1. 1 © The Delos Partnership 2005 Sales Forecasting and Demand Management The Ideal process

2. 2 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

3. 3 © The Delos Partnership 2005 1. Capture Actual Each month we need to capture Actual Demand Demand means : –What did customers require for delivery in the month Captured from Order Entry Software

4. 4 © The Delos Partnership 2005 1. Capture Actual May need orders to record required quantity and date Should be distinct from promised quantity or shipped quantity and date Should not be fudged by supply shortage

5. 5 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

6. 6 © The Delos Partnership 2005 2. Filter Actual Demand  If forecast to be based at all on history, it is sometime necessary to rewrite history  Look for unusual demand, not going to be repeated  Competitor going out of business  World Football cup  Mistake  Remove spike caused by stock outs Aug5035 Sept6040 Oct 237Stockout Nov5750

7. 7 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

8. 8 © The Delos Partnership 2005 3. Execute Statistical Forecast Forecast should use history to produce trends and identify patterns Key influences to be detected : –Base –Trend –Seasonality

9. 9 © The Delos Partnership 2005 Base and Trend Base Trend

10. 10 © The Delos Partnership 2005 Framework for Process Review Process Name InputsPurpose/AgendaOutputs People Desired Culture Measures Systems to support this step Link to other Processes

11. 11 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

12. 12 © The Delos Partnership 2005 “Tell me how you will measure me and I will tell you how I will behave” “Measure me irrationally and I will behave irrationally” Behaviour issue

13. 13 © The Delos Partnership 2005 Forecast Accuracy  Definition  Purpose  Horizon  Source of Information  Percent of items within a tolerance  Assess the degree of flexibility required by the supply side and to improve the process  Cumulative lead time (= purchasing plus manufacturing LT)  Forecasting module  Sales module

14. 14 © The Delos Partnership 2005 Cumulative Lead Time is key Forecast Cumulative Lead Time Forecast made for here Store this forecast Today JulyAugustSeptember

15. 15 © The Delos Partnership 2005 Store the Forecasts Information stored from forecasting system March 99 - Forecast Prepared by : A Jones Family A Family B Family C Feb - 99 - Forecast Jan 99 - Forecast Dec 98 - Forecast Nov 98 - Forecast Oct 98 - Forecast Sept 98 - Forecast Aug 98 - Forecast Jul 98 - Forecast

16. 16 © The Delos Partnership 2005 Record the Actual Actual Demand – September 2000 Family A 143562 75 143678125 143587140 143597 20 143276310 TOTAL670 Demand = orders received required for despatch in month

17. 17 © The Delos Partnership 2005 Measure Demand - Not Sale  Demand = ‘Customer Orders required’ which needs capture of Customer Request date at point of order entry Jan10,000 Feb15,000 Mar20,000 Apr 2,305Stockout May25,000

18. 18 © The Delos Partnership 2005 What Should Be Measured? Product Family Product Mix Forecast Individual Item Forecasts Overall Forecasting Process

19. 19 © The Delos Partnership 2005 Forecast Accuracy Report – by Tolerance Forecast Accuracy = 3/7 = 42 %

20. 20 © The Delos Partnership 2005 Forecast Accuracy Report - MAD GroupProductForecastActualAbs Error% Error Product Group A Product 12310012020 Product 4562001505025 Product 7893003303010 Total600 10017 % Product Group B Product 34520030010050 Product 56750030020040 Product 89060070010017 Product 678200400200100 Total1500170060040 %

21. 21 © The Delos Partnership 2005 Forecast Accuracy Above Target

22. 22 © The Delos Partnership 2005 Measure the bias in Forecasts Bias is the biggest cause of either inventory or shortages Bias also causes mistrust

23. 23 © The Delos Partnership 2005 Impact of Biassed Forecast Increase resources to meet higher demand OVERFORECASTING IS AS BAD AS UNDERFORECASTING More Stocks More Labour More Materials More Plant No Sales Cost of Goods increases OVERFORECASTING GROSS MARGIN GROSS MARGIN Stocks Low Labour Unavailable Short of Capacity Short of Materials Lost Sales Cost of Goods increases GROSS MARGIN GROSS MARGIN UNDERFORECASTING Resources insufficient to meet demand

24. 24 © The Delos Partnership 2005 Measure the Bias of the Forecast Actual should be normally distributed around the forecast Statistics on Safety stock don’t work if not..

25. 25 © The Delos Partnership 2005 Forecast Quality and Bias Graph Forecasts to display Bias Bias

26. 26 © The Delos Partnership 2005 Review Changes in Forecast Over Time – Waterfall Chart JulAugSepOctNovDecJanFebMar Jul100 110 120 Aug90110 130 120 Sep105110115 120 Oct115120 115 Nov130125 120 Dec120125 130 Jan115105 130 Feb90105130 Mar110130 = Actual

27. 27 © The Delos Partnership 2005 Review forecast accuracy over time Does forecast accuracy improve/ get worse as it gets closer to a month? Forecast Accuracy Over Time

28. 28 © The Delos Partnership 2005 Accountability  Sales  Marketing  Demand Manager  Logistics  Manufacturing  Finance Who is accountable for the Forecast ?

29. 29 © The Delos Partnership 2005 Performance Targets Objective Target Milestone What would your target be ?

30. 30 © The Delos Partnership 2005 What to Do With the Measure Improve sales planning Improve links to customers Implement DRP/EDI Look at product range Alter design of products Stock at lower level in BOM Review safety stocking strategy Review capacity strategy

31. 31 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

32. 32 © The Delos Partnership 2005 Sales Forecasting: Inputs New Customers New Products Pricing Initiatives Advertising And Promotions Cannibalisation Customers Own Forecast Competitors Activity External Factors

33. 33 © The Delos Partnership 2005 New Product Planning Issues Forecasting More Difficult (Volume & Value) Shape Of Product Life Cycle Impact On Existing Products New Process & Technology Product Configuration Changes Lead Time - Material/packaging Demand Often Dependent On Supply

34. 34 © The Delos Partnership 2005 Management of Innovation Stage/Gate Process Formal Process for Managing Project Gate 0 Gate 0 Gate 1 Gate 1 Gate 2 Gate 2 Gate 3 Gate 3 Gate 4 Gate 4 Stage 0Stage 1Stage 2Stage 3Stage 4 Review InvestigateFinancial Case DevelopTestLaunch Forecast Entered into System to drive MRP Forecast Reviewed here For accuracy

35. 35 © The Delos Partnership 2005 New Product Plan/ Marketing Activity Review Review Changes to Projects Highlight Impact on Supply Chain Communicate changes

36. 36 © The Delos Partnership 2005 Effect of New Products on Old Products Cannibalisation Definition: The impact (usually negative) of sales on old product from new product –Assess the impact:- Timing Volume Finance – Review impact on run-out of old product – Product Life cycle effect

37. 37 © The Delos Partnership 2005 Effect of New Products on Old Products ItemJulAugSepOctNovDecJanFebApr 12453 Old 1001201158020102050 12468 New 120907085130150 Total10012011520011080105135150 Pipeline Fill “Last Time Buys”

38. 38 © The Delos Partnership 2005 Product Proposal Form Change Note Number :Date of Request : __/__/__Change Type : Add/Amend/Delete Originator:Effective Date: -Requested __/__/__ -Actual __/__/__ Part number : Department :BOM Attached ? : Y/N Other Related Changes : Reason for Request for change Notification given to :Tick Description of Change :Development Manufacturing Planning Financial Consequences of Change :Purchasing Quality Sales and Marketing Approved by :Date of Approval __/__/__Regulatory JulAugSepOctNovDecJan…… Volume Value Cash Flow

39. 39 © The Delos Partnership 2005 Product Proposal Form ProductionQuantity on hand:Rework and Scrap Value Quantity in WIP :Routing Change PurchasingSupplier :New Part Number New Cost :New Order Qty On order :New Safety Stock QualitySpecifications :New Lead Time Test requirements:Customer Code DevelopmentReference no,:Vendor Code BOM Change note:Batch control SalesCustomersFinancial Projection attached: Y/N Quantity on hand FinanceStandard CostData Controller : RegulatoryStandards affected

40. 40 © The Delos Partnership 2005 Review Effect of Pricing Initiatives Pre-announced Price Increases Pull Forward Orders Pricing Structure & Ordering Behaviour Are Directly Related Pricing activity depends on assumptions about competitive reaction

41. 41 © The Delos Partnership 2005 Review Impact of Pricing Initiatives What do you need to know ? PRICE INCREASE/PRICE DECREASE:  When will it happen?  Which SKU’s price will increase?  What is the % increase/decrease? PRICE PROMOTION:  When will it start?  When will it finish?  Which SKUs will be included?  What is the % decrease?  Is this for every customer? NATIONAL PROMOTION:  When will it start?  When will it finish?  What sort of promotion is it?  Which SKUs will it be?  How much will sales increase against normal sales rate?  Will all customers take it? Needs Formal document

42. 42 © The Delos Partnership 2005 Forecast Price and Volume Together AprMayJunJulAugSepOctNovDecJanFebMar Volume 100 150100 150100 150120 165 Price 10 99 Value 1000 15001000 15001000 15001080 1650 Assumptions need to be recorded Residual effect of price decrease ? History Forecast

43. 43 © The Delos Partnership 2005 Demand Creation Demand Facts –Population –Numbers between age 13-16 –Children less than 11 Demand Drivers –Events (Xmas) –Desires –Technology Demand Controllers –Pricing –Promotion –Distribution –Advertising –Packaging ASSUMPTIONSASSUMPTIONS RESULTSRESULTS Market Share Market Reach Frequency of Purchase

44. 44 © The Delos Partnership 2005 Sales and Marketing Focus Month 1 Region ARegion B Cust A Cust B Cust C Cust A Cust D Cust E Prod Grou p ABC Prod 1 Prod 2 Prod 3 Prod Grou p XYZ Prod 4 Prod 5 Prod 6 Month 2 Region ARegion B Cust A Cust B Cust C Cust A Cust D Cust E Prod Grou p ABC Prod 1 Prod 2 Prod 3 Prod Grou p XYZ Prod 4 Prod 5 Prod 6 Month 3 Region ARegion B Cust A Cust B Cust C Cust A Cust D Cust E Prod Grou p ABC Prod 1 Prod 2 Prod 3 Prod Grou p XYZ Prod 4 Prod 5 Prod 6 Month 4 Region ARegion B Cust A Cust B Cust C Cust A Cust D Cust E Prod Grou p ABC Prod 1 Prod 2 Prod 3 Prod Grou p XYZ Prod 4 Prod 5 Prod 6 Month 5 Region ARegion B Cust A Cust B Cust C Cust A Cust D Cust E Prod Grou p ABC Prod 1 Prod 2 Prod 3 Prod Grou p XYZ Prod 4 Prod 5 Prod 6 Month 6 Region ARegion B Cust A Cust B Cust C Cust A Cust D Cust E Prod Grou p ABC Prod 1 Prod 2 Prod 3 Prod Grou p XYZ Prod 4 Prod 5 Prod 6 Sales/ Account Managers Sales/ Account Managers Marketing One Set of Numbers One Set of Numbers

45. 45 © The Delos Partnership 2005 Sales Planning Process EXAMPLE lSales vision and strategic framework lCarry out channel analysis and identify opportunities lEstablish sales development priorities and draft channel strategies lReview draft brand plans lIssue long term plans lDevelop detailed implementation plans lMonitor implementation P D A C

46. 46 © The Delos Partnership 2005 Alignment with Customers Customer Company Customer Now? Future!  Common Language  Their Financial year data  Common measures  Customer Service  Customer Profit  Common logistics Company Customer Common Objectives Common Objectives

47. 47 © The Delos Partnership 2005 Move to Customer Centric Sales Planning Manufacturing Distance Remoteness Research & Development Planning Marketing SalesCustomer Traditional

48. 48 © The Delos Partnership 2005 COLLABORATIVE PLANNING - PROGRESS Data Exchange Vendor Managed Inventory Co-Managed Inventory Trading Partnership Integrated Planning and Replenishment Ability to view customer data No management process Possibly available on Internet Agreed process for managing inventory (VMI) – supplier’s problem! Supplier schedules provided Agreed process for managing inventory Mutual availability of data and plans in joint systems Supplier schedules provided, and forecasts provided. Mutual sharing of long term plans Full briefing on long term strategy Joint improvement activities Joint forecast review Joint agreement on business plans and inventory strategy Joint improvement activities Time

49. 49 © The Delos Partnership 2005 COLLABORATIVE FORECASTING CPR Collaborate Plan Replenish SEAMLESSSEAMLESS CUSTOMER OUR COMPANY Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply One set of numbers ! Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply One set of numbers !

50. 50 © The Delos Partnership 2005 Sales Forecasting Competitors What Competitors Activity Affects Your Forecast? –Pricing –Listing –Promotions / Advertising –New Product Launch / Re Launch –Distribution Channel / Network –Investment Plans –Acquisition / Divestment

51. 51 © The Delos Partnership 2005 Framework for Process Review Process Name InputsPurpose/AgendaOutputs People Desired Culture Measures Systems to support this step Link to other Processes

52. 52 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

53. 53 © The Delos Partnership 2005 Sales Forecasting – Review External Events External Influence DEFINITION: Anything outside the business control that affects the forecast –Government –Environmental –Legislative –Epidemics

54. 54 © The Delos Partnership 2005 Pre-Planned Epidemic Forecast

55. 55 © The Delos Partnership 2005 Sales Forecasting Review Exceptional Demand Review large potential business –Tenders –New contracts –Large one time demand Decide whether to include in forecast or not –Avoid probabilities –Decide on hedging strategy –Agree on acceptance of risk

56. 56 © The Delos Partnership 2005 Forecasting Needs a Simple Process Filter Demand Execute Forecast Capture Actual C O N S E N S U S F O R E C A S T Review Commercial Plans Review Exceptional Demand Hold Demand Review Assumptions written down and agreed Review Accuracy

57. 57 © The Delos Partnership 2005 Hold Customer Review Meeting 1.Review changes 2.Agree assumptions and changes 3.Review products 4.Review customers 5.Review NPD activities 6.Review KPI’s 7.Sign off the forecast

58. 58 © The Delos Partnership 2005 Customer Relationship Management Strategy Demand Planner Sales and Marketing System Forecast Plan Manufacturing And Purchasing ERP System Consensus Forecast

59. 59 © The Delos Partnership 2005 Role of Demand Manager Co-ordinates Forecast Review the numbers Challenge not changes the forecast Work with Master Scheduler Works with Sales and Marketing Manages Customer Service levels – 98 % to Req. Date Inputs on Safety Stock policies Participates in SOP Process Decide or facilitates decision on who gets what in Allocation Manages the Customer Relationship Management system and process Manages the Customer Relationship Planning process Enforces good behaviours

60. 60 © The Delos Partnership 2005 Framework for Process Review Process Name InputsPurpose/AgendaOutputs People Desired Culture Measures Systems to support this step Link to other Processes