Forecasting, Planning and Supply Chain Management for SAP ... · PDF fileSAP-APO Manual...

Forecasting, Planning and Supply Chain Management for SAP Manufacturing CustomersMarc IkelsBusiness Development Manager, ERP Business IntelligenceSAS Asia Pacific

AgendaThe challenge

A real-life example: How much money is in the game?

What our customers say about SAS Forecasting

Forecasting with SAS

The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing

From forecasting to SC Planning and Execution

A sample SAS on SAP solution

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Letter to Shareholders

Key Ratio analysis

…Top five fulfillment priorities…working capital is #3

Hierarchy of Fulfillment Objectives1) Enhanced Service 2) Grow Revenue3) Contain Costs

Source: Delivering Fulfillment Excellence, Herbert W. Davis & Company and Accenture analysis 2001 http://www.accenture.com/NR/rdonlyres/3A054FCE-8749-437C-8DD2-18AB3A772F60/0/fulfillment_survey.pdf

The challengeSo how can you decrease your inventories (raw materials, WIP, finished goods)

And at the same time grow your revenues and increase your service levels???

The answer:Accurate forecasting in combination with timely information sharing using RFID along the supply chain

Manufacturers know what they must do to compete

Reduce inventory carrying costs,

Improve operational efficiency,

Reduce stock-outs,

Shorten order-to-cash cycles with their retail channel.

AgendaThe challenge

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A balancing act: Over- vs. under forecast Forecasting Performance Measurement Considerations

It costs us money to catch up with everyone else!

We are paying more as we get our orders in late!

We’re late to market; we get a smaller market share

We can’t position complementary products!

Our customers are constantly unhappy that we’re lagging the market!

And, they’re all in the wrong place!

By the time I can finally sell them, they’re out of date!

Because I’ve got so many, I have to discount them!

I’m having too many items in my inventory!

It’s costing me a fortune to hold those items!

Supply Chain Variability costs moneyPlan

Lost Sales

Obsolete Inventory

Supply Variability

Demand Variability

Future Uncertainty

Inventory

Assets 50% 90% 95% 99% 99.9%

Supply Variability

Demand Variability

Accurate forecasting and reduced variability reduces costs & increases service level

Lost Sales

Obsolete InventoryPlan

Inventory

Assets

Future Uncertainty

Supply Variability

Demand Variability

Future Uncertainty

Increased VisibilityCollapsed Response Time

99.99%

Real-life Example (Simplified)• Case of over-forecast

• Case of under-forecast

Taken from: “How to measure the impact of a forecast error on an enterprise?” by Kenneth B. Kahn

Total Monthly Item Volume 10,000,000 units1% Error 100,000 unitsAverage Item Cost $1 per unitInventory Cost Per Month $100,000Inventory Cost Per Year $ 1,200,000

Total Monthly Item Volume 10,000,000 units1% Error 100,000 unitsAverage Sales Margin $2 per unitLost Profit Per Month $200,000Lost Profit Per Year $ 2,400,000

Real Company Example

Under-forecast: $85,473 per month (1% error)

Over-forecast: $86,613 per month (1% error)

Industry standard (for this company): • 25% MAPE (mean absolute percentage error)• Potentially > $2,000,000 monthly (over- or under-forecast)• Potentially > $25,000,000 yearly (over- or under-forecast)

Taken from: “How to measure the impact of a forecast error on an enterprise?” by Kenneth B. Kahn

monthly pallet inventory = $10

AMR Research: Accurate demand forecasting pays big dividends

The analyst firm, Boston-based AMR Research, reports that companies with improved demand forecasting, on average, experience the following returns: • 15% less inventory • 17% better perfect order ratings • 35% shorter cash-to-cash cycle times

4.7% sales increase due to reduced stock-outs

Taken from: “Supply Chain Management Review, Vol. 2, Issue 6, June 28, 2004”(see also: http://www.amrresearch.com/Content/view.asp?pmillid=17352&docid=11693)

AgendaThe challenge

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Value of accurate forecasting in SCM as reported by selective SAS clients…“…a payback of more than $6 million to date” (Alcon)

“savings potential of at least € 8.5 million” (Europay)

“one percent reduction in forecast variance equals $200,000 in reduced expenses” (Lubrizol)

“…impact has to be in the millions“ (Salt River Project)

“reduced costs by up to 50 percent” (Copenhagen Energy)

“1% reduction in forecasting error can save a electricity supplier €2 million to €3 million per year” (CGE&Y)

AgendaThe challenge

Like to know more?

Forecasting Hierarchies:Multiple Dimensions and automated forecasting

Product Customer

National

Districts

Accounts

Region

Subcategory

erchandise

CountryCompany

Forecasting, Planning and Supply Chain Management for SAP ... · PDF fileSAP-APO Manual...

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