Advanced Forecasting & Procurement for Microsoft Dynamics NAV Presented to ABC Annual Conference 2011 May 12, 2011

Advanced Forecasting & Procurement

forMicrosoft Dynamics NAV

Presented toABC Annual Conference 2011

May 12, 2011

Return On Investment Forecasting Concepts Replenishment Concepts Putting It All Together Software Demonstration

Agenda

The Squeeze Play

Domestic Vendors– Vendor Pricing Models

• Carry More Inventory to Earn Reduced Price Point

International Vendors– Long Lead Times– Container Level Purchasing

• Drive Up Inventory

Economy– Line of Credit– Reduced Sales– Customers are Carrying Less Inventory

Return On Investment

Reduce Inventory– $10M Inventory * 20% Reduction = $2M – $2M Inventory Reduction * 15% Carrying Cost = $300K– Reduce Demand on Line of Credit by $2M

Reduce Stock Outs/Lost Sales– Increase Sales– Increase Customer Service

Manage Stocking Levels

Typical Pain Points

Forecast Accuracy Customer Collaboration (Large Customers) Promotions Items You Can‘t Forecast

– Stock?– Stocking Level?

New Items Kit or Production Items

– Component Demand Managing Long Lead Times Safety Stock Values Branch Replenishment

Forecasting & Replenishment

Forecasting


Historical Usage

Forecasting


Historical Usage

ADJ

Forecasting


Historical UsageFORECAST

Formulas

ADJTOTAL

FORECAST

Forecasting



Formulas

ADJTOTAL

FORECAST

Forecasting

Adjustment atSKU level



Formulas

ADJTOTAL

FORECAST

Forecasting

Forecast Summary




Formulas

CollaborativeForecast

ADJTOTAL

FORECAST

Forecasting

Forecast Summary




Formulas


ADJTOTAL

FORECAST

Forecasting

Sales Promotions

Forecast Summary




Formulas


ADJTOTAL

FORECAST

Production&

Kits

Forecasting52 Period Forecast

Sales Promotions

Forecast Summary




Formulas


ADJTOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary




Formulas


ADJTOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary




Formulas


ADJ

SuggestedOrder

Expected Inventory

TOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary




Formulas


ADJ

SuggestedOrder

Expected Inventory

Lead Time

VendorTargets

TOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary




Formulas


ADJ

SuggestedOrder

Expected Inventory

Lead Time

VendorTargets

TOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary


Surplus Inventory



Formulas


ADJ

SuggestedOrder

TransferOrder

Expected Inventory

Lead Time

VendorTargets

TOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary


Surplus Inventory



Formulas


ADJ

SuggestedOrder

PurchaseOrder

TransferOrder

Expected Inventory

Lead Time

VendorTargets

TOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary


Surplus Inventory

Forecasting Concepts Applied

Filtered Usage Formula Based Forecasting (Best Fit Formula) Customer Collaborative Forecasting Combined Forecast

Filtered Usage (Recurring Usage)

Sales to Customers or Consumption (Not Both) Excluded from Usage (Marked on Sales Order) Transfers to Warehouses (In Replenishment Path) Adjustments

– Automated Smoothing– Manual

Drop Shipment Usage (Optional via Setup)

Best Fit Formula

Last Closed Period

LCP – 1

LCP – 2

LCP – 3

LCP – 4

LCP – 5

LCP – 6

LCP – 7

LCP – 8

LCP – 9

LCP – 10

MedianError %

MedianError %

• Reforecast x Periods• Establish Error %• Establish Median Error

%• Choose Formula With Lowest Median Error %

Choose Best Formula

Formula A Formula B

Forecast Adjust

Single SKU Groups of SKUs Promotions Forecast Summary

Promotions

Define Promotion– Items– Start and End Dates– Sales Quantity Projected for Promotion

After Promotion– Use Promotion Adjust

• Remove Results of Promotion From History

Forecast Summary

Roll Up Forecast at User Defined Levels View Forecast

– Cost– Price– Quantity

Make Change at Any Level Distribute Changes to Lower Levels

Collaborative Forecasting

HistoricalUsage

Statistical ForecastAdjustmentsPromotions

TOTAL

FORECAST


HistoricalUsage

Customer 123


TOTAL

FORECAST


FORECAST

Formulas

HistoricalUsage

Customer 123


TOTAL

FORECAST


FORECAST

Formulas

HistoricalUsage

Customer 123Collaborative

Forecast


TOTAL

FORECAST


FORECAST

Formulas

HistoricalUsage

Customer 123Collaborative

Forecast

Excel

Customer 123Sales

Representative


TOTAL

FORECAST


FORECAST

Formulas

HistoricalUsage

Customer 123CustomerForecast


Excel

Customer 123Sales

Representative


TOTAL

FORECAST

Distribution Requirements Planning (DRP)

DRP Looks at the Entire Company and Optimizes Inventory Across All Warehouses– Rolls Historical Usage Up Based on Replenishment Path– Forecast At Each Warehouse/Item– Compares Time Phased Inventory to Rolled Up Forecast

• Manages – Vendor Replenishment– Hub and Spoke

» Branch Replenishment– Inventory Balancing

Replenishment Path – Hub and Spoke

WH 2

WH 4 WH 6

WH 9

WH 7 WH 8

WH 1 WH 3

WH 5

Vendor 1 Vendor 2

Vendor Replenishment – Based on Lead Time Horizon

Warehouse Replenishment – Based on Days Supply

Example:WH 1, WH2 = Lead Time Horizon 90 DaysWH 3 = Lead Time Horizon 30 DaysWH 4, WH 5, WH6 = Min Days 14 Max Days 21WH 9 – Min Days 10 Max Days 14WH 7, WH 8 – Min Days 10 Max Days 14

Inventory Balancing – Hub and Spoke

WH 2

WH 4 WH 6

WH 9

WH 8

WH 1 WH 3

WH 5

Vendor 1 Vendor 2

Example:WH 1 has Need of 250WH 2 has Surplus of 100WH 3 has Surplus of 100WH 7 has Surplus of 75

WH 7

Transfer 100 Transfer 100

Transfer 50

Simulated Production Orders

Incr.Days

Jan 1 Jan 8 Jan 15

Jan22

Jan29

Feb5

Feb 12

Feb 19

Exp. Inv. 100 45 -10 -55 -110 -155 -210 -245Need 0 0 10 45 55 45 55 35Prod.Order

55 100 90

• Time Phased Expected Inventory for Each Increment• Calculate Need for Each Increment• Consolidate Need to Create Simulated Production

Orders

Replenishment Tools

Vendor Lead Time Calculation Net Time Phased Expected Inventory Vendor Buying Calendar

– Vendor Review Suggested Order

– Purchasing Decision Warehouse Transfer

– Surplus Inventory Purchase Order

– Release Purchase Request Posted Suggested Order

– Save Criteria from Purchasing Decision Branch Replenishment

Vendor Lead Time

Vendor Lead Time by Item, Vendor, and Warehouse User Defined Average Lead Time Calculation

– Use Receipts from X Periods– Use X Receipts– Exclude Receipts

• Greater than X Percent of Average• Less than X Percent of Average• Receipts that are Marked for Exclusion from Purchase Order

Frozen Lead Time– User Specified Frozen Lead Time by Item– Expire Date to Revert Back to Average Lead Time

Net Time Phased Expected Inventory

Additions to Inventory

Inventory On HandQuantity on Purchase OrdersQuantity on Transfers InQuantity on Customer ReturnsQuantity on Planned Production Orders (Finished Goods)

Subtractions from inventoryQuantity on Sales OrderQuantity on Transfers OutQuantity on Vendor ReturnsQuantity on Service OrdersQuantity on Component Lines

Replenishment

Decision 1– Should I Replenish?

Decision 2– How Much to Replenish?

Decision 3– Do I have Surplus Inventory?

Decision 4– Are there Vendor Targets?

Replenishment

Decision 1– Should I Replenish?

• Min/Max (Fixed)• Min/Max Days Supply (Dynamic)• Target Stock Level (Dynamic)• Lead Time Horizon (Lead Time + Review Cycle + Safety

Stock Days) (Dynamic)• Dynamic Order Point

– Order Point (Dynamic)» (Ave. Daily Usage * Lead Time Days) + Safety Stock

– Line Point (Dynamic)» Order Point + (Average Daily Usage * Review Cycle Days)

Replenishment

Decision 2 (Used with Order Point & Line Point)– How Much to Replenish?

• Economic Order Quantity• Modified Economic Order Quantity

– Increase EOQ to Cover Forecast Usage

24 * COST OF ORDERING (R) * AVERAGE USAGE COST OF CARRYING INVENTORY (K) * UNIT COST

Replenishment

Decision 3– Do I have Surplus Inventory?

• Decision to Buy from Vendor or Transfer Surplus Inventory

Replenishment

Decision 4– Are there Vendor Targets at the Order Level?

• Amount• Net Weight• Gross Weight• Volume

Result - The Suggested Order

Recommended Replenishment Quantities Drill Down to all Information from Suggested Order Line

– Detailed Forecast– Historical Usage Patterns– Formulas and Data that caused Recommended Replenishment– Surplus Inventory and Where– Time Phased Expected Inventory– Order Statistics

• Comparison to Vendor Targets

Branch Replenishment

Clearly Defined Replenishment Path– When I Need Inventory Where Do I Get It?

Top Level Buy is for Lead Time + Safety Stock Branch Replenishment is Based on Replenishment Cycle to

Branch– Set Branch to Maintain X Day’s Supply

Benefits – Reduction of Safety Stock in Supply Chain– Inventory is Distributed to Where it is Needed



Formulas


ADJ

SuggestedOrder

PurchaseOrder

TransferOrder

Expected Inventory

Lead Time

VendorTargets

TOTAL

FORECAST

Production&

Kits


52 Period Forecast

Replenishment

Sales Promotions

Forecast Summary


Surplus Inventory

Summary

Clean Historical Usage Best Fit Formula Selection Collaborative Forecast for Large Customers Flexible Forecast Adjustment Promotions

– Look Ahead to Purchase for Promotion– Keep History Without Promotion Influence

Good Replenishment Tools– Time Phased Expected Inventory– Good Vendor Lead Time Management– Dynamic Replenishment Calculations– Surplus and Excess Inventory Calculations– Consider Transfer Instead of Buying

Documents

Advanced Forecasting & Procurement for Microsoft Dynamics NAV Presented to ABC Annual Conference 2011 May 12, 2011