Demand Planning II [Kompatibilitätsmodus] - WueCampus2 · • Know the difference between demand...

Christian HeinrichLehrstuhl für BWL und Wirtschaftsinformatik

Demand Planning & ForecastingPart II

1

Learning Objectives

• After this lecture you should

• Know the difference between demand management, demand planning and demand forecasting

• Be capable to distinguish between processing, influencing and anticipating demand

• Understand the interdependencies of demand planning with other elements of SC-Planning

• Be able to link theoretical concepts to software applications

• Be able to transfer the findings into a demand planning organization in a company

2Dipl.-Kfm. Christian Heinrich

3

Example 4: Chemical Supply Chain

Source: http://www.basf.com/group/corporate/de/about-basf/profile/verbund/verbund-sites

Dipl.-Kfm. Christian Heinrich

Planning with complex product structures

4

Kraftwerk

Aromaten-Anlage

Anolon-/KetonFabrik

Caprolactam-Fabrik

Polyamidproduktion(Polymerisation)

Polyamidproduktion(Konfektionierung)

Hydroxylamin-Fabrik

Polyamid-SortimentErdöl-Raffinerie Schwefelsäure-Fabrik

Cyclohexan-Fabrik

Salpetersäure-Fabrik

Düngemittel-Fabrik

Ammoniak-Fabrik

Source: BASFDipl.-Kfm. Christian Heinrich

5

Stages from raw material to end-customer

Sales - - Buy

Benzol Styrol Poly-styrol

Ethyl-benzol

CHEM CHEM CHEM CHEM

Supply

ConstructorDistributor Constructionmaterialstrade

Productportfolio

Naphtha

Raffinerie

Exxon, Shell, ...

Company C

Isover G+H, ...

Styrodur-platten

CHEM

Styrodur Factory ,Germany, Italiy, ...

Company BCompany A

Execution- Commodity -

- Relocation- Tank

PlanningCompany D

Pipeline

Productportfolio

Source: BASFDipl.-Kfm. Christian Heinrich

Where do you see complexity?

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North AmericaProduct 1 N-XYZProduct 2 N-ABCProduct 3 N-ABCProduct 4 N-ABC

Europe• Product 1 E-XYZ• Product 2 E-JKL• Product 3 E-GHI• Product 4 E-DEF

Asia/Location 2• Product 3 A-MNO• Product 4 A-MNO

Asia/Location 1• Product 2 A-MNO

Sales in Europe with external customers

Sales in North America with external customers

Raw material product 2 Europe - Asia

Raw material product 2Location 1 and 2in Asia

Sales in Asia with external customers

Usage of APO-DP for customer demands and transfers between regions

APO-DP

APO-DP

APO-DPAPO-DP

APO-DP


Raw material product 2North America - Asia

7

Questions

• What does BASF want to achieve with its Supply Chain? What are key objectives?

• What are the main differences compared to the previous examples(i.e. the iPhone & the H&M Supply Chain)?

• What are the key decisions that have to be taken in this Supply Chain, in the

• long term?• medium term?• short term?

• Who takes these decisions?


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Supply Chain Planning - Overview

Monitoring/Event Management

MaterialsManagement Production

Planning Sales & Distribution ERP*

Purchasing

*Relevant modules for Supply Chain Management

Strategic Network Design

SC Master Planning

Material Requirements

Planning&

Purchasing

ProductionPlanning

DistributionPlanning

Scheduling TransportationPlanning

DemandPlanning

OrderFulfillment

APS

Pla

nnin

g H

oriz

on

Monitoring/Event ManagementMonitoring/Event Management



Purchasing




Purchasing



Purchasing



Purchasing



SC Master Planning


Planning&

Purchasing

ProductionPlanning



DemandPlanning

OrderFulfillment

APS


SC Master Planning


Planning&

Purchasing

ProductionPlanning



DemandPlanning

OrderFulfillment

APS


SC Master Planning


Planning&

Purchasing

ProductionPlanning



DemandPlanning

OrderFulfillment

APS

Pla

nnin

g H

oriz

onP

lann

ing

Hor

izon


Managing the sell side of a business

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Plant

Plant

Plant

Warehouse

Sup

plie

rs

Cus

tom

ers

Supply-Demand Management"Make, Move, Store"

SupplierRelationshipManagement

"Buy"

CustomerRelationshipManagement

"Sell"


Scope of demand management

• What is demand management?

Concerned with processing, influencing, and anticipating demand

• Processing demand or, in more common terms, order processing or order fulfillment will be the basis for better demand planning results

• Main focus will be then on influencing

• Anticipating demand has been covered in last lesson as Forecasting


Order processing

• Order processing is usually viewed to span order booking to order shipment

• Example steps?

• Customer validation, order entry, credit checking, pricing, design changes, availability checks, delivery time estimation, notification of shipment, notification of delays


Information flow in the order processing

12

CUSTOMER ORDER ENTRY ANDCHECKING

Customer ValidationCredit Control Operations…

ERP

INVOICING

SHIPPING

CUSTOMER SERVICE

ORDERINTERRUPTION

ORDERPICKING AND

ASSEMBLY

RETURNS


Characteristics

• Can be a complex & time consuming process dealing largely with information flow

• Susceptible to ad hoc modifications over time in response to problems (e.g., extra credit check added due to expensive nonpaying customer a few years ago)

• A major customer contact point with organization

Can significantly impact customer perceptions

• IT advances & high customer impact

A potential profitable target for improvement


Example: Customer Tool

Amazon online order tracking


Influencing demand

• Some customers are more profitable than others

• Advancing technologies more practical to estimate profit potential of individual customers

• Can guide efforts/investments for customer retention & acquisition . . . investments to influence demand

• E.g.,

• Electronics manufacturer: reviews historical customer profit before sending service contract renewal

• Wireless phone firm: churn scores & lifetime value estimates influence number of customer contacts & attractiveness of offerings

Ongoing development of data mining methods


Demand Planning Strategies

16Source: Lee, Aligning Supply Chain Strategies with product uncertainities, California Management Review 2002

Demand Characteristics


Supply Planning Strategies

17

Supply Characteristics

Source: Lee, Aligning Supply Chain Strategies with product uncertainities, California Management Review 2002Dipl.-Kfm. Christian Heinrich

Consideration of Demand and Supply situation



Segmentation according to uncertainty

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• Efficient• Risk-hedging• Responsive• Agile

What are the consequences?

Demand uncertaintySu

pply

unc

erta

inty

low(stable

processes)

high(new

processes)

low(functional products)

high(innovative products)


Segmentation with characteristics

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Demand

stable demand

variable lead times

inflexibleflexible

stable, increased profits

Innovative productsFunctional productsSupply

low quality problems

variable, low profitsstable, increased profits

reliable lead times

variable demand

long product life cycle

considerable quality problems

easier changeover more difficult changeover

predictable demand demand is difficult topredict

low profit margin high profit marginhigh storage costslow storage costs

short sale periods


Responsive vs. efficient


How to cluster a product portfolio? Functional attributes

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• Number and type of intermediate products• Procurement frequency• Delivery flexibility and reliability• Procurement times• Intermediate product life cycle

Procurement type

• Organization type of the production process• Repetition rate• Set-up cost and times• Production bottlenecks• Working time flexibility

Production type

• Distribution structure• Delivery frequency• Transportation• Loading restrictions

Distribution type

• Customer relations and service• Security of demand• Sales trend and product life cycle• Number of products• Mass Customization• Bill of material/Recipes

Sales type Que

lle:

Sta

dtle

r, K

ilger

(201

0, S

. 71)


How to cluster a product portfolio? Structural attributes

24

Que

lle:

Sta

dtle

r, K

ilger

(201

0, S

. 71)

• Network structure• Degree of globalization• Location of decoupling points• Key bottlenecks (capacity limits)

Topographie

• Legal status• Balance of power• Direction of coordination• Type of communication

Integration and

coordination


Exercise: SC-Configuration

• Describe critical attributes of products/product groups of a company of your choice in the consumer goods and computer industry!

• Categorize these product groups into the right segment according to their uncertainties!


Demand Planning Rules

• Get the process right• Decide what levels you need to plan demand at that make sense

for your business.• Demand planning is a collaborative process, not a test of statistical

algorithms.• Demand planning is not just forecasting.• You can't control what you can't measure.• Cleanse the data.• Trust the numbers and manage by exception.

26Source: Blanchard, Newsweek, 2008Dipl.-Kfm. Christian Heinrich

Get the process right

• Demand planning is a sub-process within sales and operations planning or integrated business planning, not a stand-alone activity.

• Create an integrated business plan that is a cross-company activity and drives the rest of the business forward for profitably meeting customer demand.

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Supply Network Planning

Demand Planning

Balance Demand &Supply

Additional Demand Information

ForecastingDemand and Supply Strategy

Production Planning/ Detailed Scheduling

Sales & Operations Planning


Sales & Operations Planning

Execution

SC- Planning

Planning Overview

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FinancePlanning

StrategicPlanning

Control ofOperations

Production, Warehousing, Delivery

Demand /Supply

Balance

DemandManagement

Supply Management

Demand Planning

MasterPlanning

CapacityPlanning

Frequency Horizon DetailsAnnual 2-5 years Markets,

Regions

Monthly 2-18 month Productfamily

Weekly 1-3 month Products,articles

Daily 1-2 weeks Articles

BusinessPlanning


Decide what levels you need to plan demand at that make sense for your business.

• Some companies analyze and plan demand at the product family level, customer level or geographic level. The way you forecast and plan demand is unique to your business.

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Long term forecasts

• Single or multi-year horizon• Monthly or annual time bucket• Aggregate units (e.g., product/

service categories)• Input to “long term” decisions• Expensive & time consuming

methods

Short term forecasts

• Weekly or monthly horizon• Daily & weekly time bucket• Detailed units (e.g., SKU)• Input to “short term” decisions• Inexpensive & quick methods

For what purpose do you use short term forecasting and for whatlong term forecasting?


Demand planning is a collaborative process, not a test of statistical algorithms.

• The statistics provide a solid foundation to work with, but the real value comes from over-laying knowledge that systems cannot possibly know.

• Deploy internal collaboration before external collaboration, recognizing that the closer you get to the true demand signal, the better the forecast will be


Demand Planning in Advanced PlanningSystems (APS)

• Focus on forecasts


Demand Planning in SAP APO

• Statistical models

• Time-series analysis

• Causal models

• Combined forecasting

• Automated model selection

• Promotion-Planning

• Life-cycle Planning

• Like-Modelling

• Phase In/Out-Profile

• KPI-Reports

• Profit/Cost-Analysis

• Forecast Accuracy

• Horizons32

InfoCubesInfoCubes

OLAP+ Models Macros

Adminstration WorkbenchAdminstration Workbench

Planning Book


Planning book in APO-DP


Administration of Demand Planning in APO-DP

• Key figures• Characteristics

(product, location, brand)

• Planning ObjectStructrue

• Storage buckets profiles

• Planning area• Planning books• Master data for

DP

34Source: Hoppe, M. Sales and Inventory Planning with APO-DPDipl.-Kfm. Christian Heinrich

Data flow into the APO System


Data structure of an infocube


Demand planning is not just forecasting.

• Forecasting is a component of demand planning and relates to your best estimate of future demand.

• Companies that excel in this area will challenge the forecast (and the integrated business plan) and seek opportunities to influence demand through marketing events and promotions to bring the forecast more in line with the company plan.


IMPORTANCE OF EXCELLENT FORECASTS FOR SUBSEQUENT PLANNING PROCESSES

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Market / C

ustomerDemand Planning:Creation and post-processing of the sales forecast

Distribution Planning:Planning of transport und replenishment

MRP:Requirement explosion for input materials according to recipes

Master Scheduling:Assessment of net requirement, balancing with capacity

Detailed Scheduling: Assessment of an optimal executable production plan


Combination of Demand Forecasting andDemand Planning with additional functions

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Month DaysFunction


DemandPlanningSupport

Sales/Marketing

SystemAPS / ERP

0 10 20

Bookdemand

Adjust plans (4)

Data management (2)

Collect market information (6)

StockserkennenOvercapacities

erkennenIdentify issues of production

DemandReview (7)

(3)Maintenance:- Forecasts- Exceptions

Inform about forecastingresults( 5) Maintencance of

forecasting parameters (8)

Automatedforecasting(1)

Approval of forecast


You can't control what you can't measure.

• Put the right set of linked key performance indicators in place and measure regularly against these

• Example: Forecast Accuracy

• What level of aggregation for which purpose?


Why is Demand Planning necessary?

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Bedarfsplanung(Disposition)

Angebot / Auftrag anlegen

SOP / Programmplanung

Verrechnung /Abbauder Bedarfe

Bestell-abwicklung WE / Lager LagerVorproduktion

Abfüllung /Verpackung

Ggf.Einkauf

= kundenspezifisch

= kundenneutral

Ziel der Vorplanung = kundenneutrale Vorproduktion um schneller zu reagieren !Goal of Demand Planning = customer neutral „pre-planning“ to allow faster reaction to the market

• Customer specific vs. customer neutral order execution


Demand Planning II [Kompatibilitätsmodus] - WueCampus2 · • Know the difference between demand...

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