Procurement Forecasting

8/11/2019 Procurement Forecasting

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Demand-Driven Procurement

PROJECT PROCUREMENT AND CONTRACT MANAGEMENTLECTURE # 2



© 2011 SAP AG. All rights reserved. 2

Objectives

Understanding of the froecasting procurement process.

How to forecast the procurement

Central + distributed application




Requirements Planning: Forecasting Model

Basic value

Basic valueTrend value

Basic valueSeason indices

Constant modelTrend modelsSeasonal modelsSeasonal trend models

Manual

Models Parameters

Automatic

Model selection

Automatic

T: Test for trend

S: Test for season

A: Test for trendand season

Manual model selection with additional automatic test

Selection




Requirements Planning: Overview

RP type

Requirements

Planning

Consumption

values

10/2000 98711/2000 100012/2000 1251

PurchaseRequisition

Item 10

Item 20

Purchase Order

Item 10

Item 20

Forecastindicator ?

Articles Articles

Forecast




Forecast Applications

Forecast Application

Calculation of the reorder

point and the safetystock by the forecast.

The forecast values are

copied as requirements

and replace the reorder

point.

Calculation of the reorderpoint and the safety

stock by the forecast.

Reorder Point

Planning

The forecast values are

copied as requirements.

The planning run is only

carried out on predefined

dates. Time-Phased planning can

be applied in combination

with Reorder Point

planning.

Forecast-BasedPlanning Time-PhasedPlanning

Reorder PointPlanning




Demand Forecas t ing : Time Series Models


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Forecasting Horizons

Long Term

5+ years into the future

R&D, plant location, product planning

Principally judgement-based

Medium Term

1 season to 2 years

Aggregate planning, capacity planning, sales forecasts

Mixture of quantitative methods and judgement

Short Term

1 day to 1 year, less than 1 season

Demand forecasting, staffing levels, purchasing, inventory levels

Quantitative methods



Short Term Forecasting:

Needs and Uses

Scheduling existing resources

How many employees do we need and when?

How much product should we make in anticipation of demand? Acquiring additional resources

When are we going to run out of capacity?

How many more people will we need?

How large will our back-orders be?

Determining what resources are needed

What kind of machines will we require?

Which services are growing in demand? declining?

What kind of people should we be hiring?



Types of Forecasting Models

Types of Forecasts Qualitative --- based on experience, judgement, knowledge;

Quantitative --- based on data, statistics;

Methods of Forecasting

Naive Methods --- eye-balling the numbers;

Formal Methods --- systematically reduce forecasting errors;

time series models (e.g. exponential smoothing);

causal models (e.g. regression).

Focus here on Formal Methods

Assumptions of Time Series Models

There is information about the past;

This information can be quantified in the form of data;

The pattern of the past will continue into the future.



Simple Moving Average

Include n most recent observations

Weight equally

Ignore older observations

weight

today

123...n

1/n



Moving Average

Internet Unicycle Sales

0

50

100

150

200

250

300

350

400

450

Apr-01 Sep-02 Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13

Month

U n i t s

n = 3



Time-Series Data

Numerical data obtained at regular time intervals

The time intervals can be annually, quarterly, monthly, weekly,

daily, hourly, etc.

Example:

Year: 2000 2001 2002 2003 2004

Sales: 75.3 74.2 78.5 79.7 80.2





Moving Averages

Used for smoothing

A series of arithmetic means over time

Result dependent upon choice of L (length of period for computing

means)

Last moving average of length L can be extrapolated one period intofuture for a short term forecast

Examples:

For a 5 period moving average, L = 5

For a 7 period moving average, L = 7

Etc.



Moving Averages

Example: Five-year moving average

First average:

Second average:

etc.

(continued)

5YYYYYMA(5) 54321

5

YYYYYMA(5) 65432



Example: Annual Data

Year Sales

1

2

3

4

5

6

7

8

9

10

11

etc…

23

40

25

27

32

48

33

37

37

50

40

etc…

Annual Sales

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11

Year

S a l e s

…

…



Calculating Moving Averages

Each moving average is for aconsecutive block of 5 years

Year Sales

1 23

2 40

3 25

4 27

5 32

6 48

7 33

8 379 37

10 50

11 40

AverageYear

5-YearMovingAverage

3 29.4

4 34.4

5 33.0

6 35.4

7 37.4

8 41.0

9 39.4

… …

5

543213

5

322725402329.4

etc…



Annual vs. 5-Year Moving Average

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11

Year

S a l e s

Annual 5-Year Moving Average

Annual vs. Moving Average

The 5-year moving

average smoothes

the data and makes it

easier to see theunderlying trend



Sales vs. Smoothed Sales

Fluctuations havebeen smoothed

NOTE: the smoothed

value in this case is

generally a little low,

since the trend isupward sloping and the

weighting factor is only

.2

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10Time Period

S a l e s

Sales Smoothed



Linear Trend Forecasting

Estimate a trend line using regression analysis

Year

TimePeriod

(X)Sales(Y)

1999

2000

2001

2002

20032004

0

1

2

3

45

20

40

30

50

7065

Use time (X) as the

independent variable:

In least squares linear, non-linear, andexponential modeling, time periods are

numbered starting with 0 and increasing

by 1 for each time period.

bmX Y ˆ




The linear trend forecasting equation is:

Year

TimePeriod (X) Sales (Y)

1999

2000

2001

2002

2003

2004

0

1

2

3

4

5

20

40

30

50

70

65

(continued)

ii X9.571421.905Y




Forecast for time period 6:

Year

TimePeriod (X) Sales (y)

1999

2000

2001

2002

2003

2004

2005

0

1

2

3

4

5

6

20

40

30

50

70

65

??

(continued)

Sales trend

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6

Year

s a l e s

79.33

(6)9.571421.905Y




Source Determination




Purchase Order: Supply Source Determination

Quota arrangement Quota arrangement ?? 60% 60% 40% 40%

2 Source list

Source list

Outline agreementsPurch .info records

Regular vendor

Purch . requisitionWITHOUTsupply source

Article PCS-04-MRP201for VZ01 50 ea

?3

MITSupply source ind .

1

Stock transfer deliv -ery schedules

Supplying sites

• Find external source ofsupply only• Find internal source of

supply only• Find internal supply source

first , then external• Find external supply source

first , then internal

Purch . orderVendor PCS-V201

Art. 3214 20 ea

Art. 5110 15 ea

PReqVendor ?? Art. 321420 pc Art. 511015 pc

Article Article

5

4 Supply

region ? Vendor R3001 Vendor PCS-V201




Order Processing




Planning Workbench

Select worklist

- Site

- Vendor

Material selection- Stock planner

- Merchandise category

Default data

- Item category

- Account assignment

category

Control data

- Sort algorithms

Application settings- Display

Worklist settings

- Sequence

- Hide processed worklist

Manual Planning

- Expand levels with one

element

- Display symbols

Start variant

General Settings Internet Services

www

E-mail




Planning Workbench: Manual Planning

Planning workbench with integrated manual planning

Worklist personalization

Simple display navigation in tree format

Display of additional information, for example, site or vendor master data

Direct access to the Internet or mail system

Worklist view personalization

Manual planning

Display of consumption and/or forecast data

Use of restriction profiles

Automatically generated purchase requisitions




Order Optimizing




Quantity Optimizing: Rounding Profiles

0 No rounding1 Round up to a multiple of the order units/sales

units2 Round up to order/sales/logistical units of

measure3 Round up to order/sales/logistical units of

measure, or log. unit of measure, zero qty fororder units only

Check the permitted units of measure

used by vendors or recipients

• Rounding method

• Rounding rule

• Unit of measure group

Dynamic profile

AUn % Up % Down

CAR 70.0 10.0

LAY 80.0 10.0

PAL 90.0 10.0

Dynamic Rounding Profiles




Investment Buying: Purpose

Investment buying is a method of determining procurement

proposals that take account of future price increases, and are

to be covered by external procurement

The aim of Investment buying is to purchase articles

in suitable quantities

in good time

as cheaply as possible

taking account of various influencing factors




Investment Buying: Overview

OpenPO quantities

Stock on-hand

ROI Parameters

Forecast

InvestmentBuying

Analysis

ProtokollLog of items

found relevant to

Purchasing

Purchase

requisitions

-

Worklist

Purchase

orders

Purchase priceconditions

Purchase price

higher than

future price

Actual ROI

is lower than

required ROI

Calculate

order quantity

Select condition changes

Select relevant articles(Info Record)

Simulate

purchase price

Calculate ROI




Load Building

Load building is a process used to group together purchase

orders and other requirements, while taking account of

procurement restrictions, thereby reducing procurement

costs.




Load Building Overview

EDI to vendor

Req. Planning Purch. Req.. ...

Purch. req . ...Purch. Req.. ...

Purch. order ...Lieferant 326

Purch. Order...Vendor 326

Without existing

requirement

elements

Req. Planning

Automatic load building

process

Simulation list process

Manual load building

Req. Planning Promotion Orders

Other order

processes

Purchase Requisitions

EDI to Vendor




Goods Receipt Capacity Check

Up to now, there was no check for sufficient capacity for the delivery date of a

planned delivery in the goods receipt area of a warehouse. If the goods are deliveredto a warehouse door that does not have any free capacity, there can be a bottleneck

in the goods receipt area of a warehouse. At the same time, another warehouse door

might have enough capacity.

Advantages for Retailer and Vendor

Taking the goods receipt capacity into account prevents potential bottlenecks.

The vendor's delivery date planning utilizes the capacity of the retailer's goods

receipt areas.

The vendor can schedule the deliveries better since the planned time window for

inbound deliveries is binding.




Vendor Evaluation




Functions in Vendor Evaluation

Quality audits

Vendor C

Regular vendorfor

Article 1 ?

Vendor A Vendor B Vendor C

Vendor Evaluation




Automatic Subcriteria: Overview

Main Criteria

Price

Quality

Delivery

Service

Subcriteria

Price level

Price development

GR inspectionComplaints

Audit

On-time delivery

Quantity reliability

Shipping instructions

Confirmation




Analyses for Vendor Evaluation

Evaluation for Article 1 General Vendor Evaluation

84 75 92 88 81 Vendor A

General Vendor Evaluation

Total Preis Price Qual Qual . . Lief Dlvy . . Service Service

90

84

81

92

75

90

90

92

76

93

88

74

85

81

84

Analysis for Article/ Merchandise category

Vendor Evaluation Evaluation

Total Preis Price Qual Qual . . Lief Dlvy . Service Service

88

81

81

90

93

76

92

74

86

84

Vendor A

Vendor C

Evaluation Comparison

Total Preis Price Qual Qual . . Lief Dlvy . Service Service

Vendor B

Vendor A

Vendor C

Total Preis Price Qual Qual . . Dlvy. Service Service

88 81 93 92 86

HIT LIST




ASSIGNMENT NO.1

SUBMISSION DATE: NEXT SUNDAY (You can submit late with a penalty of -5

points per class)

POINTS:50

SUBMISSION STYLE: A4 SIZE, HARD COPIES, IN CLASS ONLY.

This assignment requires you to surf the resources and come up with a sample

SOP and a sample RFQ….

What you can do is that you should look at some of the SOPs and RFQs availableon internet , quote the references, and then develop your own SOP and RFQ for

your project…

State briefly your project in Project Background

Then develop SOP and RFQs

Points will not be awarded on length but on including as many dimensions of SOP

and RFQs as possible…



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