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Supply Chain TechniquesPrinciples of Demand Planning © The Delos Partnership 2007 page 1
© The Delos Partnership 2007Basic Formula What do we think they Want ? What do they Actually Want ? Forecasts Orders Master Schedule Item Data BOM’s And Routes Stock And Capacity What does it need ? What have We got ? Suppliers Factories What do we need to do ? © The Delos Partnership 2007 page 2
Why is a Forecast needed ?Forecast needed to cover this Distribute Customer Places Order here Finish Sub-assemble Intermediate Manufacture Purchase Design Cumulative Lead Time © The Delos Partnership 2007 page 3
Common Reasons for Not ForecastingI can never make it 100% accurate My business has too many unforeseen peaks My business is different - you can’t forecast it I don’t know who’s responsible for it anyway It’s not in my objectives I’m 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 ? © The Delos Partnership 2007 page 4
Forecasting – DefinitionA 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 © The Delos Partnership 2007 page 5
Forecasting Needs a Simple ProcessCapture Actual Filter Demand Compute forecast Review Accuracy Agree commercial plans Agree Exceptional demand Hold Demand Review Assumptions written down and agreed C O N S E N S U S F O R E C A S T © The Delos Partnership 2007 page 6
Item Level Forecast – Make to StockPart Number: Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: On Hand: 100 Weeks 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 25 20 Actual Demand Proj Avail Balance 75 50 30 65 45 Available to Promise Cumulative ATP Master Schedule © The Delos Partnership 2007 page 7
© The Delos Partnership 2007Customer Profile Customer X 50 per 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 © The Delos Partnership 2007 page 8
End Item Level Forecast – Make to StockPart Number: Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: On Hand: 100 Weeks 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 25 20 Actual Demand Proj Avail Balance 75 50 30 65 45 Available to Promise 100 Cumulative ATP Master Schedule © The Delos Partnership 2007 page 9
© The Delos Partnership 2007Forecast 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 © The Delos Partnership 2007 page 10
Forecast consumption bucketIf 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. © The Delos Partnership 2007 page 11
© The Delos Partnership 2007Forecast 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? © The Delos Partnership 2007 page 12
Handling Component demandDemand Planning Handling Component demand © The Delos Partnership 2007 page 13
© The Delos Partnership 2007MRP “Logic” Demands Have we enough Stock ? No Action Yes Action Message Yes/No Yes/No Yes No Action No Due Date= Need Date ? Yes Have we any on order ? Create Planned Order Yes/No No © The Delos Partnership 2007 page 14
Material Requirements Planning - ComponentLead Time : Order Quantity : Safety Stock : Part Number Description : Red Item 1 2 3 4 5 6 7 8 Projected Gross Requirements Scheduled Receipts Projected Available Balance Planned Order Release Weeks © The Delos Partnership 2007 page 15
Material Requirements Planning – Spares ItemLead Time : Order Quantity : Safety Stock : Part Number Description : Red Item 1 2 3 4 5 6 7 8 Projected Gross Requirements Spares Forecast Actual Demand Scheduled Receipts Projected Available Balance Available to Promise Master Production Schedule Weeks © The Delos Partnership 2007 page 16
© The Delos Partnership 2007Demand Management Plan Strategy Demand Manager System Forecast ERP System Sales and Marketing Manufacturing And Purchasing Consensus Forecast © The Delos Partnership 2007 page 17
© The Delos Partnership 2007Cumulative Lead Time Red Pen Part Number 12345 Lead Time = 1 weeks Pen Barrel Part Number 43768 Finished Nib Part Number 76452 Cap Part Number 89563 Lead Time = 1 weeks Lead Time = 5 weeks C U M L E A D T I Lead Time = 5 weeks Semi finished Nib Part Number 76532 Lead Time = 1 weeks Ink Part Number 10675 Felt tip Part Number 10783 Lead Time = 1 weeks Lead Time = 4 weeks © The Delos Partnership 2007 page 18
© The Delos Partnership 2007Demand Management EXECUTE MANAGE PLAN Add or subtract To capacity Strong Link to Integrated Enterprise Planning Process Release Orders Capacity and Materials “firm” Horizon Cumulative Lead Time © The Delos Partnership 2007 page 19
How to identify and how to manageAbnormal demand How to identify and how to manage © The Delos Partnership 2007 page 20
© The Delos Partnership 2007Abnormal Demand All incoming customer orders should be screened (evaluated) for normal/abnormal demand characteristics. © The Delos Partnership 2007 page 21
© The Delos Partnership 2007Abnormal Demand Part Number: Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: On Hand: 100 Periods 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 15 25 20 Actual Demand 50 Proj Avail Balance 90 30 65 45 Available to Promise 40 75 Cumulative ATP Master Schedule 1. The Factory system will work out what can be produced, based on the Net Requirements given it from the Distribution Centre. That is the plan that we have for Part number Here the plan shows that we will make 20 for weeks 3,7,11. 2. In turn the requirements for these products will create a demand for components. Here SKU Number is a component to make it could be a Cap to go on a bottle. Assuming that the Finished Product  takes two periods to make, then we will need 20 Caps in period 1 to enable start of Manufacture. 3. Hence if you look at the plan for SKU number 12478, there is a line called Gross Requirements which shows 20 in period 1. We should not go and order 20 from a supplier. We need to check if we have or will have any in stock. We have 25 in stock [On Hand = 25] and we will have 5 left over. 4. If we now look at period 5, we see we have another requirement for 20 caps. This is needed for the production plan for To satisfy this we need to order another 20 caps. 5 minus the 20 required would leave us 15 short. Given a lead time of 2 periods on our supplier, then we will need to order in period 3. Same again in period 9. Thus you can see from the linkage of the numbers that the forecast drives the production plan, which in turn drives the purchasing plan, which in turn drives suppliers to make or gear up to make. All of this is driven by the forecast, and demonstrates that the customers of the forecast are : DISTRIBUTION, MANUFACTURING, SUPPLIERS Customer Z wants 100 ASAP ; can we supply it ? © The Delos Partnership 2007 page 22
Abnormal Demand WorkshopWhen can you promise the customer that they can have all the product ? How much is forecast and how much unforecast? How do you know how much is unforecast? What if they do not like your promise ? © The Delos Partnership 2007 page 23
Abnormal demand does not consume the forecastThis needs to be done on an exception basis in order to be practical. Don’t consume the forecast if the demand is abnormal. © The Delos Partnership 2007 page 24
Identifying Abnormal DemandsIndividual 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 ! © The Delos Partnership 2007 page 25
Tracking Abnormal DemandCum Demand End of Week 1 End of Week 2 End of Week 3 End of Week 4 Action Review Increase? Increase Future? Upper 30 60 90 120 Forecast 25 50 75 100 Limit 20 40 80 Decrease? Decrease Future ? © The Delos Partnership 2007 page 26
© The Delos Partnership 2007Software requirement 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! © The Delos Partnership 2007 page 27
Process to Manage DemandCheck if Forecast is normal If normal – promise it Recalculate Available to Promise Consume the Forecast Recalculate PAB If abnormal Check if any is normal Promise normal part of Forecast For remaining abnormal demand Determine agreeable promise date Advise customer Agree any risks to other customers Review action messages in MPS © The Delos Partnership 2007 page 28
Abnormal Demand PolicyCompany 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 © The Delos Partnership 2007 page 29
Abnormal Demand ReviewWhat changes are required to support effective Demand Management and Control? What changes are required in behaviour in order to enable effective Demand Management ? © The Delos Partnership 2007 page 30
Ways to Manage Abnormal DemandSafety Capacity Safety Stock Manage the Product Range Reduce Lead Times Redesign the Product Sell something else! © The Delos Partnership 2007 page 31
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 © The Delos Partnership 2007 page 32
Safety Capacity - Illustration© The Delos Partnership 2007 page 33
© The Delos Partnership 2007What 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 © The Delos Partnership 2007 page 34
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 © The Delos Partnership 2007 page 35
© The Delos Partnership 2007Demand Management Requires proper Forecast consumption techniques Required proper recognition of abnormal demand Required behaviour change © The Delos Partnership 2007 page 36
© The Delos Partnership 2007Workshop 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 © The Delos Partnership 2007 page 37
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