Kinaxis - Is Forecasting Fatally Flawed?

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Here's a presentation from Trevor Miles, director of thought leadership, Kinaxis called "Is Forecasting Fatally Flawed?"

Want to see the webcast version of this presentation? Visit: http://www.kinaxis.com/campaign/on-demand-ResponsivenessDemandForecasting/

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Kinaxis - Is Forecasting Fatally Flawed?

  1. 1. Copyright © 2011 Kinaxis Inc. All Rights Reserved. 1
  2. 2. Is Forecasting Fatally Flawed? Responsiveness – The Other Half of the Demand Forecasting Conversation Trevor Miles director, thought leadership e: tmiles@kinaxis.com | m: +1.647.248.6269 | t: @milesahead Copyright © 2011 Kinaxis Inc. All Rights Reserved. 2Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  3. 3. Agenda• Business Drivers• Why Continuous?• Why Collaborative?• People, Process, Technology• Continuous and Collaborative S&OP Copyright © 2011 Kinaxis Inc. All Rights Reserved. 3
  4. 4. Business Drivers Copyright © 2011 Kinaxis Inc. All Rights Reserved. 4Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  5. 5. Today’s multi-tier global supply chain Pervasive, global outsourcing Product portfolio proliferation Shrinking product lifecycles Increasing demand volatilityCopyright © 2011 Kinaxis Inc. All Rights Reserved. 5
  6. 6. Market dynamics• Top CPG companies forecast performance – Terra – MAPE for a one month lag was 31% + 12% • Forecast Error Range: 19% - 43% – Eight years ago: 36% + 10% MAPE• High-Tech/Electronics – anecdotal – Struggle to get better than 50% MAPE• Where will breakthrough performance come from? – Learning to forecast and plan better? – Learning to respond profitably to plan variance? Copyright © 2011 Kinaxis Inc. All Rights Reserved. 6
  7. 7. Companies can’t predict thefuture,…build organizations that willsurvive and flourish under…any possible future.Source: McKinsey Quarterly, Dynamic management: Better decisions in uncertain times, December 2009 Copyright © 2011 Kinaxis Inc. All Rights Reserved. 7
  8. 8. A volatile economy makestraditional budgetsobsolete before they’re evencompleted. New approaches: 1. Scenario planning with trigger events 2. Zero-based budgeting 3. Rolling forecasts 4. Quarterly budgetingSource: McKinsey Quarterly, Just-in-time budgeting for a volatile economy, Spring 2009 Copyright © 2011 Kinaxis Inc. All Rights Reserved. 8
  9. 9. Markets not affected equallyCopyright © 2011 Kinaxis Inc. All Rights Reserved. 9
  10. 10. Markets not affected equallyCopyright © 2011 Kinaxis Inc. All Rights Reserved. 10
  11. 11. Markets not affected equally No matter how accurate the forecast, demand volatility will remain.Copyright © 2011 Kinaxis Inc. All Rights Reserved. 11
  12. 12. Standard demand segmentation 80% of Volume 80% of Variability• Each point is a specific SKU• Coefficient of variation = Std.Dev./Mean Copyright © 2011 Kinaxis Inc. All Rights Reserved. 12
  13. 13. Standard demand segmentation Make-to-Stock Configure-to-Order Pull Make-to-Order Rationalize?• Each point is a specific SKU• Coefficient of variation = Std.Dev./Mean Copyright © 2011 Kinaxis Inc. All Rights Reserved. 13
  14. 14. Standard demand segmentation Make-to-Stock Configure-to-Order Pull Make-to-Order Rationalize?• Each point is a specific SKU• Coefficient of variation = Std.Dev./Mean Copyright © 2011 Kinaxis Inc. All Rights Reserved. 14
  15. 15. Demand segmentation Demand forecast (units) Hi scenario 400 Uncommitted 300 Flexible quantity 200 Base scenario contract 100 Fixed quantity Lo Scenario contract 0 Time Venu Nagali , Procurement Risk Management (PRM) at Hewlett-Packard Company, Stanford Risk Management Roundtable, November 13, 2006Copyright © 2011 Kinaxis Inc. All Rights Reserved. 15
  16. 16. Supply chain segmentation400 Hi Hi300 Hi Base200 Base Lo100 Lo Base Lo 0 Time Time Time • Where will breakthrough performance come from? – Learning to forecast and plan better? – Learning to respond profitably to plan variance? Copyright © 2011 Kinaxis Inc. All Rights Reserved. 16
  17. 17. Why Collaborative? Copyright © 2011 Kinaxis Inc. All Rights Reserved. 17Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  18. 18. Why collaboration?Copyright © 2011 Kinaxis Inc. All Rights Reserved. 18
  19. 19. The ‘Bullwhip Effect’ at work Christoph Glatzel, Stefan Helmcke, and Joshua Wine, Building a flexible supply chain for uncertain times, McKinsey Quarterly, March 2009Copyright © 2011 Kinaxis Inc. All Rights Reserved. 19
  20. 20. The ‘Bullwhip Effect’ at work J Forresters Industrial Dynamics (1961) Central message: • Multi-Tier Visibility • Collaboration Christoph Glatzel, Stefan Helmcke, and Joshua Wine, Building a flexible supply chain for uncertain times, McKinsey Quarterly, March 2009Copyright © 2011 Kinaxis Inc. All Rights Reserved. 20
  21. 21. S&OP – balancing competing goals Goal: Make the financial budget. Top-down focus. Wants: Control and predictability of operations Forecast: The budget/annual operating plan FinanceGoal: Maximize Goal: Minimize supplyrevenue and market chain costs, often Demandshare Side inventory Sales and OperationsWants: Guaranteed Marketing Supply Wants: Minimumproduct availability Side demand uncertaintyForecast: Sales plan Forecast: Supply plan Supply Chain Goal: A feasible plan. Bottom-up focus Wants: Minimize risk and disruption Forecast: The demand plan Copyright © 2011 Kinaxis Inc. All Rights Reserved. 21
  22. 22. S&OP – balancing competing goals Goal: Make the financial budget. Top-down focus. Wants: Control and predictability of operations Forecast: The budget/annual operating plan FinanceGoal: Maximize Goal: Minimize supplyrevenue and market chain costs, often Demandshare Side inventory Sales and OperationsWants: Guaranteed Marketing Supply Wants: Minimumproduct availability Side demand uncertaintyForecast: Sales plan Forecast: Supply plan Supply Chain Goal: A feasible plan. Bottom-up focus Wants: Minimize risk and disruption Forecast: The demand plan Copyright © 2011 Kinaxis Inc. All Rights Reserved. 22 22
  23. 23. Why Continuous? Copyright © 2011 Kinaxis Inc. All Rights Reserved. 23Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  24. 24. S&OP in the overall planning process Business Tactical Strategy Planning S&OP Planning ExecutionDegrees of Freedom Financial Capacity Sourcing Scenario Planning Inventory Product Demand Copyright © 2011 Kinaxis Inc. All Rights Reserved. 24
  25. 25. Integrated business planning the goal Integrated Business Planning Business Tactical Strategy Planning S&OP Planning Execution Scenario PlanningDegrees of Freedom Finance Capacity Sourcing Inventory Product Demand Copyright © 2011 Kinaxis Inc. All Rights Reserved. 25
  26. 26. Traditional planning process segmentationCopyright © 2011 Kinaxis Inc. All Rights Reserved. 26
  27. 27. Traditional planning process segmentationCopyright © 2011 Kinaxis Inc. All Rights Reserved. 27
  28. 28. Traditional planning process segmentationCopyright © 2011 Kinaxis Inc. All Rights Reserved. 28
  29. 29. Continuous and collaborative S&OPCopyright © 2011 Kinaxis Inc. All Rights Reserved. 29
  30. 30. Continuous and collaborative S&OPCopyright © 2011 Kinaxis Inc. All Rights Reserved. 30
  31. 31. Process, People, Technology Copyright © 2011 Kinaxis Inc. All Rights Reserved. 31Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  32. 32. Gartner: Most companies stuck at stage 1 or 2 Larry Lapide – Demand Management Solutions Group – 2008 Copyright © 2011 Kinaxis Inc. All Rights Reserved. 32
  33. 33. Relative importance of technology Larry Lapide – Demand Management Solutions Group – 2008 Copyright © 2011 Kinaxis Inc. All Rights Reserved. 33
  34. 34. ProcessPeopleTechnology Copyright © 2011 Kinaxis Inc. All Rights Reserved. 34
  35. 35. ProcessPeopleTechnology Copyright © 2011 Kinaxis Inc. All Rights Reserved. 35
  36. 36. …[technology] … the web will changenothing until we use itfor that purpose …Source: http://www.euansemple.com/theobvious/2011/1/20/does-the-web-change-everything.html Copyright © 2011 Kinaxis Inc. All Rights Reserved. 36
  37. 37. Copyright © 2011 Kinaxis Inc. All Rights Reserved. 37
  38. 38. Copyright © 2011 Kinaxis Inc. All Rights Reserved. 38
  39. 39. • Technology choice means – Different skills/people – Different processes – Different results Copyright © 2011 Kinaxis Inc. All Rights Reserved. 39
  40. 40. Continuous and Collaborative S&OP Copyright © 2011 Kinaxis Inc. All Rights Reserved. 40Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  41. 41. “If I had asked people what they wanted, they would have said faster horses.” - Henry FordCopyright © 2011 Kinaxis Inc. All Rights Reserved. 41
  42. 42. Continuous and collaborative S&OP AND, not OR Collaborative, not linear Event-driven, not calendar-driven Effective, and efficientCopyright © 2011 Kinaxis Inc. All Rights Reserved. 42
  43. 43. Copyright © 2011 Kinaxis Inc. All Rights Reserved. 43
  44. 44. Thank you! Questions? Trevor Miles | e: tmiles@kinaxis.com | m: +1.647.248.6269 | t: @milesahead Copyright © 2011 Kinaxis Inc. All Rights Reserved. 44Copyright © 2011 Kinaxis Inc. All Rights Reserved.
  45. 45. Watch my recorded presentation from the High-Tech Forecasting & Planning Summit here: http://www.kinaxis.com/campaign/on-demand- ResponsivenessDemandForecasting/Copyright © 2011 Kinaxis Inc. All Rights Reserved. 45

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