White Paper-Business-Forecasting - S&OP - Biel - 04-19-11

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Business Forecasting
B:u ilding:a:Colle'tsbi iVe.:.:nO:rqoasti:ngi:: PfooeSS
Connecting the Short-Term & Long-Term
(Jim Biel, 4t19111l,

i.and:i:#Cfioril Fdl*fi$6s:..ufit:hoiw

The...full.:Ut/Jrite:,.Faperwhich:follofiS,contaf,hs,,;a;rather,,briefr:::bulpt$olntH;.gra$h:i:c:oii€'ntEd
disGrrssrioni::of::Eusiiless::;FCIr-e;crStifiUi::::::lt:::i$i:ila'i:tl,S,:,rninute.,,ieafl:i Please contact me at 847.687.5379 (cell) or
bielcqnsulting@gmail.cgm if you would like to discuss further.
Summary

f!naaciAIi:t:end::::ffi Siihe$Si:iffi f €cd$l:::{leedsirirdoVerjng,':b,oth

Ttre,,p4mary:bb;beqve:br:tnis,:,e4roi6is:is:to:,:ue,vu10p::thb:::montlpfo'beule:::ro:ieci*si;,,ioe'ntlrui:iriCkil.i:o:pporlunities;
.enO.:tO::;ptAVide:lA::pliifamiitQ:;:iqentifit.randi:::e*eCUte::rmitiGating:rr:e#i6:n5:::ts:::fil:l::voluri:iei:iand:,:pfdfft,:gupsi:

A.hi$h-p9rfo.r,r,r+ing,,BU$i,nesp:F.o,rbbasti:ng:.:Bf0Cg$5.:provlOes::speed'i:':UCCUia'oy; and::irnpfoVeU:.:eercision;rn,eking,

,Fureca$tltng.:,Bedi;::piaaiCbS:.,Sirou.ta.buioe,:ruiuie:,:irrpiu-vdment.ahu.:.uevetupmi6nt:::6fiiffi!tst,ixry':'proCesci:

The *ve,:,BU'iding.l.iprinoiplle$l./best.t.praCtiCes incluOe: (1) Focus on process excellence, then technology, (2) Create a
real forecasting / planning process; (3) Use intelligence, not algorithms; (4) Use every source of data; (5) Collaborate
internally and eternally.

Kcy':i$.udbe:g$;.lFeoi6ts include: (1)Multi-functional collaboration; (2)Clear roles & responsibilities; (3)Metric driven; (4)
Speed; (5) Accuracy; (6) Forecast Fewest Number of SKUs / Customers <efficiency>; (7) Assumptions, lssues, Action
Items are documented; (8) Forecast against logical demand streams - (a) Retail Channel; (b) Bto-B Channel; (c)
Alternative Channels, etc. Large customers like Wal-Mart could be treated as a unique demand sub-stream within
individual channels due to its size, importance, segregation, and focus within the organization.

The,,De.rn,anA,.;foteca*ing:::proCes$::$ttoU.1e..:$C,.,1€iilitatedi:b!4:..e..tproCeps,,speci:at1St;..tedoniin$,,,to,,,a,;;Der,nahd

An existing Business Forecasting group could bring expertise from forecasting
tlie::6v€feii.:;EusineS$,.,FQi,epa.sting,..plocess;,
implementations from prior experience, and experience gained within their current organization.

tititi2ind,,,e,,, 5t:prabtiCesi:aipBioach::ih'the:Bnoceds;,:is,,,kh14;;,,,,Frode5S'first;, then:tbohnology::

An..,ihtegfa1'...part.:ot.the.Busi.nes5,,.pr:sCex,,ls atwoiieieo..bu$iness,:meeti+0,:,StfUdiufei: rlei,+; a,weekltimeetihg
focu,fir,lg:::ofi:::the:::rlee:fitenn (last month, current month, and nex month). ldentifying and understanding gaps
to key shipment performance benchmarks (last forecast, budget) in the near-term, and determining
appropriate tactical actions to address the gaps are the primary goal of the weekly meetings. T:fle:::sec6rnd
tier,of,,rm,effing$i,is,i.ei.imo'rith!t:r,neeting,,,Whicn focUses,bn,,the,totting,1,8-36.i.rmdhih,:,fof€Cadti The monthly
meeting incorporates the learnings and actions from the weekly meetings.

current toors for consideration,
ToolS,&,teehnologies::shCIu:ld::be:::ApUii.ed.i'sdai.ndt.:.S:.iwefil.iVeltedi.:Dfocess.i.
development, and integration could include Trade.:.Pfomdtioh,,.M'anag,ement:,5VStemS;.ERP.sy.sfbmsl..,a.nd,..othei
InAnEgg.$lgnI:isySFrn$,i, The tools intersect as follows: the trade promotion system should be a key input for the ERP
system, which helps to define / model the forecast, which is a key input for a Business Process Management (BPM)
System.

The recommended transition / project plan for a slart;Lrp- plo-je-..cl or plgcess lmprov-eme_lt pfojggj..fgfale_d to

e5sessrnentjjfoeusins,:{il5,..!t..qin'.'pfoeess:;::::fdll6wi1rg:::Wittl::worE::eg:ein$:r:huBi:ness,::op6:ralionS;::::dreta:i:slruGtufes::1
m:eneg€mgnti,,,and,,,tg*nnica!:,:ere,as:i

cdrnpletedl:::fhb::cunent,$roceis should:,be;rnaihtaine0,until,S,,paialle-!,,tt5'n5ition,:Bf:an:::o-- - -"-eloeed:i.

Bus-Frcsting-Process-White-Paper-Biel-04-1 9-1 1, Page 1 of 1 1
Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: bielconsultinq@qmail.com
Li n ked n P rof e : h!!p ://.www-lj n Kedj n..cqmlin4imhiel
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Business Forecasting
Building a Collaborative Forecasting Process - A White Paper
Connecting the Short-Term & Long-Term
(Jim Biel, 21181091

1. Business Forecasting supports:

o Operational Planning
o Monthly Rolling & LE Forecasts Requirements
o Annual Budget
o Long-Range Planning (Financial & Capital Planning)

2. Development of the Most Probable Forecast
3. ldentification of Risks / Opportunities to Forecast
4. Actions Defined & Executed to Fill Volume & Profit Gaps
o Speed, Accuracy, & lmproved Decision Making Are the Outcomes

.:.:....::..:r..r::i i : ;

Effi ri:Ptop,6*f ti,6:h.::I::B:U5ifi e g$:::R#ioneG

1. Develop and lmprove Business Forecasting capabilities, delivering the following benefits and
value:

2. lncreased forecast accuracy improves business performance:

a. Working Capital improvement through

i. Decreased "dump and destroy" levels of Finished and Raw Materials
ii. Decreased Safety Stock Levels of Finished and Raw Materials

3. Enhanced long-term Capital lnvestment Decision Making (Plant lnvestment based on Demand)

4. Enhanced Business Decision Support & Risk Management Environment

5. lmproves quality, accuracy, and cycle time of monthly and annual financialforecasting /
planning

6. Provides on-going and future sustainability for a critical business process (forecasting)

7. Centrally supported tools and processes serving multiple business users and channels

8. Shortens process cycle time and improves productivity - gleans more value from existing
headcount

9. Business Outcome: The Business is Managed Using One Forecast Number

Bus-Frcsting-Process-White-Paper-Biel-0.21-1 9-1 1, Page 2 of 1 1
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I

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Fo,ffiedtihq:.lBe5t::Pfih$iCesl:lGillde.ithe,::Deweliolbffiehtllland.i..i.m.eiovemu'ht

tsiti:i:i:tt:Herl[iPfflffiffi$l::ln#U$gil:l:il:iThe:l:lFliV,eiG6idifiCIiillHfii:fiCi$igS

1. Focus on process excellence, then technology
2. Create a real forecasting / planning process
3. Use intelligence, not just algorithms
4. Use every source ofdata
5. Collaborate internally and externally

:X::::::::::f l,l:,:,eoCU$,:,On:,:,p,ffieS,S,:,:eXCgiibnCgit,:,fhgn:,:f€Ch:hoioffi

o Develop accurate forecasts at a more granular product (sku), and customer level
o lntegrate promotion lift factors
o Make systems more responsive to increased demand visibility

:)t

o Enable sales, marketing, and finance to actively participate in the process
o Monitor progress toward the goals set forth in the annual operating plan
o lnitiate demand-creation activities when the current forecast is falling short of plan
o lnclude exception-based alerts into the process to identify problems before they become
shortfalls

.>:::::::: :::(3),,U,5e,:ln,teiii.sff Cei:.:.N.ot:AlOorithfirS

o Use POS Data, lRl Data, and other data sources to create more accurate forecasts
o lntegrate volume forecasts for promoted items
o Consider the cannibalization effects from promotions on other SKUs
o Route exceptions discovered at any step of the process to whoever can resolve the problem

:>::l,:l,l::f$}:iUSe,:EVer,v:SOUrc.:,Of:::DAta

o POS / lRl Data
o Sales History
o ConsumerDemographics
o Syndicated Data
o National Weather Service
o Other

>,:.: :.:,:,,rEl, Q glla,bior:atg:,,,i h'tgffi ai,ly $,Extff hallv
o Add richness to the traditional historical data used to forecast future demand by
including:

t Planned promotions
i Extraordinary events
Capacity constraints
a New product introductions
Discontinued products
Operational problems

(Note: The Best Practices discussion found on this page is sourced from a September, 2006 Oracle White Paper titled,
"The Transformation to Demand-Driven lndustry Leader".), www.oracle-comi us/products/applications/ebusiness/scm/0621 1 0. pdf

Lin ked n P rofi e : hftp.//.tryy441-ljn kedjn eqmlin4im.biel
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1. Collaborative (lnvolves Supply Chain, Business Mgt, Sales, lRl Specialists, Promotion Mgt, and
Finance)
2. Process Accountabilities - Clear Roles & Responsibilities
3. Metric Driven (Forecast Accuracy, Promotion Notification Compliance, Dump/Destroy $)
4. Speed, Accuracy
5. Forecast Fewest Number of SKUs and Customers to Gain Critical Mass
6. Business Assumptions, lssues, & Actions ltems Are Documented
7. Forecast Against Logical Demand Channels & Demand Streams. An example of a forecasting
channel breakdown for a produce manufacturer/supplier follows:

e Wal-Mart (Large Podion of overall Volume)
B Non-Wal-Mad
o Organics
o Non-Organics

D Wal-Mart
tr Non-Wal-Mart
F Food Service
D National Accounts
D Broadline / Street Distributors
8. Facilitated By An lndependent 3'd Party Process Specialist Group (Business Forecasting)

F:oftqgsf:::E,+::$:KU rune re Poss i ue)
. A Relative Few Number of SKUs Could Account For A Majority of Volume
. Example, 40 SKUs = 75o/o of Retail Volume
. Forecast These ltems Plus a Few Key Others = Critical Mass

FrlfEiadt,:Bv:Custorrbi::{g:hihtTol (Where Possibte)
. A Relative Few Number of Ship-To Customers Could Account For A Majority of Volume
. Example, 50 Customers = 507o of Retail Volume
. Key on These Customers to Gain Control / Understanding of Forecast Volatility
C:qh$ider::l+artlhq:::en:Exi$tiriU:::BUCihe$s:iFbreitistind':.Gioil6:':FaGiiltaie:thb::F eS$ (or create a
small. lean centralized qroup)
. Report to a Demand Leader (Sales or Marketing) - Why?, Demand starts the process, e(
. lf Full 3'd Party lndependence is Desired (Functionally Neutral - Neutralizes Bias), create a
small, lean centralized group reporting to the GM
. Leverages This Group's Existing Forecasting Process Best Practice Knowledge & Expertise
. Leverages This Group's Experience With lmplementing Forecasting Processes

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:Businms:i::RteGgsS

. Process First, Then Tools / Technology
. Tools / Technologies Supports / Enables the Process
.l; ;,: g$B pp6:6e55.
:
.Best.:.Piectideis::iin P,roCe5$,,,Des+g n
. I

Tools Technologies Include = Leverage Existing Systems & Tools
:1::', :: :rwo,fjemCi:Sei::of::Eusiness ::M:edti ngs:l:(WEekry,:::&,Mo,ntttllf)
i,i,,,,,,,,WeetiV:::GCIliebibratiV6,,norecasti ng M.e:eii ng
.

o Focus: Near-Term = Last Month, Current Month, Next Month
o ldentify Gaps to Last Forecast & Budget
o ldentify Gap Fill Actions
e;,,.::,:,M.ontrrlV,,O,o!lab;orativb.foreCaSq.h$..Meeti;ng
o Demand -) Supply -) Finance Process Flow
o Builds on Weekly Collaborative Meeting
o,,,,,,,Fuq11gi:i:Ruffirrg,J,$.36,,Months
o Long-Term Strategic Discussion
o ldentify Gaps to Last Forecast & Budget
o ldentify Gap FillActions

t:l::ut{:.:l{Gi r:l::::lt:t uE:-::ln:vF
nefsl::i:e:ppf0aoh',,sh,0uf di:iSe:::r Flow$
. Timeframe of focus is what changes from weekly to monthly reviews
. Weekly Focus = Near-Term: Last, Current, Next Month
. Monthly Focus = Longer-Term Focus: Rolling 18-36 Months

sGE,C+|ARil.,,AFilER,,,NE*fi,.FAG:E,.*.,MCINTI{LY.MEEfri.NG,fli0W.'.9!l#Rf;
. Highlights Demand, Supply, & Finance lnteraction & Sequencing

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: bielconsultinq@gmail.com
Lin kedl n P rofile: h!!p://.www-ljn Kedj.n..Cqnlinljlm.biel

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Business Forecasting Best Practices
Forecast Development
Basic Premise: Product Stratification & Focus on Exceptions
(J. Biel, 4122111)

CURRENT PERIOD
FORECAST REVIEW 'why?
(Variance: Actuals vs. . Future Forecast
Last Forecast) lmpact?

NEW PRODUCTS
REVIEW

i----------"
PRODUCT
i . Details &

DISCONTINUATION
i ttlectrve lJates
i
REVIEW ------€ i . lmpact on Other
i Products (Lift/
i Decline)

REVIEW PRODUCT KEY i . Detailed
SEGMENTS Evaluation of Core
Product Line
. Business
Assumptions

FULL DIAGNOSTIC . Focus on
REVIEW Exceptions
(Focus: All Other . Business
Products Outside the Assumptions
Key Product Segments)

OUTCOMES : (1) Most Probable Forecast
(2) Risks / Opportunities to Forecast Defined

i
i The Process Actions ldentified Above Are The Key. Any Supporting Tools only Enable the Best Practices. i

I The Best Practices Are The Constant, Not The Tools The Tools and People Can Change, The Process Shouldj
i Stay As Constant As Possible

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The Monthlv Forecastinq & Meetinq Cycle

Demand Review
/Cases / Units
/Revenue $
/36 Month Window
/Business Assumptions
/Metrics

Finance Review
/Business Group / Rough Cut Capacity
Financial Review / Dem / Supp Balancing
{ F inal " C apacilizati on"
/Audience: SC Fin, SC
Raw, SC SBM

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Tpqt$;,'#',':TEGEtI4lpiCtEs, ( Li n kaqe)

It,.....Keyi.:SUpeorf:.Sy$te,msl,.Need,,to..Ee;.l.tdUr*itieC.,anO:.Uiif ited.,.ihlDeriViru,:,eorgCa*St;.,5uan,,ns.Ti5de
|+l1OffrOtlOIl...UyS[e.fn$

2u,,,,An.ERF',.S'titern.,.:fSAp, OraCte;l.,lXogility)i,,,wtriCn..OgfiVe's...a...StatiSilcalt,.M.oUel..bnc...rcOmrnoUatdE
Systenl:::O, ve1-:rides)

3r'i,.;.i.:BPM.;.ll:lS'&O.F.;.S yStO rn

The effective development and linkaqe of supportinq tools and technoloqies should
accomplish the following:

/ One tool (ERP system) and process is utilized to derive forecasts
/One single system of record (ERP system with clearly defined supporting systems)
/ One forecast number developed for the same forecast time fence (short-mid-long-term forecasts)
/One system supports SKU, customer, plant, DC forecasts
/ Eliminates and minimizes much low-tech, labor intensive work and activities
/ Makes business analysts "analysts"

Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: bielconsultinq@omail.com
Li n ked n P rof e : http:/-yqq4ry-.]jn Kedj n.eqmlin4im.biel
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Business Forecasting Process & Data Flow
"One Forecast Number Used By All"

INPUTS CONVERSION OUTPUT AGGREGATION CUSTOMER

/ Historical / Statistical r' Forecasted / Data / Business
Shipment Modeling in Case Aggregation & Management
Data ERP System Volumes Reporting / Finance
r' Open Orders / Overrides From ERP Capabilities to /scrr Finance
/ Marketing / New Products System Support S&OP, /scn Production
lntelligence / Discontinued / Dala Tables Financial
/sCfr
/ Sales Products Available to Planning,
Purchasing
lntelligence r' Masking Data Be Exported Supply Chain
/scn Advanced
/ Promotions For 1 Time to Other Planning, etc.
Planning
/ Supply Chain Events Systems / Business
lntelligence / pricing / Forecast Reporting & S&OP
Forecasting
r' New Products Algorithm Accuracy Support Systems For Demand
r' Discontinued Applied to Metrics Outside the ERP
Review
Products Volume / Revenue $ System
Meeting, etc.
/ Customer Available
Contracts
/ pricing
Algorithm

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Business Forecastinq & BPM Process lntersection
INPUT CONYERS/ON OUTPUT

CORE MASTER DATA
.Producl Master BPM / Rep Systems
.Bill of Materials (BOM) .Financial Reporting
.Recipes
.Mgt. Dashboard
.Product Costs (Fin)
.Pricing
.Other

ACTUALS VARIOUS FINANCE,
.Shipments
.By Channel SUPPLY CHAIN,
.By SKU GUSTOMER SERVICE
.By Customer PROCESSES,
.Units SYSTEMS
.Sales $
.Costs
(lncludes
- Prod Fin
Spreadsheets)
.Costs * Raw
.Sales & Markel
.Other

FORECAST$vol / sls g ERP Svstem w/
.By Channel SUPPORTING SYSTEMS
.By SKU .Units
.By Customer .Price $
.Units .Promotions (l-PM)
.Sales $ .MRP
- Cases to Lbs

FOREGAST$ Costs FINANCIAL SYSTEMS
.Variable
.Fixed
& PROCESSES

BPM = Business Process Management

Bus-Frcsting-Process-White-Paper-Biel-04-1 9-11, Page 10 of '1 I
Jim Biel, Management Consultant, Ph: 847.687.5379, E-Mail: bielconsulting@qmail.com
Linkedl n Profile: hgp://.www-lin(edj.neqmlin/jtm.biel

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Pfeie6t::iFlilqn

tr:::r:r:i:i:BUsineGE:::Ef odCss
tr.:.:.....i.EuSihgss.:Operatio:nS
.-Et:irt:t.,iiDate'ir$f tigtu,tu$;,1;,;Menegdm-e..1[f
trr:r.r.:.r.rTeffi hicajt:::fr r,eas

Fiffi.'.#r'i$:.ga'P:iland:.tisJc:ldssds$in€rl{,i:::aidefaff€d:pto'redt::ptanr,,tiffigeti,and:,ena-ngU:,:menagelreEf:#ert
cafi :::F€:.:cotdpl6tedi,

lJsing an outside process coach to help with the assessment, initial education, implementation, and
roll-out should be considered to aid the internal project team.

FEx:iREFERENGE':'Dffi [t.fi tEN,Ti

1) iifte::ilita.nsfomatibn.'to....DernandlDfiVe,n,:lhd,UStrll Leaderit An Oracle White Paper, September, 2006
Availableviathefollowinglink, v4ryW.oracle.qqmluslprqdqclslapplicationslebUsinegs/scm/Q02110.pdf

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White Paper-Business-Forecasting - S&OP - Biel - 04-19-11

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White Paper-Business-Forecasting - S&OP - Biel - 04-19-11