Forecasting, Planning and Supply Chain Management for SAP ... · PDF fileSAP-APO Manual forecasting • Limited basic forecasting algorithms, technological limitations • Importance

Copyright © 2006, SAS Institute Inc. All rights reserved.

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

Copyright © 2006, SAS Institute Inc. All rights reserved. 2

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

Like to know more?


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By the time I can finally sell them, they’re out of date!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

Prob

abili

ty

Obsolete Inventory

Supply Variability

Supply Variability

Demand Variability

Demand Variability

Future Uncertainty

Future Uncertainty

Inventory

Assets 50% 90% 95% 99% 99.9%

Targ

et S

ervi

ce

Leve

l


Supply Variability

Supply Variability

Demand Variability

Demand Variability

Accurate forecasting and reduced variability reduces costs & increases service level

Lost Sales

Prob

abili

ty

Obsolete InventoryPlan

Inventory

Assets

Future Uncertainty

Future Uncertainty

Supply Variability

Supply Variability

Demand Variability

Demand Variability

Future Uncertainty

Future Uncertainty

Increased VisibilityCollapsed Response Time

99.99%

New

Tar

get

Serv

ice

Leve

l


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







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Forecasting Hierarchies:Multiple Dimensions and automated forecasting

Product Customer

Loca

tion

National

Districts

Accounts

Store

SKU

Brand

Region

Subcategory

All M

erchandise

CountryCompany

Zone

Category

Multiple forecasting levels require multiple forecasting tools and result in thousands of

automated daily forecasts

Product

Geography

Customer


SAS Forecast Server

Enterprise forecasting environment

Automatic and interactive usage

Business/novice forecasters• Automated model building

Experienced forecasters• Interactive & automated model building

Consumer of Forecasts• Accessing forecasting results• Automated model building


Forecasting Hierarchies:Top-down and Bottom-up Forecasting

Store

Zone

Region

TotalCompany

Bottom-up

Store

Zone

Region

TotalCompany

Top-down


SAS Forecast Server vs. SAP-APOSAS Forecast Server

Automated forecasting• Automated forecast model

selection• ARIMA, ARIMAX and other

sophisticated forecasting models

Supply Chain Planning based on forecasting rigor

Inventory optimization based on forecast and planning rigor

SAP-APOManual forecasting• Limited basic forecasting

algorithms, technological limitations• Importance of forecasting is

neglected

SC Planning limitations

Inferior inventory optimization algorithms, Transshipment issues for standard and global ATP


AgendaThe challenge







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SAS Manufacturing Solution


SAS Manufacturing Framework

Suppliers

Operations Customers

Organization


Forecasting Reports

Short Term Forecasting• Plan Vs Actual• Actual Vs Forecast• Demand Volatility

− Goodness-of-fit statistics for each model.

− Shewhart-Chart for the forecast error.

− Original Vs Override− CUSUM chart for forecast

errors.

Long Term Forecasting

New Part Forecasting

Maintenance Based Forecasting

Demand Analysis

Forecast Demand Analysis

Forecast Accuracy Analysis


AgendaThe challenge







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Sample SAS for Manufacturing KPIs% Product On time in full -> ATP benchmark

Inventory Days of Supply

Inventory Turns

Cash-to-Cash-Cycle and Order-to-Cash-Cycle

Fill Rates, Throughput

Stock Outs

Bottleneck Analysis

Production Capacity Analysis

Production Cycle Length


Inventory Optimization Reports I

Actual Inventory Analysis

Projected Inventory Analysis

Order Planning

Delivery Performance to Customer Commit Date -> ATP Benchmark

Dynamic Replenishment Planning (DRP)

Efficiency Band


Inventory Optimization Reports II

Maximum Supply Chain Length (days)

Average Supply Chain Length (days)

Total Stock Cost

Total Safety Stock Cost

Total Pipeline Cost


AgendaThe challenge







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Extr

act -

> Tr

ansf

orm

-> C

lean

se ->

Val

idat

e -

> Lo

ad D

ata

SAS Data SurveyorSAP R/3

OptimisationEngine

Sample Demand Forecasting and Inventory Optimization ArchitectureRaw Data

Reports

Clean Data

Legend

SAP R/3 SD/MM/

PP

SAP R/3

ForecastingEngine

CleansedHistoricalDemand

Data

IntranetWeb Server

SAS

Dat

a Su

rvey

or fo

r SA

P

Ext.DB’s Scheduling

DB

Secu

rity

SAS/Access

SAS/Access

MS Excel /Access

DB

Client

Manual Override

Internet Access

User Portal

Copyright © 2006, SAS Institute Inc. All rights reserved. 33Netweaver

Integrating SAS®9 with SAP

SAPR/3

SAPBW/APO

mySAPBusinessSolutions

SAP ExI

mySAPMDMXML Java SAP

RFCMQSeries

SAS Solution MartsSAS Warehouse

SAS® Solution Adapters

SAS Integration Technologies

SAS® Data Quality

Reporting and OLAP Business Solutions

SAS® Data Surveyor for SAPSAS® Data Surveyor for SAP

Forecasting Data Mining

ODBO


AgendaThe challenge







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SAS Forecast Server

Please visit tomorrow’s session:

“Enterprise Forecasting using SAS Forecast Server”, Udo Sglavo, Thursday, 18. May,9:00 – 9:35am, Auditorium Le Saleve


Article in SAP Insider featuring SAS Forecasting (April-June 2005 edition)

http://www.sas.com/reprints/sci_sapinsider_0405.pdf


SAS Forecast Server Resources

URL: http://www.sas.com/technologies/analytics/forecasting/forecastserver/index.html

Factsheet: http://www.sas.com/technologies/analytics/forecasting/forecastserver/factsheet.pdf

Documents

Forecasting, Planning and Supply Chain Management for SAP ... · PDF fileSAP-APO Manual forecasting • Limited basic forecasting algorithms, technological limitations • Importance