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March 2003
Training Agenda
Objectives
Main Goals of This Section
To understand Demand Planning as an accurate forecasting tool in the APO context. To know Demand Planning main features, in concrete: Its architecture, data storage and representation attributes Its main tools (Planning Toolbox, Planning Environment, Accuracy Analysis) The different forecasting methods available To visualize how DP applies to a real case (Sara Lee). To be aware of main considerations and complexity factors when implementing Demand Planning. To get familiar with the look of DP and its basic functions through a demo and practising with simple exercises.
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Contents
1. 2.
3.
4.
5.
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Information
Collaborative forecasts Order & shipment actuals & history Cost POS data Nielsen / IRI data ...
Statistical Methods
Multi-model approach
Average models Exponential smoothing Causal factors Trend dampening Model combination Pick best
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BUY DESIGN
YEARS QUARTERS
MAKE
MOVE
Logistics Network Design
HOLD
SELL
S U P
MONTHS
Network Sourcing
Customer Service
Territory Planning
C U S
Production Planning Materials Planning Material Requirements Planning Detailed Production Scheduling Manufacturing Execution System Production Activity Control Transport Planning
T O M
L
WEEKS
I E
DAYS
Procurement
R
HOURS
Load Planning
Available to Promise
E R
B2B Exchanges
Contract Manufacturers
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3PLs / 4PLs
GUI
Planning Views
OLAP Processor
Data Mart
Planning Area
Notes
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Dimensions
Aug.
Facts
W32 W33 W34 W35 W36 W37 W38 W39 W40 W41
Sept.
time sequence
124
203
Forecast
N o t e s
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Dimensions
Aug.
Facts
W32 W33 W34 W35 W36 W37 W38 W39 W40 W41
Sept.
time sequence
124
203
Forecast
N o t e s
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A Planning Book is an easy-to-use tree control for selecting data and a frame with a grid and a graphical data display: Preconfigured planning books for promotional planning, causal analysis, statistical forecasting, life cycle management, etc These can be used as guides for customized planning books
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Stochastic Models:
Accurate forecast with sporadic demand pattern Croston model uses exponential smoothing to estimate: - The size of demand during periods in which demand occur - The demand frequency Final forecast are determined by distributing the size of demand according to the demand frequency
Forecasting
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S-Shaped Curves supports complete lifecycle forecasting (introduction/growth and end-of-life phases)
Logistic and exponential functions First estimation based on similar products Adjusted over time when sales history is available
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65
75
85
60
Feb.
Mar.
April
May
June
July
Aug.
Sept.
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Manufacturing
Sales History
Retailer
POS Data
Consumer
Competitor Promotion
Promotion
Advertisement
sales
time
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-10%
Price
Planner
Quantity
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DP can represent the launch, growth and discontinuation phases by using phase-in, phase-out and like modeling profiles (or combining them): A phase-in profile reduces demand history by ever increasing percentages during a specific period or periods (simulating upward sales curve launch and growth phases)
A phase-out profile reduces demand forecast of a product by ever decreasing percentages (simulating downward sales curve discontinuation phase)
Like modeling creates a forecast using the historical data on a product with a similar demand behavior (new products and products with short life cycles)
Product Launch End of Life
Aggregate
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Forecast
...
Marketing Forecast n
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Contents
1. 2.
3.
4.
5.
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Initial training
(central to local)
GAP estimation
(central)
GAPs approval
(project management)
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Strategic
Tactical
Operational
AOP generation
Monthly Cycle
Weekly Cycle
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Responsible
Demand Planning
CO-PA (R/3)
Finance
Adjust Volume Send Adjusted Volume to APO Run SNP with Adjusted volume Volume adjusted after SNP
CO-PA (R/3)
Supply Planning
Adjust Volume
Interface SAP - APO
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Horizon
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Risks identified?
Yes
No
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Brand
Kit
Type 1
Variety
Segment
Sub Segment
Product Family
Product
Format SKU
Level
Business Line Category Segment Sub-segment Product Family Brand Sub-brand Product Process Type Variety Concept Packaging Type Product Type Format SKU
Body Care
Body Care Bath&Shower Bath Bath Herbs Radox Original Radox Herbal Bath Original bottle standard 500 ml Radox Herbal bath Original 500 ml
Household
Household Airfresheners Airfresheners Home Starter Ambi-Pur Perfum dinterieur Ambi-Pur Perfum dinterieur Anti-tabacco Anti-tabacco electrical standard Ambi-Pur Perfum dinterieu Anti-tabacco starter electrical
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Coffee
Coffee&Tea Coffee Roasted Coffee Roasted Coffee regular Standard Douwe Egberts Desert Tea Hot Tea Black Regular
Tea
Coffee & Tea
Pickwick -
Pickwick English
English box standard 80 * 2
Geographic dimension and characteristics are usually based on the supply network
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Choose statistical algorithm Clean History and Evaluate Forecast Baseline Disaggregation Evaluate Forecast Performance Add Events
Monthly cycle
Close the Period and KPI generation Send forecast to Supply Planning
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Format Level
Forecast Level
SKU Level
32.000
72.000 23.000
12.000
15.000
5.000
1.300
2.000 SKU/Customer
700
SKU/Customer
Customer Level
13.300 Auchan
17.000 Makro
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Characteristics
Demand Volatility Market Intelligence Promotional activity Lifecycle Range of products Strategic Value Customer Collaboration Customer concentration
Description Capacity to predict future demand Identify seasonality, trend,... Number, frequency and types of promotions New product, growing, mature or declining A large number of SKU makes forecast complex Importance of the SKU/group of SKU for the company Collaboration with customer Special agreements Number of customers buying the product
Example: Kiwi Large Shoe Polish 50 ml (H&BC UK) Demand is stable and homogeneous for the products of this group This is a seasonal product. Higher sales from October to March No customer promotions Mature group 10 SKUs in this group
Impact for selecting level Homogeneous Homogeneous Homogeneous Homogeneous Easy to disaggreg.
Shoecare is a core line and therefore Product A high strategic to the company Customer No customer collaboration view Solus listings - Safeway and Sainsburys Customer High concentration (6 customers view 80% of the market)
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Although in APO it is possible to use univariate and multivariable/causal forecast models, only univariate models are in scope APO provides a wide range of different statistical models and strategies to use for forecasting (up to 35): - Linear regression with seasonality
- Trend model
- Trend and seasonal model - Automatic model selection,... How to select the best model? First step: Prior to selecting the forecasting statistical model, Demand Planners will have to gather market intelligence to understand with pattern to find. Second step: Test which model better fits the expected demand pattern. Take into consideration some recommendation: - Linear regression with seasonality model is very easy to understand by users and require very little maintenance (preferred model by Demand Planning implementation team)
- Most of the other models require some statistical skills by users and time consuming maintenance by DP when reusing the same profile for next rolling forecasts
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To enable forecasting to be based on a model created using history that is free of impact of events (non repetitive history) Any outliers (promotions) will give errors in estimating seasonal demand To understand underlying demand e.g. seasonality and ensure that it is reflected in the forecast Ensure that the planned contribution of events is not duplicated in the forecast To provide a baseline forecast to account management so that they can focus on promotions Should you always clean history? No. Balance the amount of effort required versus the result: - Focus on major events which significantly effect your baseline. - Focus on A category products. - If events are repetitive in type and in time then the user could decide not to clean history.
Baseline Sales history
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1000
25% 35% 40%
250
350
400
SKU Level
1100
25% 35% 40% 32% 32%
New proportion established due to the changes at SKU level. These values do not overwrite the proportional factors
First SKU forecast is updated from 250 to 350
36%
350
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350
400
SKU Level
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1200
25% 35% 40%
Disaggregation is performed based on the existing data at lower level not in proportional factors anymore Forecast at SKU level is updated to new values but keeping the proportion of the previous data
32%
32%
36%
384
384
400
SKU Level
Note: Changes in the disaggregation factors only affect to the periods which Demand Planners updated in previous rolling forecasts April01 May01 time Brand Level
25%
1200
25% 35% 40% 32% 32% 36%
1400
35% 40%
350
350
400
SKU Level
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490
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Forecast baseline for the Period 1: 200 Promotion on week 3 and week 4
P1 P2 P3
W1 Weekly profile
W2
W3
W4
10%
20 -
20%
40 -
30%
60 20
40%
80 20
Baseline Promotions
W1 W2 W3 W4
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Final Forecast
20
40
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Sales
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Description of promotion: 10% discount Start date (shipping): 15 February End date (shipping): 28 February Expected promotional volume Week 1
700 + 15%
SKUs promoted
Sanex Shampoo 500 ml SKU of Douwe Egberts dessert
Week 2 Week 3
500 +20% 500 +5%
SKUs cannibalised
Sanex Shampoo 750 ml SKUs of JM dessert
Week 1
100 -5%
Week 2 Week n
100 - 5% 25 0%
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- Price distance
- Market Share - Market Growth To include these events in APO forecast it is necessary to: - Make an interpretation of external data (e.g., Nielsen) - Estimate the impact on future demand that this situation may have - Communicate the impacts to Demand Planners, who will include it as an event in the promotional calendar
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Alternatives in APO
APO DP provides different alternatives to deal with lifecycle management: - Like modelling - Choose a product similar in behaviour to the new product introduction and use its launch profile to base your forecast on (or % of this profile) - Phase-in profile - Select a product which has a similar mature sales history and apply a profile for launch. This profile can be based on market intelligence - Phase-out profile - Apply a time series phase-out profile to simulate the discontinuation of a product. - Manual profile A profile for the product is manually entered into the system Demand Planners will choose the best option considering the specific characteristics of each case
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Recommendation:
Make an ABC analysis taking into consideration volume, value and strategic value of each set of products. For A group of products: On-line forecasting: Spend effort when is necessary For B and C: Forecast by exception
ABC analysis
20% 80% 80%
20%
N of SKUs
Value
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Periods Forecast (from last period) 100 Forecast (from actual period)
P1 120 110
P2 150 90
P3 170 150
P4
220
Alert
Watch Out!!!
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Contents
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forecast
forecast
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Ratios definition (the impact is less, given that extra ratios can be created)
Desaggregation strategy Define the security model as soon as possible (in the Detailed Design phase). By doing so, we will be able to estimate customization and planning areas creation effort properly, taking into consideration that: Authorization managing does not allow to restrict access by data, managing access is only possible at the planning area level The later may imply to multiply effort as many times as user groups are to be defined Define desaggregation strategy as soon as possible (in Detailed Design phase): A low level desaggregation may imply that forecast demand by client may not be much accurate. Keep the criteria that customer suggests us to define the optimal desaggregation level When possible, use temporal desaggregation criteria that APO provides
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Knowledge transfer:
Emphasize knowledge transfer during the project life. Planners need to spend a significant amount of time to learn and make full use of the tool (e.g. different options for desaggregation). By not considering it, they may feel that Excel can do more than DP. Two approaches are suggested to overcome this risk: Provide the user a prototype so he/she may experience the tool
Create a super-user role: a competent and fully-dedicated user that will support us in training and support tasks
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Description
It indicates the complexity of the data structure (product/ client/ location) and the alignment with the transactional system.
Criteria
Number of dimensions.
(product/client/location).
Sales History
N. of sources of data.
Planning Cycle It indicates the frequency in which planning is performed. It indicates the number of months to forecast.
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Planning frequency.
Planning Horizon
Number of months.
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Description
It indicates the complexity that exists in the data desaggregation .
Criteria
Number of dimensions.
(product/client/location).
Desaggregation criteria complexity. Desaggregation profile volatility. Number of new products. Number of new versions per
product.
Lifecycle Management
It indicates the degree of new costumers introduction. It indicates the number and variety of aggregation of final products that are done.
Market
segmentation.
Frequency of development
of kits and displays.
Promotional Planning
Description
It defines the demand model.
Criteria
Demand trend and seasonality.
It indicates the complexity of the process of uploading and evaluating external forecasts.
Number of forecasts.
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Description
It indicates the complexity that exists in the forecast accuracy tracking process. It indicates the complexity that exists in the demand forecast valuation process. It indicates the complexity that exists in the review and adjustment of forecasts.
Criteria
Complexity of the KPI calculation.
Number of dimensions.
(product/client/location).
Desaggregation criteria
complexity.
Number of SKUs.
Number of inputs used to perform
the forecast.
Desaggregation criteria
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Description
It indicates the complexity that exists in the transfer of the forecast to SNP (or other system).
Criteria
Type of system to which the forecast
is to be transferred.
Reporting Scenario
Criteria
Number of characteristics. Number of dimensions (product / client /
location).
Temporal buckets.
Data Warehouse Interfaces
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Criteria
Number of roles. Standard SAP vs. non-standard SAP
system.
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Criteria
Number of locations per product. Number of products. Utilization of business warehouse. Volume of data. PPM loaded from SAP R/3 vs. a non
SAP system.
PPM DP
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Contents
1. 2.
3.
4.
5.
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To demonstrate that the Supply Chain process has to be customer oriented in order to ensure the required service level at minimum cost.
Improvement of forecast accuracy as a consequence of considering events and sales history at the customer level. Build up the basics to launch downstream collaborative initiatives (CPFR or CRP/VMI).
INDEX
The DFU is a combination of product, geographical area and demand group (customer). A DFU level has to be defined at which forecasts are created and agreed on with all the people involved in the process.
customer A
Product B Nationwide
customer B
Product B Nationwide
customer C
Product B Nationwide
Promotional activities with the most significant impact on sales are planned and executed at the customer level.
In environments with a great customer concentration, the introduction of customer dimension in the forecast hierarchy is necessary to improve forecast accuracy. The actual sales information at the customer level is critical to quickly react to deviations in the promotional behavior.
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There is a compromise between workload and improvement of forecast accuracy in the selection of customers to be considered in the demand forecast.
Only 15 to 20 customers are usually significant to the forecasting process. The criteria to determine what are these significant customers are: Sales volume: these customers must account for at least 50% of total sales. Promotional activity with significant impact on sales: customers with promotional activity that eventually could impact more than 10% on total sales must be considered in the forecast process. Customers involved in collaboration initiatives (CRP/VMI, CPFR, etc.): customers with special agreements. Customers with very high sales volume in some products: customers which account for over 50% of sales of one product with strategic relevance.
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The market is changing every day with continuous mergers, demergers, acquisitions, etc. that must be reflected in the forecast to better match future demand. Generally speaking, it is not advisable to change historical data to match changes in the customer composition. It is preferable to introduce events in order to increase or decrease the base sales forecast.
OR customer A customer A
In this case, the forecast is adjusted by introducing an event in the future with the impact in sales of the increased or decreased number of points of sales.
customer A
customer B
The merge of two customers can be handled by creation of: a new data selection including the two old customers and the new one. a database realignment process.
The introduction of a new customer does not entail any change in the standard methodology.
New customer
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Before performing this scenario in SAP APO, it is necessary to delete all the previous transactional data from former users that could affect the scenario results. For that matter, the next steps must be executed:
Go to transaction SE38.
1.
2.
3.
to execute it.
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4. Get a variant:
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6. Execute
Review historical sales of one product and disaggregate the information in the client dimension. Choose statistic model. Errors review and model re-selection if needed. Introduce a promotional event at the client level. Review existing promotions for this client / product. Review the forecast at the client level and the impact of cannibalization between standard and promotional products. Analyze the alerts generated by the system due to significant sales deviation in one client during the promotional period.
Generate Forecast
Event Introduction
Forecast Review
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1.
2. 3. 4.
Open the Planning Book PB_003_02 and select (double click) in the data view DV_003_01 Press the button and select Info Objects Select the data selection product P_003_217. Press the button and Object Selection screen will appear. Select the
5.
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6.
To perform a drill down in the client dimension, click on Header button the Total - Account tab strip, select the option Details.
and, in
7.
To obtain the percentages by client over total sales, press the button
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4. To choose the other statistic model press the button you consider it necessary). Press the button
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Short Text (Promotion ID): P_217_PROMO* Description: Promotion 217* Cannibalization group: CAN_217 Period: enter W Number of periods: enter 3 Begin date: 10.03.03** End date: 30.03.03** Promotional key figure: RPROMEV Planning key figure: RHIST
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CAN_5246
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7.
8.
9.
Select the client 100890 (which is affected by the promotion). in the command bar. and come back to the product selection.
10. Press the button Assign Objects 11. In the shuffler, press the button
12. Select the product P_003_217 and press the button. 13. In the promotional planning screen, enter the quantities for the first period (e.g. 1.000), for the second periods (e.g. 1.500) and for the third period(e.g. 2000) 14. In the command bar, press the button Change status option Planned, in the Future. 15. Save the promotion by pressing the button
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17. Review the impact on the forecast of the planned promotion(Load the product P_003_217 and select the graphic view )
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20. Select the fields planning area PA_003_3, version PV_003_01 and promotion key figure RPROMEV.
21. Press the button
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1. At Interactive Planning screen, select the data selection product P_003_5246 and the promotion button to load it into the table. 2. Go to the header, and in the Product tab strip select Details. 3. Review in the promotional and net forecast key figures the impact of cannibalization between the two products (optional). 4. Go to the header, and in the Account tab strip select Details. 5. Review, in the promotional and net forecast key figures, the impact of cannibalization between the two products at the client level. When a product is in promotion, others products may be affected
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Menu Path: Supply Chain Monitoring / Alert Monitor. Select in Favorites the option Setting Alert Profile Template 03 (DP.
Once you have selected Products, select the object you want to control.
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3. The interactive planning screen appears and the user only has to load the data selection into the table to review what is happening. 4. To do a drill down in the client dimension, go to the header and, in the Total Account (client) tabstrip, select the option Details.
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Contents
1. 2.
3.
4.
5.
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DP Exercises
DP EXERCISE
SAP APO installation guide and getting started: Before you do the exercises we are going to install the SAP GUI and the access to the Barcelona APO Solution Center.
1. Access the address: https://software.accenture.com/ 2. In the Search Tool bar click SAP and then click GO 3. Click on the link SAP Frontend-Version 6.10 4. Follow the wizard instructions This will leave SAP GUI installed on your hard disk.
5. Click on the SAPlogon icon in your desktop 6. Click on the NEW button 7. Input the following data: Name: Barcelona APO Solution Center Application Server: 170.251.70.208 System number: 00 8. Click on the OK button and double click on the access
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DP Exercises
DP EXERCISE Objective:
To consolidate the DP concepts learnt along the course. At the conclusion of this unit, you will be able to: Evaluate historical data and create sales forecast. Analyze the differences among the forecasts you get when the statistical models have been changed. Analyze the variables that APO provides you to asses forecast accuracy based on past data. Create promotional events in APO. Check the promotion impact on the forecast and cannibalization produced between products.
Exercise:
The first step is to delete all the previous transactional data from former users that could affect our results. Select the product P_003_3004 and review sales at client level,both in absolute values and in percentages. Create a forecast, check the variables and change the statistical model for the forecast. Check the differences between the models and check the MAD and MAPE statistical parameters.
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DP Exercises
DP EXERCISE
Introduce an event: Short Text (Promotion ID): Description: Promotion 3004 (user x) Cannibalization group: CAN_3004 Period: enter W Number of periods: enter 3 Begin date: (user) End date: (user) Promotional key figure: RPROMEV Planning key figure: RHIST Introduce some values for your promotion. Check the promotion impact on the forecast. Check the cannibalisation between products both at product level and at client level.
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DP Exercises
DP EXERCISE SOLUTION
Before performing this scenario in SAP APO, it is necessary to delete all the previous transactional data from former users that could affect the scenario results. For that matter, the next steps must be executed:
Go to transaction SE38.
1.
2.
3.
to execute it.
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DP Exercises
DP EXERCISE SOLUTION
4.
Get a variant:
5.
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DP Exercises
DP EXERCISE SOLUTION
6. Execute
All the categories from orders (forecast, purchase requisitions, production orders..) that could affect the scenario results are included in the variant.
All the products and Locations defined in our template are included in the variant.
DP Exercises
DP EXERCISE SOLUTION Review of Historical Sales:
1.
2.
3. 4.
Open the Planning Book PB_003_02 and select (double click) in the data view DV_003_01 Press the button and select Info Objects Select the data selection product P_003_3004. Press the button and Object Selection screen will appear. Select the
5.
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DP Exercises
DP EXERCISE SOLUTION
6.
To perform a drill down in the client dimension, click on Header button the Total - Account tab strip, select the option Details.
and, in
7.
To obtain the percentages by client over total sales, press the button
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DP Exercises
DP EXERCISE SOLUTION
Generate Forecast:
1. To generate forecast select in the menu: Settings Forecast profile. 2. Select your Master Forecast Profile: MP_P_003_3004 press the button press button to obtain the Forecast.
and then
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DP Exercises
DP EXERCISE SOLUTION
4. To choose the other statistic model press the button you consider necessary). Press the button
5. To review the errors press the button statistic model:
Mean absolute deviation (MAD): mean absolute deviation gives the mean average difference between the forecasted value and the historical value in the ex-post forecast. Mean absolute percent error (MAPE): mean absolute percentage error
MAPE
MAD
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DP Exercises
DP EXERCISE SOLUTION
6. You can choose other models and review the new results. Exit without saving pressing
7. To come back to the interactive planning press the button
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DP Exercises
DP EXERCISE SOLUTION Next steps:
For next steps follow the instructions from the Demo Scenario. Be careful with planning versions and products, so each assistant should use their products. Use the information given at the exercise to introduce the promotional event as well.
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