John Galt Solutions Turning Demand Planning Inside Out

John Galt Solutions

Turning Demand Planning Inside Out

Copyright 2001 John Galt Solutions, Inc. Do not duplicate. Privileged and Confidential. 2

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The Forecast Xperts™

Topics Covered

Introduction

The Three Legged Stool

Practical Examples

Conclusion


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Who is John Galt?

For companies that who need to address inventory and demand planning quickly, Galt offers cost effective and comprehensive Supply Chain Planning Solutions. We offer superior forecasting accuracy combined with a comprehensive view of the balance between supply and demand by integrating marketing, inventory and sales plans together, to lower inventories cost, optimize production, and improve customer service. Galt offers products and methodologies with an emphasis on measuring progress before expanding the process.


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Who is John Galt?

Partners:

Founded in 1996

HQ Chicago, Illinois

Over 5,000 Customers Worldwide

Focused on leading-edge demand planning and collaboration software solutions for manufacturers

Dedicated to delivering solutions in 60 to 90 days

Copyright 2002 John Galt Solutions, Inc. Do not duplicate. Privileged and Confidential.

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Walk Drive Fly Products

Impact Of Bad Planning

ISSUES

Too much of wrong product

Right product wrong place

Lost sales

Over investment

Drivers Drivers

Drivers Drivers

Sales Operations

Marketing Finance


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Integrated PlanSales Operations

Marketing Finance

Level of Demand

Policy

Inventory levels

Promos

EventsInventory

Investment

Prod./Dist.

Demand

Budget

Promos / Events

Impact Of Good Planning


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Seamless Upgrade

Fully Scalable

Identify

Identify

Manage &

Measure

Manage &

Measure

ExtendExtend

ENHANCE

John Galt’s Approach


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Forecast Process

• Procast• Event Modeling• Profiling• Risk Assessment• Multi-Level• Allocation• Same As

Statistical

Process

• Historical Misses• Future Risk• Opinion Differences

Exception

Management

• Accountability Tracking

• Capacity Planning• VMI• DRP

S&OP

• POS Analysis• Budget Comparison• Sales Adjustment• Inventory Shortages• Excessive Booking

GAP Analysis

Acc

urac

y

1

2

3

4


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Forecasting using Averages

-

1,000

2,000

3,000

4,000

5,000

Apr-02

May-02

Jun-02

Jul-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

Jan-03

Feb-03

Mar-03

Apr-03

May-03

Jun-03

NW Item1-Fcst w/ Avg NW Item1-Actual

Absolute Percent Error

Projected Inventory

Item Dev Average

Item1-Fcst w / Avg 11.96% 85.38%

Item Total Average

Item1-Actual 19440 3240

Item1-Fcst w / Avg 21000 3500

Total Cost of Inventory

Item Price Total Average

Item1-Actual $12.00 $233,280.00 $38,880.00

Item1-Fcst w / Avg $12.00 $252,000.00 $42,000.00

Forecasting And Inventory

- Inventory Up 8%

- Potential $22,000 upside in

Revenue requires a $38,000

increase in inventory


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-

1,000

2,000

3,000

4,000

5,000

Apr-02

May-02

Jun-02

Jul-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

Jan-03

Feb-03

Mar-03

Apr-03

May-03

Jun-03

NW Item1-ForecastX NW Item1-Actual

Forecasting using ForecastX

Absolute Percent Error

Projected Inventory

Item Dev Average

Item1-ForecastX 6.95% 90.49%

Item Total Average

Item1-Actual 19440 3240

Item1-ForecastX 18346 3058

Total Cost of Inventory

Item Price Total Average

Item1-Actual $12.00 $233,280.00 $38,880.00

Item1-ForecastX $12.00 $220,152.00 $36,692.00

Forecasting And Inventory

- Inventory Down 5%

- Give Up $13,000 in Revenue for

$24,000 reduction in inventory


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Flexibility And Inventory

- A 33% reduction in lead time yields 33% reduction in inventory


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Flexibility And Inventory

- A 33% reduction in order quantity yields 17% reduction in

inventory


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Flexibility And Forecasting


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Strategies For Success

Build inventory for promotion, have disposal plan in place as Plan B.

Product retirements, work with customers to manage expectations.

New product introductions, make investments and don’t second guess.


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Grow inventory increase working capital< 20

> 20Deplete inventory lose future sales

Outliers drive safety stock

Concentrate On Exceptions


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Managing Exceptions Has Big Payoffs

Ten SKU's with Largest Errors in This Period Sales Plan Actual

Absolute Error

% of Total Error

% Accuracy

Item A - Large Seller $39,602,431 $33,417,768 $6,184,663 21.68% 84.4%Item B - Rising Star $6,764,063 $3,602,823 $3,161,240 11.08% 53.3%Item C - Market Surprise $702,675 $3,790,129 $3,087,454 10.82% 18.5%Item D - Promotional Push $5,620,804 $3,232,659 $2,388,145 8.37% 57.5%Item E - Promotional Push $2,278,000 $222,677 $2,055,323 7.20% 9.8%Item F - Compentition $5,097,392 $6,883,200 $1,785,808 6.26% 74.1%Item G - New Product $1,725,727 $0 $1,725,727 6.05% 0.0%Item H - New Product $1,233,718 $340,790 $892,928 3.13% 27.6%Item I - Discontinued Item $30,724 $667,359 $636,635 2.23% 4.6%Item J - Discontinued Item $0 $598,694 $598,694 2.10% 0.0%Top 10 SKU's $63,055,534 $52,756,099 $22,516,617 78.93% 64.3%Total - All SKU's 71,264,460 61,739,265 28,526,959 100.00% 60.0%

Rolling 3-Month Sales Plan Accuracy for Nov-Dec-Jan 2003/2004


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Inventory Strategy (Days Cvg vs. ROP)

Concentrate On Inventory Policy


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Managing Inventory Policy Has Big Payoffs

Item Value/RankingNumber Of

Hits Profit Per HitInitial Order

Fill RateAverage

InventoryValue To Business

Item A - Large Seller 500,000 $2 95% 120,128 32%Item B - Up And Commer 30,000 $5 70% 1,087 4%Item C - Market Surprise 200,000 $10 80% 32,616 40%Item D - Promotional Push 10,000 $80 98% 30,000 12%Item E - Promotional Push 2,000 $200 98% 30,000 5%Item F - Compentition 50,000 $3 60% 15,651 4%Item G - New Product 2,000 $50 80% 755 2%Item H - New Product 1,000 $75 80% 481 1%Item I - Discontinued Item 500 $1 100% 155 0%Item J - Discontinued Item 500 $1 100% 220 0%

796,000 88%

- Improving Item A has the biggest immediate effect on overall initial order fill rate

- Inventory on Item E is not warranted based on the value to the business


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Founded in 1923

Revenue $2.8bn

7,200 Employees

Worldwide Leader in Children’s and Family Leisure Time Entertainment

7,500 customers in 25 Countries

Customer Profile


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Challenges• Constantly Changing

Product Line

• Needed Cutting-Edge Solution But Easy to Use

• Used by Non-Statisticians

• Must Integrate with Existing Reporting Process

Benefits• Facilitated Collaboration

between Hasbro Analysts, Sales and Retail Customers

• Initial Forecast Error Reduced from 50% to 20%

• Increase Fill Rate from 65% to 98%

• Resulted in $7M Gain in Sales

Customer Profile


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Why Measure Sales Plan Accuracy?

YOU CAN ONLY IMPROVE WHAT YOU MEASURE!!!

• Accuracy measures demonstrate how well Marketing, Sales, and Operations observe, communicate, plan, and execute together

• Accuracy measures focus attention on areas where we need to improve our understanding of market conditions, our responsiveness to changes in the market, and/or our operational performance

• Accuracy measures allow us to identify and reward behaviors and skills we want to develop, and to identify “experts” and those who need training or coaching

• Over time, accuracy measures will allow us to reduce the impact of individual or group bias on our decisions


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Why Bother Planning?

Without A Plan You Are Lost!!!

• Effective planning will have a significant impact on your business by improving initial fill rates, working capital and profitability

• Having an effective planning process means that you can make intelligent business decisions and have the support of the organization to drive business results

• Concentrating on key items ensures that you provide the greatest value to your customers and receive the greatest value for your time

• Over time, you will be able to use your planning process as a significant competitive advantage by running a more efficient organization


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Thank You

Contact Information

Name: Kai Trepte

Email: [email protected]

Tel: 312.701.9026

Address: 125 S. Clark

Documents

John Galt Solutions Turning Demand Planning Inside Out