Eastlog 2014 prague

www.jaguar-
aps.com
®
Copyright: Jaguar-APS
Effective Use of Data to Support
Successful Supply Chains.
Charles Novak & Pavel Černý, Jaguar-APS
Prague, CZ May
2014

www.jaguar- Copyright: Jaguar-APS
Theme of the Presentation

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Complexities Affecting Business
Strategy
 Factors impacting supply
chain complexity:
 Globalization
 Mass customization of
products
 Compressed product lifecycles
 Outsourcing
 New product introductions
 Competitive market entrants
 Fluctuation in supplier costs
 Capacity constraints
 Mergers and acquisitions
3

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Managing by Analytics
 Analytics resolve
differences of opinion.
 Initial discussion based on
opinions but has to be
supported by numbers.
 Cross-functional
involvement to improve
alignment.
 Typically, managing by
analytics is a MAJOR
CHANGE.
 Teams work best when
analytics rule discussion
 Analytics is Much More
Than Reporting
 Traditional supply chains
respond, but they do not
sense.
 Organizations do not use
analytics to listen.
 In the world of new
analytics, they will be able
to sense, test and learn
and orchestrate the
response market to
market.
5

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Analytics is Much More Than Reporting
 New technology forms
of analytics are
expanding the
possibilities.
 The evolution of
analytics for
visualization, pattern
recognition,
unstructured text mining
and parallel processing
are converging to drive
a new form of supply
chain.
Think
Sense
Act
 Analytics combines digital
with cognitive reasoning
to sense, think and act.
6

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Analytics is Much More Than Reporting
 What if we could test and
learn in-market, reading
market impacts in real-
time through analytics,
based on matching
customer attributes to
product attributes to build
customized products for
regions around the world?
 This new approach allows
test and learn capabilities
to answer the questions
that we do not know to
ask to build unique
insights.
 And, what if we could mine
unstructured data and
combine it with transactional
data to mitigate supplier risk?
7

Business Failure
Linking strategy with execution is the key!
Focus on decisions rather than the information.
The reason why successful companies fail is they
invest in things that provide the most immediate and
tangible evidence of achievement.”

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The Roadmap to Sustainable Success
 Identify business goals
 Identify business decisions
driving the goals
 Identify people that will
drive the business goals
 Identify business
processes that will help
with making decisions
 Identify data and tools
required to make the
decisions
 Improve planning by
launching what-if
capabilities. 9
Strategy
Knowledge
People
Data-Tools
Supply chain must
identify business
goals from the start.

The only thing that is constant today, is the
CHANGE

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Role of Demand Planning
11
 Analytical approach incorporating
domain knowledge, not just
judgement.
 Non-biased forecast generation.
 Forecast model and methods
evaluation and selection
To tell the top
management the truth!
 Data collection, coordination, transformation and
analysis
 Forecast development and analysis
 Forecast communication
 Error tracking, analysis and remediation
 Cross-functional interface
 Planning process interface

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Introduction: Recent Developments
• Uncover patterns in consumer behavior.
• Measure effectiveness of marketing investment.
• Optimize financial performance.
• Shape and proactively drive demand using what-
if simulations.
• Sense demand signals and shape the future
demand supported by data mining technologies.
Predictive analytics used to:
12

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Predictive Analytics and Supply Chains
• Cost perceived too high
• Focus on investments that
provide immediate and tangible
results.
• Too complex to connect the
data nodes across extended
supply chain.
• Big data is a distraction at the
moment.
• Skillsets in supply chain and IT
are limited.
• Disconnect between the need
and silo managed IT and other
departments.
• Demand planning not a Core
Competence.
Why Not
• Strong potential to transform
the way in which supply chain
managers lead and supply
chains operate.
• Senior management’s need to
grow the business profitably.
• Multi-echelon supply chains
require quick and correct
signals to operate effectively.
• “Heads-up” to help sense,
analyze, and better respond to
market changes.
• Data equals information and
information equals profit.
• Pressures to synchronize
demand and supply to
understand why consumers buy
products.
Why Yes
13

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Demand-Driven Forecasting & Supply Chain
Demand
Sensing
Demand
Shaping
Demand
Translating
Demand
Shifting
Demand
Orchestration
14
Source: Laura Cecere, Supply Chain Insights & Charles Chase,
SAS

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Demand-Driven Forecasting & Supply Chain
 Demand sensing
 Shortening the time to sense “true”
market data to understand “true”
market shifts in the demand
response.
 Order-to-shipment data that can
have 1-3 weeks latency in
translating “true” market (or channel)
demand to action.
 Development of Consumption based
Forecast
 Demand shaping
 Domain knowledge vs. judgement.
 Applying techniques to stimulate
market demand.
 Linking demand to supply chain.
 Elimination of politics and bias in
forecast.
 Demand translation
 Translating demand outside-in from
the market to each role within the
organization
 The system design recognizes that
the requirements for each -
distribution, manufacturing and
procurement - are different.
 In this process, the forecast is based
on “the selling unit” into the channel
with “ship-to modeling.”
 The demand is then translated to
“ship-from” views based on the
needs of the specific role.
 Demand orchestration and shifting
 Making trade-offs market-to-market
based on the right balance of
demand risk and opportunity.
 These trade-off decisions depend on
the use of advanced analytics to
sense and shape demand
simultaneously.
 Domain knowledge vs. judgment.
15
Source: Laura Cecere, Supply Chain Insights & Charles Chase,
SAS

Things You Need To Know About The
Process
Process is
more
important
than
forecasting
models and
forecasting
software.

Demand-Driven Forecasting Process
Source: Charles Chase, SAS
Demand Sensing
Sensing demand signals
related to the marketplace
by market, channel,
category, and product.
Demand Shaping
Using what-if analysis,
demand planners shape
future demand based on
tactical and strategic
sales/marketing plans.
Demand Shifting
Collaboration with sales,
marketing and operations
planning to match supply to
unconstrained demand.
Demand Response
Constrained demand
response used to develop a
final supply response
(plan).
Process
Flow
Uncover
Market
Opportunities
and Key
Business
Drivers
• Sales
• Marketing
Optimize
Sales and
Marketing
Tactics and
Strategies
• Sales
• Marketing
Assess
Financial
Impact
• Finance
Finalize
Unconstraine
d Demand
Forecast
• Sales
• Marketing
Consensus
Planning
Meeting
• Sales
• Marketing
• Finance
• Operation
s Planning
Rough Cut
Capacity
Planning
Review
• Operation
s Planning
Revised
Demand
Response
• Sales
• Marketing
Create
Supply
Response
• Operation
s Planning
Collaborativ
e Work Flow
Sales and Operations
Planning
Consensus
Planning
Horizontal
Processes
17

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Demand-Driven Forecasting Planning
Process
18
 This structured approach puts the burden of
ACCOUNTABILITY on the SALES AND MARKETING
organizations to produce a more accurate unconstrained
demand forecast that reflects current market conditions –
assuming there is unlimited supply.
 This change in the process signals a radical shift in the
way companies view their demand forecasting and
planning process today. Most demand forecasting
processes are SUPPLY DRIVEN with little emphasis on
predicting unconstrained demand, let alone shaping
future demand.
 Demand driven forecasting is a proactive structured
process that senses demand signals and shapes future
demand based on sales and marketing strategies and
tactics rather that reacting to past supply constraints.Source: Charles Chase, SAS

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Demand-Driven Forecasting Planning
Process
19
 Focus on demand-driven including evaluation of
strategic, operational, and tactical plans to
consolidate departmental inputs by identifying,
assessing, and closing any financial gaps.
 Provides realistic view of true unconstrained
demand.
 Based on sales and marketing consensus that has
been financially analyzed for further refinement to be
used in support of the S&OP process.
 Supply constraints are addressed through shifting
demand to allow for efficient and cost-effective
response to meet demand.

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Vendor DC
Store
Store
Store
Inside-out (push) strategy issues
 Downstream demand
accumulated ad
presented as aggregate
total.
 Delay in the initial demand
from original customer.
 Service level need is an
average.
 Upstream supply
expected to be at 100%
service level.
“If replenishment takes care of inventory problems,
what caused the inventory problems in the first place?”
Inventory
Information
20

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Inside-Out Questions
 Is the demand the result of consumption at a store
level?
 Is the demand upstream the result of the
downstream consumer demand or the downstream
warehouse demand?
 How long it is before a forecast becomes true
demand?
 Does the demand signal become true just because
you believe it to be better?
 Do you have enough time to react to the true
demand when it finally becomes known?
21
PUSH

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More intelligent use of market data
 Changing view of how to
look at the data and
serve customers
 From INSIDE-OUT to
OUTSIDE-IN
 It is about owning the entire
supply chain, including the
channel, and managing
products from their
manufacture to their end
use.
 Current supply chains
catch orders and
shipments and assume
that they are
representative of the
market. 22
Supply chain leaders can
sense dynamics in the market
and translate it through
organization and alert the
right person at the right time
to make the right next action.
PULL

Inside-Out (PUSH) Outside-In (PULL)
Strategic
Focus
Superior new products Product solutions to
customer’s unmet needs
Investment
Required
High; requires engineering
innovation
Small to high; requires
marketing brains & insight
in consumer behavior
Marketing
Communicati
on
Product features and
benefits
Solutions to customer
problems
Measurement Sales & market share Customers share &
lifetime value
Profitability Short term planning;
profits subject to market
changes
Long term planning; profits
subject to customer loyalty
Planning Demand and supply based
on past shipments/orders
Translating market
demand to each role
within the organization.
23

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Infrastructure for Demand-Driven Value
Networks
Opportunitie
s
Insights Risk
Demand
Product
Supply
Become Market
Driven
Sustainability
Build Value in
Supply Networks
Drive Innovation in Products and
Services
Orchestrate
Demand-Driven
Response
24
Demand-driven value
networks (DDVNs) integrate
processes and data in the
supply chain to enable
collaboration, as well as
orchestrate a response to
demand that creates value
Source: Gartner Research

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Demand-Driven Value Network
Focus
of
DDVN
Process
Network
Design
Sensing
 Proven Benefits:
 Improved customer
service
 Lower inventory levels
 Improved working capital
and cash flow
 Reduced supply chain
disruptions
 Improved operational
efficiency
 Lower IT costs
 Improved profitability
 Improved market shareSource: Gartner Research
25

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Supply chain managers must advocate for
“demand-shaping with supply in mind”
 Price
 These activities cause significant demand variation and
uncertainty depending upon the price elasticity of products and
competitive reactions.
 Supply chain managers can support pricing decisions and
demand variations and uncertainties.
 For example, they can carry material and component buffer
stocks, reserve excess manufacturing capacity, and maintain
safety stocks of finished goods.
 Promotion
 As with pricing activities, these cause significant demand
variations and uncertainties.
 Prior to a promotional campaign the primary role of supply
chain managers is to fill downstream supply chains with
product to cover the often substantial uplift in expected
demand. Larry Lapide, MIT Supply Chain Management
26

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Supply chain managers must advocate for
“demand-shaping with supply in mind”
 Product
 Establishing and changing the portfolio of products sold, including the
introduction of new and reformulated products and the phasing out of old
obsolete products.
 New product launches especially have significant demand uncertainty. Yet
it is important to ensure that product is available to satisfy first-time
buyers.
 Supply chain managers need to execute launches by initially filling
downstream supply chains with sufficient inventories, as well as helping to
ensure new products are positioned at the points of sale.
 As a product launch progresses, supply needs to be replenished all along
the downstream supply chains, as well as at the points of sale.
 Place
 Involves establishing the distribution and sales channels.
 Similar to new product launches, opening a new channel involves very
significant demand variation and uncertainty.
 It involves establishing the ways products will flow and be inventoried
throughout a new channel, as well as initially stuffing and replenishing it
with inventory.
 For example, establishing an online Internet sales channel often involves
deploying new order fulfillment and supply strategies, such as piece
picking, packing, and shipping in customer-facing warehouses.
Larry Lapide, MIT Supply Chain Management
27

Data segmentation
Statistical Methods Selection Based on Segmentation and Portfolio
Management
𝐷𝑒𝑚𝑎𝑛𝑑 𝑃𝑎𝑡𝑡𝑒𝑟𝑛𝑠 + 𝐷𝑒𝑚𝑎𝑛𝑑 𝑉𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 = 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦
𝑉𝑎𝑙𝑢𝑒 𝑡𝑜 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 + 𝑓𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦
= 𝑐𝑜𝑟𝑟𝑒𝑐𝑡 𝑓𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑖𝑛𝑔 𝑚𝑒𝑡ℎ𝑜𝑑
Data
Trend,
Seasonality,
Cycle,
Randomness
High Value, Low
Value
New, Harvest,
Growth, Niche
Forecastability
Value to the
Company
Data
Segmentation
New Products
Niche Brands
Growth Brands
Harvest Brands

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Copyright: Jaguar-APSCopyright: Jaguar-APS
Four Quadrants Based on Portfolio
Management
29
Low Value
High
Forecastability
Low Priority Products:
· Strong Trend
· Highly Seasonal
· Possibly Cycles
· Minor Sales Promotions
Low Priority Regional Specialty
Products:
· Some Trend
· Seasonal Fluctuations
· Irregular Demand
· Local Targeted Marketing
Events
Product Line Extensions:
(Evolutionary New Products).
Some ‘Like’ history available.
Short Life Cycle Products:
Many ‘Like’ products available.
New Products:
(Revolutionary New Products)
No ‘Like’ history available.
High Priority Products:
· Strong Trend
· Seasonal Fluctuations
· Possible Cycles
· Sales Promotions
· National Marketing Events
· Advertising Driven
· Highly Competitive
Growth Brands
Niche Brands Harvest Brands
New Products
CompanyValue
Forecastability
High
Value
Low
Forecasta
bility
Low
Value
Low
Forecasta
bility
High
Value
High
Forecasta
bility
Low
Value
High
Forecasta
bility

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Statistical Methods Selection Based on
Segmentation and Portfolio Management
30
ARIMAX
ARIMA with Interventions
and Regressors
Simple Regression
Multiple Regression
Combined average:
Judgment, Time Series,
Causal
Combined Weighted:
Judgment, Time Series,
Causal
Croston’s Intermittent Demand
ARIMA Box-Jenkins
Winters 2 / 3 Parameter
Decomposition
Simple Moving Average
Holt’s Double Exponential
Smoothing
‘Juries’ of Executive Opinion
Delphi Committees
Sales Force Composites
Independent Judgment
Causal Modeling
Multiple Methods Time Series
JudgmentalCompanyValue
Forecastability
New
Products
High
Value
Low
Forecasta
bility
Niche
Brands
Low
Value
Low
Forecasta
bility
Growth
Brands
High
Value
High
Forecasta
bility
Harvest
Brands
Low
Value
High
Forecasta
bility

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Data Segmentation for Effective Demand
Planning
Sample size: 14,271 SKUs
31

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Data Segmentation - Forecastability
32

Collaboration accross the supply chain
What can you get from your customers or what can you get from your
suppliers.

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Bullwhip effect:
Increasing Variability of Orders Up the Supply
Chain
Bullwhip effect signals less than optimal supply
chain caused by inefficiencies in information
sharing. Poorly managed supply chains cause instabilities (i.e. poorly
forecasted consumer demands). These instabilities create these bullwhip
effect swings. 34

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Solutions to fixing the Bullwhip effect
35
 Sharing of real demand data across the supply chain
 Trust and collaboration – process integration
 Agile execution to respond to demand variability
 Use “Pull” – Outside-in techniques
 Customer demand drives material flow
 Consumption based replenishment and forecasting
 Frequent deliveries in smaller volumes to replace
customer consumption
 VMI
 CPFR

Vendor
Managed
Inventory
VMI
 Collaboration Process of
Manufacturer and
Distributor/Retailer
 Optimization of Supply Chain
performance
 Manufacturer responsible for
maintaining the levels of inventory
at Distributor’s location(s)
 Manufacturer has access to
Distributor’s inventory data and
generates POs
36

Collaborative
Planning,
Forecasting
and
Replenishme
nt (CPFR)
 Communication and Sharing of
Demand Plans with External
Partners.
 CPFR combines the intelligence of
multiple trading partners in the
planning and fulfillment of customer
demand.
 Links sales and marketing best
practices to supply chain planning
and execution processes.
 Objective:
 Increase availability to the customer.
 Reduce inventory, transportation and
logistics costs.
37

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Collaborative Planning, Forecasting and
Replenishment
38
PUSH
Consumption
Shipments = 31% more
than consumption
PUL
L
Consumpti
on
Shipments = 98% of
consumption
Before CPFR
With CPFR

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Questions that are answered through
collaboration with customers / distributors
 What is my company
impact on my sales due
to retail price?
 Which of my items are
on each planogram?
 What stores are not
selling my key items?
 How do various store
groups/regions perform
with my product
portfolio?
 Which store has which
planogram?
 What are the top 20%
of stores contributing to
80% of my business
loss?
 What are my SKUs
performing at this retailer
and where should I look
for distribution gains?
 How do my SKUs perform
on ad and various price
points?
 What were my sales last
week? Last month?
 Are my innovation SKUs
getting to shelf edge
quickly?
 How do my sales
compare to previous
timeframes?
39

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Vendor Reporting
 Stores not selling
 SKU rank
 Speed to market
 Planogram crosstab by
store
 Planogram crosstab by
item
 Store performance report
 Vendor scorecard
 Pricing and promotional
analysis
 Store cluster comparison
 Performance trends
 Weekly sales raw data
 Types of reports that enhance Domain Knowledge
and support Demand Sensing and Shaping process.
What information you can get from your
distributors or customers? What information
can you share upstream in your supply chain?
40

Forecasting Outside-in
Linking Market Data to Shipments – Simplified Example

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MTCA – Multi-Tiered Causal Analysis
 Past constraints are becoming non-issue today:
 Data collection and storage
 Computing power available
 Data synchronization capabilities
 Analytical expertise
 MTCA, a process of nesting causal models together
using data and analytics, considers marketing and
replenishment strategies jointly, rather than creating
two separate forecasts.
“Integrating consumer demand into the demand forecasting
process to improve shipment (supply) forecasts has become a
high priority in the FMCG/CPG industry as well as in many other
industries over the past several years.” Charles Chase, SAS
42

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Growth brand – traditional forecasting
approach
43

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MTCA – Multi-Tiered Causal Analysis
44
Market data from ACNielsen
Factory shipments

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1. Data Analysis
45
Comparisson of category consumption and forecast with all outlet consumption
for brand. Strong correlation between the two variables is confirming origninal
assumptions of category influencing brand consumption.

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2. Development of Consumption Forecast
46
Regression 1: Last 4 Periods Out of Sample
b 0.670646293 114991.935 a
SE X 0.01659508 43476.00362 SE Y
R2
0.989098563 57723.81787 SE
F 1633.158501 18 df Residual
SS Reg 5.44175E+12 59976704694 SS Residual
t 40.41235579
Out of Sample
Forecast Bias % Bias Abs Error APE
4,247,556 329,111 7% 329111.089 7%
1,997,206 (131,092) -7% 131091.571 7%
1,772,187 (44,406) -3% 44405.9146 3%
1,724,543 (11,602) -1% 11601.8607 1%
ME -1% MAPE 4%
Regression 2: All Data In Sample
b 0.716448119 -987.7474012 a
SE X 0.015630716 44552.36932 SE Y
R2
0.989636968 78137.09794 SE
F 2100.930716 22 df Residual
SS Reg 1.2827E+13 1.34319E+11 SS Residual
t 45.83591076
Running two regressions: first to validate
the model, second to use the model to
generate forecast for the brand‘s
consumption.

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3. Development of Shipment Forecast Based on
Consumption Forecast
47
Detection of lag/lead relationship of factory
shipments and consumption.
Shipment forecast based on consumption

®
4. Linking Consumption Forecast to Supply
Chain and Internal Marketing/Sales Programs
48
Adding supply events and TV
advertising (dummy variables)
plus marketing promotions (past
history and forecast) as final
variables to the consumption
based factory shipment forecast.
Final forecast (green)
based on consumption,
supply chain constraints,
marketing and sales
activity.

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Comparison of traditional forecasting approach
(blue) versus MTCA (red).
49
What would it mean to supply chain if only statistical shipment forecast
was used?

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Why Haven’t Companies Embraced the Concept
of Demand-Driven?
Incentives
Traditional view of
supply chain
excellence
Leadership
Focus: Inside out,
not outside in
Vertical rewards
versus horizontal
processes
Focus on
transactions not
relationships
50

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®
Why Haven’t Companies Embraced the Concept
of Demand-Driven?
51
 Incentives:
 As long as sales is incented only for volume sold and marketing only for market share, companies will
never become demand driven. To make the transition to demand-driven, companies must focus on
profitable sales growth through the channel.
 Traditional view of supply chain excellence.
 For demand-driven initiatives to succeed, they must extend from the customer's customer to supplier’s
supplier. Customer and supplier initiatives usually are managed in separate initiatives largely driven
by cost.
 Leadership.
 The concepts of demand latency, demand sensing, demand shaping, demand translation, and
demand orchestration are not widely understood. As a result, they are not included in the definition of
corporate strategy.
 Focus: Inside out, not outside in.
 Process focus is (today) from the inside of the organization out, as opposed to from the outside
(market driven) back. In demand-driven processes, the design of the processes if from the market
back, based on sensing and shaping demand.
 Vertical rewards versus horizontal processes.
 In supply-based organizations, the supply chain is incented based on cost reduction, procurement is
incented based on the lowest purchased cost, distribution/logistics is rewarded fro on-time shipments
with the lowest costs, sales is rewarded for sell-in volume into the channel, and marketing is rewarded
for market share. These incentives cannot be aligned to maximize true value.
 Focus on transactions not relationships.
 Today, the connecting processes of the enterprise – selling and purchasing – are focused on
transactional efficiency. As a result, the greater value that can happen through relationships –
acceleration of time to market through innovation, breakthrough thinking in sustainability, and sharing
of demand data – never materializes.

®
®
Recommendations
 Understand Demand
 By better understanding demand, companies can plan
production capacity and inventory level in a more accurate
fashion, minimizing the risk of lost sales opportunities.
 Collaboration and Integration
 The ability to share information between departments within the
business is essential to improving supply chain.
 Without internal communication processes in place (Demand
Planning, S&OP), the company as a whole cannot effectively
collaborate with the outside entities, whether they are supplier
or customers.
 Supply Chain Management
 Increased visibility into supply decisions and constraints by
providing input in the demand shaping and shifting activity will
help ensure the product is available at the right place at the
right time.
52

Thank
YouCharles Novak & Pavel Černý
charles.novak@jaguar-aps.com
pavel.cerny@jaguar-aps.eu
www.jaguar-aps.com
Our Solutions
• Training Programs
• Opportunity Assessment
• Business Transformation – S&OP/IBP
• Forecast Software Selection and Implementation
• On-Demand
http://www.jaguar-aps.com/services/index.html

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