30
Forecast Demand

Demand forecast

Embed Size (px)

DESCRIPTION

 

Citation preview

Page 1: Demand forecast

Forecast Demand

Page 2: Demand forecast

Learning Objectives

To understand the fundamental of Demand Forecasting.

To help plan own Sales Budgets

Page 3: Demand forecast

Contents

Forecasting

Why forecast?

Forecast Types

- Benefits of doing forecasts - Consequences of not

- Statistical Methods- Creating Judgmental forecasts

Why forecast?

Forecast Types

OUTPUT:Volume: Evaluate TOTAL forecast Value: link to volume forecasts

Evaluating the Forecast

What is a forecast?What is a forecast?

- Total forecast components- Statistical forecasts- Judgmental forecasts

- Forecast Definition- Forecast uses

- Benefits of doing forecasts - Consequences of not

- Statistical Methods- Creating Judgmental forecasts

OUTPUT:Volume: Evaluate TOTAL forecast Value: link to volume forecasts

Evaluating the Forecast

- Total forecast components- Statistical forecasts- Judgmental forecasts

- Forecast Definition- Forecast uses

How to Forecast

Putting it TogetherPutting it Together

How to Forecast

Page 4: Demand forecast

e.g.

• How much Ventolin Inhaler 200 dose will we sell in February?

• How much will a case of Augmentin 100 mg cost in November?

• What % of Panadol sales will we spend on Television Advertising in 2002?

What is a Forecast ? Definition:

A forecast is an estimate of volume or value– for a given SKU (or group of SKUs)– for a given period of time.

Page 5: Demand forecast

A Forecast is an ESTIMATE of future salesA Forecast is an ESTIMATE of future sales

It willIt will always be wrongalways be wrong to some extent, to some extent, but willbut will always be BETTERalways be BETTER than than NONO informationinformation

What is a Forecast used for? Budgeting / Business Planning

Input to the PMI process – Inventory Planning – Distribution Requirements Planning– Inventory Management

Page 6: Demand forecast

Why forecast….? Develop forward view of business Allow more informed decision taking Highlight gaps vs. budgets

– volume & financial Communicate through the supply chain Aim for lower costs

– inventory– write-offs

PLAN don’t REACT

Page 7: Demand forecast

Consequences of not Forecasting

Always reacting to surprises– fire-fighting vs. value adding– no communication through supply chain

Stock unlikely to absorb abnormal demand– high stock (wrong stock)– poor customer service– unstable NR’s and poor supply

Forrester Effect– demand spikes are amplified

caused by over-reaction to surprises

Page 8: Demand forecast

Developing a forecast - Roles

Marketing– Long Term Forecast

Sales– Short Term Forecast

Finance– Prices & Cost forecasting

Senior Management– Sign Off

Demand– Process champions– customer of the forecast

A forecast should be reached by CONSENSUSA forecast should be reached by CONSENSUS

Page 9: Demand forecast

Monthly Planning CycleMo

Tu

WeTh Fr Mo Tu

WeThFr

TuMo

MoTu

We

We

Th

ThFr

FrWk. 2

Wk. 3Wk. 4

Wk. 1

MonthlyPlanning

Cycle

Sales & MarketingMeeting

Download and Review Actuals

FinancialMonth Close

Forecast Review Meeting

FinaliseForecast

TransmitNet Req’s

SupplyReviewMeeting

TransmitAgreedSupply Plan

NegotiateExceptions

Rough CutCapacityPlanning

KPI REPORTINGDEADLINE

Global DemandMeeting

Global SupplyMeeting

Demand Meeting

Page 10: Demand forecast

Developing a Forecast - Forecast types Forecasts consist of two types of information

– Statistical forecasts based on historical data & patterns

– Judgmental forecasts based on judgement, research, consensus,

assumptions

Page 11: Demand forecast

Developing a Forecast - Forecast types

Base volume– seasonality– repetitive orders

yearly tenders samples

– promotions (with historical data)

Any situation where historical information is available and reliable.

Adjustments – changing market conditions– seasonal pattern changes– sales promotions

(with no historical data)– random tenders

New Products

Any situation where no historic data exists or is NOT VALID

Statistical Judgmental

Page 12: Demand forecast

Developing a ForecastForecast Types - SA Investigator In SA various volume facts exist to develop the TOTAL VOLUME FORECAST

– Base Volume– Adjustment Volume– Samples Volume– Free Goods Volume– Tenders Volume – TOTAL VOLUMETOTAL VOLUME

• StatisticalStatistical

• JudgmentalJudgmental

• CALCULATEDCALCULATED

• JudgmentalJudgmental

• Judgmental/StatisticalJudgmental/Statistical

• Judgmental/StatisticalJudgmental/Statistical

Page 13: Demand forecast

Developing a Forecast - Process What are the processes that create the different types of forecasting?

– Statistical Base volume forecast

– Judgmental adjustments etc.

Page 14: Demand forecast

Statistical Forecasting- Process Capture actuals

– from Sales Order Processing (SOP) system

Filter history – to remove abnormal demand– to remove stock outs– to adjust for step changes

one off task - when conditions change

Run forecasting “algorithm” tournament, regression etc.

Evaluate results against assumptions

Page 15: Demand forecast

Statistical Forecasting Process- Capture Actuals

Actuals from SOP system

– provides historical data to use for statistical method essential to drive forecast in future

– will be invoiced sales - therefore : all sales will be included

– including promotions volumes stock problems will be reflected in lower figures

– requires maintenance to be effective initial one off job when first building forecast ongoing task is to maintain last month only

Page 16: Demand forecast

Statistical Forecasting Process - Actuals being used as History

Projects historical sales patterns into future forecasts

– shape will be ‘smoothed’ to varying degree

0

20

40

60

80

100

120

140

160

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46

History

Forecast

Page 17: Demand forecast

Statistical Forecasting - Uses of History Trends

0

50

100

150

200

250

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

History Forecast Linear (History)

TrendingTrending

Page 18: Demand forecast

Statistical Forecasting- Uses of History Seasonality

0

20

40

60

80

100

120

140

160

180

1 4 7

10 13 16 19 22 25 28 31 34 37 40 43 46History Forecast Linear (History)

SeasonalitySeasonality

Page 19: Demand forecast

Statistical Forecasting Process- Filtering (modify) History

Why Filter– large abnormal patterns will wrongly influence future

Things to look for in History to filter– stock outs (zeros) & promotions (spikes)

0

50

100

150

200

250

300

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Total Vol FC

Sales Vol FCSales Vol

Page 20: Demand forecast

Statistical Forecasting Process - Filtering (modify) History

Results of filtering– smoother pattern is projected into future

modify history in Sales Vol Md in SA (use Comments)– doesn’t change REAL history (sales Vol)

0

50

100

150

200

250

300

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Total Vol FCAdjstmt FCSales Vol Md / FcSales Vol FCSales Vol

Page 21: Demand forecast

Business Forecasting ProcessCapture

Historic Data

Review CommercialPlans

Consensus Forecast

Modify History

GenerateForecasts

Demand Review Meeting Sign off

Review ExceptionalDemand

Sales/MarketingResponsibility

Feed to Demand Planning

Process

Page 22: Demand forecast

Developing a Forecast- Judgmental Forecasting When Statistics won’t work….When Statistics won’t work….

– Where there is no reliable history New SKUs

– For future events that have no past information range changes changing market conditions promotions

Solution…….– Use Judgmental forecasts

to create forecasts where no statistical can exist to adjust statistical volume (as per last slide)

Page 23: Demand forecast

Judgmental Forecasting

Used to add future events to the forecast– can be positive or negative– adjustments made to the statistical base

if one exists (e.g. New SKUs)

Require assumptions to base judgement on– research– market information– brand plans– consensus forecasts (Demand Review

Meeting)

Page 24: Demand forecast

Judgmental Forecasting Adjustments should NOT overwrite base volume

– should be complementary to the statistical numbers statistical Base added to judgement

adjustments get the Correct TOTAL VOLUME

– in SA use different Fact for adjustments allows analysis & visibility comments database can be used to store

assumptions

Page 25: Demand forecast

Judgmental Forecasting

0

50

100

150

200

250

300

Adjstmt Vol 0 0 0 0 33 104 5 0 0 10 20 80 50 40 40 40 40

Sales Vol FC 100 123 131 144 122 80 110 85 112 123 108 144 122 122 110 130 112

Total Forecast 100 123 131 144 155 184 115 85 112 133 128 224 172 162 150 170 152

Jan Feb Apr May Jul Aug Sep Nov Dec Feb Mar May Jun Jul Sep Oct Dec

Page 26: Demand forecast

Putting the Forecast together… - Effort of Forecasting

Focus Forecasting Effort– Statistical forecast alone will often achieve sufficient level of

accuracy (especially Cat B/C)– not always the best solution alone

Build judgmental adjustments in where necessary– Complex Demand or High Value (Cat A) Products

Together powerful tool to deliver TOTAL forecastTOTAL forecast

Statistical - deliver base, trends & seasonality Judgmental - promotions, ranges changes,

abnormal scenarios

Page 27: Demand forecast

Putting the Forecast together… - Effort of Forecasting

ComplexityComplexity

ValueValue

StatisticalStatisticalForecastingForecasting

JudgmentalJudgmentalForecastsForecasts

AA

BB

CC

Page 28: Demand forecast

0

50

100

150

200

250

300

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Jan

Apr Ju

l

Oct

Sales Vol FC Adjstmt Vol

Sales Vol Total Forecast

Sales Vol MD

Putting the Forecast together…- The bigger picture

Page 29: Demand forecast

Putting the Forecast together… - The Volume - Value link

Value Forecasts driven by volume– Volume x Average Price = Sales Value

both volume and price require forecasting

Volume - Value link will deliver the 24 month rolling business forecast

– new products will need to be forecast earlier to get full business picture

Financial forecasting was deployed in 2000– will allow forecasting for profit and contribution

ONE SET of NUMBERS drives the business

Page 30: Demand forecast

Putting the Forecast together…- Points to remember….

Always remember….– the forecast from the system may be correct – the initial assumptions may be wrong

changing market conditions unexpected seasonal conditions

Work out if adjustments are– required, realistic and reasonable to make– if they are - don’t overtype the base volumeif they are - don’t overtype the base volume

use judgmental facts (i.e. Adjustment vol.)