SCT Demand © The Delos Partnership 2007 page 1 Supply Chain Techniques Principles of Demand Planning

© The Delos Partnership 2007 page 1

SCT Demand

Supply Chain TechniquesSupply Chain Techniques

Principles of Demand Planning


SCT Demand

Basic FormulaBasic Formula

Item DataBOM’s

And Routes

StockAnd

Capacity

Master Schedule

Forecasts Orders

Suppliers Factories

What do theyActually Want ?

What haveWe got ?

Whatdoes it need ?

What do we need to do ?

What do we thinktheyWant ?


SCT Demand

Why is a Forecast needed ?Why is a Forecast needed ?

Design

Purchase

Intermediate Manufacture

Sub-assemble

Finish

Distribute

Cumulative Lead Time

Customer PlacesOrder here

Forecast needed to cover this


SCT Demand

Common Reasons for Not Common Reasons for Not FForecastingorecasting

I can never make it100% accurate

My business has toomany unforeseen

peaksMy business isdifferent - you can’t forecast it

I don’t know who’s responsible

for it anywayIt’s not in my

objectives

I’m measured on getting high sales

- so who cares about the forecast

The factory nevermake what I forecast

anyway

Nobody thanks me for it – so why

bother ?


SCT Demand

Forecasting – DefinitionForecasting – Definition

A forecast is a formal request to the Supply Management function…

From Sales and Marketing to

have the product, materials andcapacity available according to the quantity

and

At the time

that they anticipate the demand will occur from the customer to ship the product to their premises


SCT Demand

Forecasting Needs a Simple ProcessForecasting Needs a Simple Process

Filter Filter DemandDemand

ComputeComputeforecastforecast

CaptureCaptureActualActual

C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T

C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T

Hold Demand ReviewHold Demand Review

Agree commercialAgree commercial plansplans

AgreeAgreeExceptional demandExceptional demand

AssumptionAssumptions written s written down and down and

agreedagreed

AssumptionAssumptions written s written down and down and

agreedagreed

ReviewReviewAccuracyAccuracy


SCT Demand

Weeks 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 25 25 25 25 25 25 25 25 20 20 20 20

Actual Demand

Proj Avail Balance

75 50 25 0 50 25 0 50 30 10 65 45

Available to Promise

CumulativeATP

Master Schedule

75 75 75

Item Level Forecast – Make to StockItem Level Forecast – Make to Stock

Part Number: 12345 Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100



SCT Demand

Customer ProfileCustomer Profile

Customer X 50 per month

Customer Y 10 per month

Customer Z 5 per month

Customers A… 35 per month

Total = 100 per month

Forecast at End Item Level


SCT Demand

End Item Level ForecastEnd Item Level Forecast – Make to – Make to StockStock

Weeks 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 25 25 25 25 25 25 25 25 20 20 20 20

Actual Demand

Proj Avail Balance

75 50 25 0 50 25 0 50 30 10 65 45


100 75 75 75

CumulativeATP

Master Schedule

75 75 75




SCT Demand

Forecast ConsumptionForecast Consumption

• Review How your software works

• Make sure you have the right settings for you!

• Getting it wrong leads to: Instability in the production plan

Excess Inventory

Poor Customer Service


SCT Demand

Forecast consumption bucketForecast consumption bucket

• If you forecast monthly consume the forecast for the month – even if the forecast split by week

• If you forecast weekly [each week different, updated each week] consume within the week.


SCT Demand

Forecast RolloverForecast Rollover

• Forecast Rollover – options : Drop all 15 Rollover all 15 to next week Drop some of the forecast

• Rolling over all 15 does not change the forecast

• Someone needs to decide• Bigger issue at end of month?


SCT Demand

Demand PlanningDemand Planning

Handling Component demand


SCT Demand

MRP “Logic”MRP “Logic”

Have we enough Stock

?

Have we enough Stock

?

DemandsDemands

Yes/NoYes/NoYes

No ActionNo Action

Have we any on order ?

Have we any on order ?

Yes/NoYes/NoNo Create

Planned Order

Create Planned Order

YesDue Date=

Need Date ?

Due Date=

Need Date ?

Yes/NoYes/No

No ActionNo Action

Yes

Action

Message

Action

Message No


SCT Demand

Material Requirements Planning - Material Requirements Planning - ComponentComponent

1 2 3 4 5 6 7 8Projected

Gross Requirements

Scheduled Receipts

Projected Available Balance

Planned Order Release

Weeks

Part Number Description :

14356 Red Item

Lead Time :

Order Quantity :

Safety Stock :


SCT Demand

Material Requirements Planning – Spares Material Requirements Planning – Spares ItemItem

11 22 33 44 55 66 77 88

Projected

Gross Requirements

Spares Forecast

Actual Demand

Scheduled Receipts

Projected Available Balance


Master Production Schedule

Weeks

Part Number Description :

14356 Red Item

Lead Time :

Order Quantity :

Safety Stock :


SCT Demand

Demand ManagementDemand Management

Strategy

Demand Manager

Sales and Marketing

SystemForecast

Plan

ManufacturingAnd Purchasing

ERPSystem

Consensus ForecastConsensus Forecast


SCT Demand

Cumulative Lead TimeCumulative Lead Time

Red PenPart Number 12345

Red PenPart Number 12345

Pen BarrelPart Number 43768

Pen BarrelPart Number 43768

Finished NibPart Number 76452

Finished NibPart Number 76452

CapPart Number 89563

CapPart Number 89563

Semi finished NibPart Number 76532

Semi finished NibPart Number 76532

InkPart Number 10675

InkPart Number 10675

Felt tipPart Number 10783

Felt tipPart Number 10783

Lead Time = 5 weeks

Lead Time = 5 weeks

Lead Time = 1 weeks

Lead Time = 1 weeks

Lead Time = 5 weeks

Lead Time = 5 weeks

Lead Time = 4 weeks

Lead Time = 4 weeks

Lead Time = 1 weeks

Lead Time = 1 weeks

Lead Time = 1 weeks

Lead Time = 1 weeks

CUM

LEADTIME

Lead Time = 1 weeks

Lead Time = 1 weeks


SCT Demand


Horizon

PLANMANAGEEXECUTE

Cumulative Lead TimeCumulative Lead Time

Add or subtractTo capacity

Strong Link to

Integrated EnterprisePlanning Process

Capacity andMaterials“firm”

Release Orders


SCT Demand

Abnormal demandAbnormal demand

How to identify and how to manage


SCT Demand

All incoming customer orders All incoming customer orders should be screened (evaluated) should be screened (evaluated)

for normal/abnormal demand for normal/abnormal demand characteristics.characteristics.

Abnormal DemandAbnormal Demand


SCT Demand

Abnormal DemandAbnormal Demand

Periods 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 0 0 15 25 25 25 25 25 20 20 20 20

Actual Demand

10 50

Proj Avail Balance

90 90 25 0 50 25 0 50 30 10 65 45


40 75 75 75

CumulativeATP

Master Schedule

75 75 75

Part Number: 12345 Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100

Part Number: 12345 Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100

Customer Z wants 100 ASAP ; can we supply it ?


SCT Demand

When can you promise the customer that When can you promise the customer that they can have all the product ?they can have all the product ?

How much is forecast and how much How much is forecast and how much unforecast?unforecast?

How do you know how much is How do you know how much is unforecast?unforecast?

What if they do not like your promise ?What if they do not like your promise ?

Abnormal Demand WorkshopAbnormal Demand Workshop


SCT Demand

This needs to be done on an This needs to be done on an exception basis in order to exception basis in order to

be practical.be practical.Don’t consume the forecast if Don’t consume the forecast if

the demand is abnormal.the demand is abnormal.

Abnormal demand does not consume Abnormal demand does not consume the forecastthe forecast


SCT Demand

Identifying Abnormal DemandsIdentifying Abnormal Demands

• Individual Customer Order Demand Source

Customer Market Sector Trade Sector Export vs UK

Quantity Size Of Order

For that customer [e.g. > 10 for customer Y] For any customer [e.g. > 5 for any other than X]

% Of Forecast

• Cumulative Demand Track Variances to date in week or month

• Keep it simple !


SCT Demand

Tracking Abnormal DemandTracking Abnormal Demand

Cum Demand

End of Week 1

End of Week 2

End of Week 3

End of Week 4

Action Review Increase? Increase Increase

Future?

Upper 30 60 90 120

Forecast 25 50 75 100

Limit 20 40 60 80

Action Review Decrease? Decrease Decrease

Future ?


SCT Demand

Each abnormal order must be coded Each abnormal order must be coded with an abnormal demand flag so that with an abnormal demand flag so that

the planning system will not consume the planning system will not consume the forecast.the forecast.

This can be done through the order This can be done through the order entry system or after the fact when entry system or after the fact when the demand resides in the planning the demand resides in the planning

system – but before the Master system – but before the Master Schedule is recalculated!Schedule is recalculated!

Software requirementSoftware requirement


SCT Demand

Process to Manage DemandProcess to Manage Demand

Check if Forecast is normalIf normal – promise it

• Recalculate Available to Promise• Consume the Forecast• Recalculate PAB

If abnormal1. Check if any is normal2. Promise normal part of Forecast• Recalculate Available to Promise• Consume the Forecast• Recalculate PAB

For remaining abnormal demand Determine agreeable promise date Advise customer Agree any risks to other customers Recalculate Available to Promise Consume the Forecast Recalculate PAB Review action messages in MPS


SCT Demand

Abnormal Demand PolicyAbnormal Demand Policy

Company needs to have a policy that states the process and mechanism for identifying and dealing with abnormal demands

Accountability needs to be established with Sales and Marketing - the originators of the Forecast !

Abnormal Demand Policy


SCT Demand

1. What changes are required to support effective Demand Management and Control?

2. What changes are required in behaviour in order to enable effective Demand Management ?

Abnormal Demand ReviewAbnormal Demand Review


SCT Demand

Ways to Manage Abnormal DemandWays to Manage Abnormal Demand

• Safety Capacity

• Safety Stock

• Manage the Product Range

• Reduce Lead Times

• Redesign the Product

• Sell something else!


SCT Demand

What Is Safety Capacity?What Is Safety Capacity?

• Safety Capacity Is A Request from Sales and Marketing For Additional Capacity above current Forecast to cater for Abnormal Demands

• Still need to consider how to safety stock raw material


SCT Demand

Safety Capacity - IllustrationSafety Capacity - Illustration

Planned Capacity

0

20

40

60

80

100

120

140

160

180

1 2 3 4 5 6 7

Periods

Hours Safety Cap

Forecast


SCT Demand

What Is Safety Stock?What Is Safety Stock?

•Safety stock is a request for buffer that is: Time related Quantity related Or both

•In order to meet variations from forecast demand in terms of:

Timing Quantity Both


SCT Demand

How Much Safety Stock Should You Have?How Much Safety Stock Should You Have?

• Statistically calculated to maintain an agreed service level for existing products

• Estimated with judgment for new product and promotion to reduce market exposure

• Agreed with customers in order to protect them


SCT Demand


1. Requires proper Forecast consumption techniques

2. Required proper recognition of abnormal demand

3. Required behaviour change


SCT Demand

WorkshopWorkshop

• What will be forecast ?• When does a forecast become an order ?

Customer Schedules Product Manager Intelligence

• How will or “intermediates” be Forecast and Demand Managed ?

• How can we manage “Intermediate items” stealing from Finished Product

Documents

SCT Demand © The Delos Partnership 2007 page 1 Supply Chain Techniques Principles of Demand Planning