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SCT Demand © The Delos Partnership 2007 page 1 Supply Chain Techniques Principles of Demand Planning.

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Presentation on theme: "SCT Demand © The Delos Partnership 2007 page 1 Supply Chain Techniques Principles of Demand Planning."— Presentation transcript:

1 SCT Demand © The Delos Partnership 2007 page 1 Supply Chain Techniques Principles of Demand Planning

2 SCT Demand © The Delos Partnership 2007 page 2 Basic Formula Item Data BOMs And Routes Stock And Capacity Master Schedule ForecastsOrders Suppliers Factories What do they Actually Want ? What have We got ? What does it need ? What do we need to do ? What do we think they Want ?

3 SCT Demand © The Delos Partnership 2007 page 3 Why is a Forecast needed ? Design Purchase Intermediate Manufacture Sub-assemble Finish Distribute Cumulative Lead Time Customer Places Order here Forecast needed to cover this

4 SCT Demand © The Delos Partnership 2007 page 4 Common Reasons for Not Forecasting I can never make it 100% accurate My business has too many unforeseen peaks My business is different - you cant forecast it I dont know whos responsible for it anyway Its not in my objectives Im measured on getting high sales - so who cares about the forecast The factory never make what I forecast anyway Nobody thanks me for it – so why bother ?

5 SCT Demand © The Delos Partnership 2007 page 5 Forecasting – Definition A forecast is a formal request to the Supply Management function… From Sales and Marketing to have the product, materials and capacity available according to the quantity and At the time that they anticipate the demand will occur from the customer to ship the product to their premises

6 SCT Demand © The Delos Partnership 2007 page 6 Forecasting Needs a Simple Process FilterDemand Computeforecast CaptureActual C O N S E N S U S F O R E C A S T C O N S E N S U S F O R E C A S T Hold Demand Review Agree commercial plans plans Agree Exceptional demand Assumptions written down and agreed ReviewAccuracy

7 SCT Demand © The Delos Partnership 2007 page 7 Weeks Forecast Actual Demand Proj Avail Balance Available to Promise Cumulative ATP Master Schedule 75 Item Level Forecast – Make to Stock Part Number: Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100

8 SCT Demand © The Delos Partnership 2007 page 8 Customer Profile Customer X 50per month Customer Y 10 per month Customer Z 5 per month Customers A… 35 per month Total =100 per month Forecast at End Item Level

9 SCT Demand © The Delos Partnership 2007 page 9 End Item Level Forecast – Make to Stock Weeks Forecast Actual Demand Proj Avail Balance Available to Promise Cumulative ATP Master Schedule 75 Part Number: Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100

10 SCT Demand © The Delos Partnership 2007 page 10 Forecast Consumption Review How your software works Make sure you have the right settings for you! Getting it wrong leads to: Instability in the production plan Excess Inventory Poor Customer Service

11 SCT Demand © The Delos Partnership 2007 page 11 Forecast consumption bucket If you forecast monthly consume the forecast for the month – even if the forecast split by week If you forecast weekly [each week different, updated each week] consume within the week.

12 SCT Demand © The Delos Partnership 2007 page 12 Forecast Rollover Forecast Rollover – options : Drop all 15 Rollover all 15 to next week Drop some of the forecast Rolling over all 15 does not change the forecast Someone needs to decide Bigger issue at end of month?

13 SCT Demand © The Delos Partnership 2007 page 13 Demand Planning Handling Component demand

14 SCT Demand © The Delos Partnership 2007 page 14 MRP Logic Have we enough Stock ? Demands Yes/No Yes No Action Have we any on order ? Yes/No No Create Planned Order Yes Due Date= Need Date ? Due Date= Need Date ? Yes/No No Action Yes Action Message Action Message No

15 SCT Demand © The Delos Partnership 2007 page 15 Material Requirements Planning - Component Projected Gross Requirements Scheduled Receipts Projected Available Balance Planned Order Release Weeks Part Number Description : Red Item Lead Time : Order Quantity : Safety Stock :

16 SCT Demand © The Delos Partnership 2007 page 16 Material Requirements Planning – Spares Item Projected Gross Requirements Spares Forecast Actual Demand Scheduled Receipts Projected Available Balance Available to Promise Master Production Schedule Weeks Part Number Description : Red Item Lead Time : Order Quantity : Safety Stock :

17 SCT Demand © The Delos Partnership 2007 page 17 Demand Management Strategy Demand Manager Sales and Marketing System Forecast Plan Manufacturing And Purchasing ERP System Consensus Forecast

18 SCT Demand © The Delos Partnership 2007 page 18 Cumulative Lead Time Red Pen Part Number Red Pen Part Number Pen Barrel Part Number Pen Barrel Part Number Finished Nib Part Number Finished Nib Part Number Cap Part Number Cap Part Number Semi finished Nib Part Number Semi finished Nib Part Number Ink Part Number Ink Part Number Felt tip Part Number Felt tip Part Number Lead Time = 5 weeks Lead Time = 1 weeks Lead Time = 5 weeks Lead Time = 4 weeks Lead Time = 1 weeks CUMLEADTIMECUMLEADTIME

19 SCT Demand © The Delos Partnership 2007 page 19 Demand Management Horizon PLAN MANAGE EXECUTE Cumulative Lead Time Add or subtract To capacity Strong Link to Integrated Enterprise Planning Process Capacity and Materials firm Release Orders

20 SCT Demand © The Delos Partnership 2007 page 20 Abnormal demand How to identify and how to manage

21 SCT Demand © The Delos Partnership 2007 page 21 All incoming customer orders should be screened (evaluated) for normal/abnormal demand characteristics. Abnormal Demand

22 SCT Demand © The Delos Partnership 2007 page 22 Abnormal Demand Periods Forecast Actual Demand 1050 Proj Avail Balance Available to Promise 4075 Cumulative ATP Master Schedule 75 Part Number: Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100 Customer Z wants 100 ASAP ; can we supply it ?

23 SCT Demand © The Delos Partnership 2007 page 23 When can you promise the customer that they can have all the product ? How much is forecast and how much unforecast? How much is forecast and how much unforecast? How do you know how much is unforecast? How do you know how much is unforecast? What if they do not like your promise ? What if they do not like your promise ? Abnormal Demand Workshop

24 SCT Demand © The Delos Partnership 2007 page 24 This needs to be done on an exception basis in order to be practical. Dont consume the forecast if the demand is abnormal. Abnormal demand does not consume the forecast

25 SCT Demand © The Delos Partnership 2007 page 25 Identifying Abnormal Demands Individual Customer Order Demand Source Customer Market Sector Trade Sector Export vs UK Quantity Size Of Order For that customer [e.g. > 10 for customer Y] For any customer [e.g. > 5 for any other than X] % Of Forecast Cumulative Demand Track Variances to date in week or month Keep it simple !

26 SCT Demand © The Delos Partnership 2007 page 26 Tracking Abnormal Demand Cum Demand End of Week 1 End of Week 2 End of Week 3 End of Week 4 ActionReviewIncrease?Increase Future? Upper Forecast Limit ActionReviewDecrease?Decrease Future ?

27 SCT Demand © The Delos Partnership 2007 page 27 Each abnormal order must be coded with an abnormal demand flag so that the planning system will not consume the forecast. This can be done through the order entry system or after the fact when the demand resides in the planning system – but before the Master Schedule is recalculated! Software requirement

28 SCT Demand © The Delos Partnership 2007 page 28 Process to Manage Demand Check if Forecast is normal If normal – promise it Recalculate Available to Promise Consume the Forecast Recalculate PAB If abnormal 1.Check if any is normal 2.Promise normal part of Forecast Recalculate Available to Promise Consume the Forecast Recalculate PAB For remaining abnormal demand lDetermine agreeable promise date lAdvise customer lAgree any risks to other customers lRecalculate Available to Promise lConsume the Forecast lRecalculate PAB lReview action messages in MPS

29 SCT Demand © The Delos Partnership 2007 page 29 Abnormal Demand Policy Company needs to have a policy that states the process and mechanism for identifying and dealing with abnormal demands Accountability needs to be established with Sales and Marketing - the originators of the Forecast ! Abnormal Demand Policy

30 SCT Demand © The Delos Partnership 2007 page 30 1.What changes are required to support effective Demand Management and Control? 2.What changes are required in behaviour in order to enable effective Demand Management ? Abnormal Demand Review

31 SCT Demand © The Delos Partnership 2007 page 31 Ways to Manage Abnormal Demand Safety Capacity Safety Stock Manage the Product Range Reduce Lead Times Redesign the Product Sell something else!

32 SCT Demand © The Delos Partnership 2007 page 32 What Is Safety Capacity? Safety Capacity Is A Request from Sales and Marketing For Additional Capacity above current Forecast to cater for Abnormal Demands Still need to consider how to safety stock raw material

33 SCT Demand © The Delos Partnership 2007 page 33 Safety Capacity - Illustration

34 SCT Demand © The Delos Partnership 2007 page 34 What Is Safety Stock? Safety stock is a request for buffer that is: Time related Quantity related Or both In order to meet variations from forecast demand in terms of: Timing Quantity Both

35 SCT Demand © The Delos Partnership 2007 page 35 How Much Safety Stock Should You Have? Statistically calculated to maintain an agreed service level for existing products Estimated with judgment for new product and promotion to reduce market exposure Agreed with customers in order to protect them

36 SCT Demand © The Delos Partnership 2007 page 36 Demand Management 1.Requires proper Forecast consumption techniques 2.Required proper recognition of abnormal demand 3.Required behaviour change

37 SCT Demand © The Delos Partnership 2007 page 37 Workshop What will be forecast ? When does a forecast become an order ? Customer Schedules Product Manager Intelligence How will or intermediates be Forecast and Demand Managed ? How can we manage Intermediate items stealing from Finished Product


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