Audience: SC Fin, SCRaw, SC SBM

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The Monthlv Forecastinq & Meetinq Cycle

Bus-Frcsting-P rocess-White-Paper-B iel-04-1 9 - 1 1, P age 7 of 1 1

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] n P rofi le: http://_www-ljnKedjn.eqmlinljjm.biel

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Tpqt$;,'#',':TEGEtI4lpiCtEs, ( Li n kaqe)

It,.....Keyi.:SUpeorf:.Sy$te,msl,.Need,,to..Ee;.l.tdUr*itieC.,anO:.Uiif ited.,.ihlDeriViru,:,eorgCa*St;.,5uan,,ns.Ti5de|+l1OffrOtlOIl...UyS[e.fn$

2u,,,,An.ERF',.S'\titern.,.:fSAp, OraCte;l.,lXogility)i,,,wtriCn..OgfiVe's...a...StatiSilcalt,.M.oUel..bnc...rcOmrnoUatdESystenl:::O, ve1-:rides)

3r'i,.;.i.:BPM.;.ll:lS'&O.F.;.S yStO rn

The effective development and linkaqe of supportinq tools and technoloqies shouldaccomplish the following:

/ One tool (ERP system) and process is utilized to derive forecasts/One single system of record (ERP system with clearly defined supporting systems)/ One forecast number developed for the same forecast time fence (short-mid-long-term forecasts)/One system supports SKU, customer, plant, DC forecasts/ Eliminates and minimizes much low-tech, labor intensive work and activities/ Makes business analysts "analysts"


Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] n ked I n P rof i I e : http:/-yqq4ry-.]jn Kedj n.eqmlin4im.biel

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Business"One

Forecasting Process & Data FlowForecast Number Used By All"

CUSTOMER

/ BusinessManagement

/ Finance/scrr Finance/scn Production/sCfr Purchasing/scn Advanced

Planning/ Business

ForecastingFor DemandReviewMeeting, etc.

AGGREGATION

/ DataAggregation &ReportingCapabilities toSupport S&OP,FinancialPlanning,Supply ChainPlanning, etc.

Reporting & S&OPSupport SystemsOutside the ERPSystem

OUTPUT

r' ForecastedCaseVolumesFrom ERPSystem

/ Dala TablesAvailable toBe Exportedto OtherSystems

/ ForecastAccuracyMetrics

/ Revenue $Available

CONVERSION

/ StatisticalModeling inERP System

/ Overrides/ New Products/ Discontinued

Productsr' Masking Data

For 1 TimeEvents

/ pricingAlgorithmApplied toVolume

INPUTS

/ HistoricalShipmentData

r' Open Orders/ Marketing

lntelligence/ Sales

lntelligence/ Promotions/ Supply Chain

lntelligencer' New Productsr' Discontinued

Products/ Customer

Contracts/ pricing

Algorithm

Bus-Frcsting-Process-White-Paper-Biel-04-19-1 1, of 1 1

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] n Profi le: h!!p://_vwwv-ltnKedjn..Cq.rnlinliim_biel

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Business Forecastinq & BPM Process lntersection

INPUT CONYERS/ON OUTPUT

BPM = Business Process Management

Bus-Frcsting-Process-White-Paper-Biel-04-1 9-11, of '1 IJim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected]

Linkedl n Profile: hgp://.www-lin(edj.neqmlin/jtm.biel

BPM / Rep Systems.Financial Reporting

.Mgt. Dashboard

CORE MASTER DATA.Producl Master.Bill of Materials (BOM).Recipes.Product Costs (Fin).Pricing.Other

ACTUALS.Shipments.By Channel.By SKU.By Customer.Units.Sales $.Costs - Prod Fin.Costs * Raw.Sales & Markel.Other

FORECAST$vol / sls g

.By Channel

.By SKU

.By Customer

.Units

.Sales $

FOREGAST$ Costs.Variable.Fixed

VARIOUS FINANCE,SUPPLY CHAIN,GUSTOMER SERVICEPROCESSES,SYSTEMS

(lncludesSpreadsheets)

ERP Svstem w/SUPPORTING SYSTEMS.Units.Price $.Promotions (l-PM).MRP - Cases to Lbs

FINANCIAL SYSTEMS& PROCESSES

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.-Et:irt:t.,iiDate'ir$f tigtu,tu$;,1;,;Menegdm-e..1[ftrr:r.r.:.r.rTeffi hicajt:::fr r,eas

Fiffi.'.#r'i$:.ga'P:iland:.tisJc:ldssds$in€rl{,i:::aidefaff€d:pto'redt::ptanr,,tiffigeti,and:,ena-ngU:,:menagelreEf:#ertcafi :::F€:.:cotdpl6tedi,

lJsing an outside process coach to help with the assessment, initial education, implementation, androll-out should be considered to aid the internal project team.

FEx:iREFERENGE':'Dffi [t.fi tEN,Ti

1) iifte::ilita.nsfomatibn.'to....DernandlDfiVe,n,:lhd,UStrll Leaderit An Oracle White Paper, September, 2006Availableviathefollowinglink, v4ryW.oracle.qqmluslprqdqclslapplicationslebUsinegs/scm/Q02110.pdf

Bus-Frcsting-Process-White-Paper-B iel-04-1 9-1 1, Page 1 1 of 1 1

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: [email protected] Profi le: h!!p://.www-ljnKedjn..cqmlinljimhiel