Forecast Pro SOP

A Roadmap for Improving Forecasting

in Demand Planning and S&OP Processes

Presented by James Berry Senior Consultant Business Forecast Systems, Inc. [email protected]

Business Forecast Systems, Inc. 68 Leonard Street Belmont, MA 02478 USA (617) 484-5050 www.forecastpro.com

© 2012, Business Forecast Systems, Inc. www.forecastpro.com

James Berry

Senior Consultant at Business Forecast Systems, Inc. (BFS).

Holds a degree in Economics from the University of Chicago.

During his 9 year tenure with the firm, James has worked with

numerous clients representing a wide range of industries,

helping them to implement and improve their forecasting

processes. His current clients include Thermo Fisher Scientific,

FedEx Ground, Arysta Life Sciences, Irving Oil and Crown Bolt.


What We’ll Cover

Introductions

Role of the Forecast in the S&OP Process

Forecasting Techniques

Adjusting the Forecast

Data

Summary

Q&A


Role of the Forecast

in the S&OP Process


Demand Plan

The output of the S&OP process is a Consensus Business Plan.

This is a guide for the next 6-18 months that will be updated on a

periodic basis. This drives the Demand Plan which is used to

plan production, sales, and supply.


Simple Plan

A single Demand Planner produces the Demand Plan. He may

check in with Sales or Production for any special orders coming up.


Comprehensive Scenario

The Demand Plan is produced with collaborative input from

managers from multiple functional divisions — Production,

Supply, Sales, Marketing, and Finance. Each group brings

their own domain knowledge and a consensus forecast is

produced through a series of collaborative meetings.


Comprehensive Scenario

Demand Plan

Production Supply Sales &

Marketing Finance

Consensus Business Plan


Demand Plan Process

Update Historical

Data

Gather Business

Intelligence

Form Consensus

Generate Demand

Plan

Generate Baseline

Statistical Forecast

The focus of this session will be on the generation of a demand forecast—

the forecast numbers that drive the demand plan. Prior to preparing

forecasts a number of questions must be answered:

What methodologies are going to be used?

Forecasting models

What data to use?

Sales, Orders, Production, Shipments

Who is going to run this process?

Sales, Production, Finance, Planning

How is the data going to be organized?

Hierarchy structure

Product classification

How to Generate a Baseline Forecast



Data


What Data to Use?

The goal is to forecast “demand”. What data best represents your demand?

Sales: Usually the easiest to access. Can be skewed by large, 1-time sales and

end of quarter selling.

Orders: Good for supply side forecasts. Has a tendency to be intermittent as

large orders come in at different times.

Production: Good for production planning. May be subject to interruptions in

production as priorities change.

Shipments: Tends to be less volatile than orders. But items with long lead-times

could be lagging behind short lead-time items.


What Data to Use?

In deciding what data to use, there are important considerations:

What data do I have historical records for?

Who is going to consume the forecasts?

What is the forecast going to be used for? Production plan, financial plan, etc.

What data will produce the most accurate forecast?


Forecasting Techniques

There is no best method. Different methods are useful for different types of data.

Established, High-Volume Items: Your most important items where forecast accuracy is a must. Methods to forecast include:

Exponential Smoothing

Box Jenkins

Dynamic Regression

Low-Volume, Intermittent Items: Items with sporadic and random sales. The most difficult type of data to forecast. Methods to forecast include:

Croston’s Intermittent Demand Model

New Products: Items that have been, or are about to be introduced. Methods to forecast include:

Forecasting by Analogy

Bass Model

There is no Best Method



Adjusting the Forecast

Regardless of how well your baseline models are performing, they are tied to the

history. There will be events occurring in the future that are under the control of

the company. These can include:

New Promotions

Special Orders

Business Interruptions

Mergers/Acquisitions

Entry into New Markets

This business intelligence is important and will need to be addressed in the

forecast.


Overriding the Baseline Forecast

Demand Planner

Sales Production Supply

The Demand Planner meets with each

relevant department manager

individually and discusses the forecast.

They make any necessary changes.

The important part is this is routine and

the Demand Planner is in charge of

making appropriate adjustments to the

forecast.


Sequential Review

All team members meet together and

discuss the forecast together. The

team comes to a consensus and this

becomes the agreed upon Demand

Plan.

Demand Plan


Team Review

Regardless of which review method your company takes, it is important that any

known events that can impact future demand are discussed, and included in the

final Demand Plan.

It is also important for someone to have ownership of the final forecast and

Demand Plan.


Collaboration

It is also important to measure forecast performance over time. This way you can

spot issues and try to correct for them during the review process. You can

monitor:

Forecast Accuracy

Historical Outliers

Exceptions

Upcoming Orders


Performance


Conclusions


Conclusions

Demand Plans are driven by forecasting. In order to produce a good

Demand Plan you need:

The right data

Routine baseline forecast generation using reliable software

Review of the forecasts to make sure the appropriate methods are used

A way to add business intelligence to the baseline forecast

Track performance over time


Our Next Webinar

Tailoring Your Forecasting Methods to Improve Accuracy

October 18, 2012 1:30 p.m. EDT

Nada Sanders

Visit www.forecastpro.com to sign up!


Forecast Pro Training and Workshops

BFS offers forecasting webinars and product training

workshops.

On-site, and remote-based (via WebEx) classes are

available.

Learn more at www.forecastpro.com


Forecast Pro

Examples from today’s Webinar used Forecast Pro.

To learn more about Forecast Pro:

Request a live WebEx demo for your team (submit

your request as a question right now)

Visit www.forecastpro.com

Call us at 617-484-5050


Questions?


Thank You for Attending!

Documents

Forecast Pro SOP