Copyright © 2006, SAS Institute Inc. All rights reserved.
Forecasting, Planning and Supply Chain Management for SAP Manufacturing CustomersMarc IkelsBusiness Development Manager, ERP Business IntelligenceSAS Asia Pacific
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AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
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Letter to Shareholders
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Key Ratio analysis
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…Top five fulfillment priorities…working capital is #3
Hierarchy of Fulfillment Objectives1) Enhanced Service 2) Grow Revenue3) Contain Costs
Source: Delivering Fulfillment Excellence, Herbert W. Davis & Company and Accenture analysis 2001 http://www.accenture.com/NR/rdonlyres/3A054FCE-8749-437C-8DD2-18AB3A772F60/0/fulfillment_survey.pdf
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The challengeSo how can you decrease your inventories (raw materials, WIP, finished goods)
And at the same time grow your revenues and increase your service levels???
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The answer:Accurate forecasting in combination with timely information sharing using RFID along the supply chain
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Manufacturers know what they must do to compete
Reduce inventory carrying costs,
Improve operational efficiency,
Reduce stock-outs,
Shorten order-to-cash cycles with their retail channel.
Copyright © 2006, SAS Institute Inc. All rights reserved. 9
AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
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A balancing act: Over- vs. under forecast Forecasting Performance Measurement Considerations
It costs us money to catch up with everyone else!
We are paying more as we get our orders in late!
We’re late to market; we get a smaller market share
We can’t position complementary products!
Our customers are constantly unhappy that we’re lagging the market!
And, they’re all in the wrong place!
By the time I can finally sell them, they’re out of date!
Because I’ve got so many, I have to discount them!
I’m having too many items in my inventory!
It’s costing me a fortune to hold those items!
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Supply Chain Variability costs moneyPlan
Lost Sales
Prob
abili
ty
Obsolete Inventory
Supply Variability
Supply Variability
Demand Variability
Demand Variability
Future Uncertainty
Future Uncertainty
Inventory
Assets 50% 90% 95% 99% 99.9%
Targ
et S
ervi
ce
Leve
l
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Supply Variability
Supply Variability
Demand Variability
Demand Variability
Accurate forecasting and reduced variability reduces costs & increases service level
Lost Sales
Prob
abili
ty
Obsolete InventoryPlan
Inventory
Assets
Future Uncertainty
Future Uncertainty
Supply Variability
Supply Variability
Demand Variability
Demand Variability
Future Uncertainty
Future Uncertainty
Increased VisibilityCollapsed Response Time
99.99%
New
Tar
get
Serv
ice
Leve
l
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Real-life Example (Simplified)• Case of over-forecast
• Case of under-forecast
Taken from: “How to measure the impact of a forecast error on an enterprise?” by Kenneth B. Kahn
Total Monthly Item Volume 10,000,000 units1% Error 100,000 unitsAverage Item Cost $1 per unitInventory Cost Per Month $100,000Inventory Cost Per Year $ 1,200,000
Total Monthly Item Volume 10,000,000 units1% Error 100,000 unitsAverage Sales Margin $2 per unitLost Profit Per Month $200,000Lost Profit Per Year $ 2,400,000
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Real Company Example
Under-forecast: $85,473 per month (1% error)
Over-forecast: $86,613 per month (1% error)
Industry standard (for this company): • 25% MAPE (mean absolute percentage error)• Potentially > $2,000,000 monthly (over- or under-forecast)• Potentially > $25,000,000 yearly (over- or under-forecast)
Taken from: “How to measure the impact of a forecast error on an enterprise?” by Kenneth B. Kahn
monthly pallet inventory = $10
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AMR Research: Accurate demand forecasting pays big dividends
The analyst firm, Boston-based AMR Research, reports that companies with improved demand forecasting, on average, experience the following returns: • 15% less inventory • 17% better perfect order ratings • 35% shorter cash-to-cash cycle times
4.7% sales increase due to reduced stock-outs
Taken from: “Supply Chain Management Review, Vol. 2, Issue 6, June 28, 2004”(see also: http://www.amrresearch.com/Content/view.asp?pmillid=17352&docid=11693)
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AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
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Value of accurate forecasting in SCM as reported by selective SAS clients…“…a payback of more than $6 million to date” (Alcon)
“savings potential of at least € 8.5 million” (Europay)
“one percent reduction in forecast variance equals $200,000 in reduced expenses” (Lubrizol)
“…impact has to be in the millions“ (Salt River Project)
“reduced costs by up to 50 percent” (Copenhagen Energy)
“1% reduction in forecasting error can save a electricity supplier €2 million to €3 million per year” (CGE&Y)
…
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AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
Copyright © 2006, SAS Institute Inc. All rights reserved. 19
Forecasting Hierarchies:Multiple Dimensions and automated forecasting
Product Customer
Loca
tion
National
Districts
Accounts
Store
SKU
Brand
Region
Subcategory
All M
erchandise
CountryCompany
Zone
Category
Multiple forecasting levels require multiple forecasting tools and result in thousands of
automated daily forecasts
Product
Geography
Customer
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SAS Forecast Server
Enterprise forecasting environment
Automatic and interactive usage
Business/novice forecasters• Automated model building
Experienced forecasters• Interactive & automated model building
Consumer of Forecasts• Accessing forecasting results• Automated model building
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Forecasting Hierarchies:Top-down and Bottom-up Forecasting
Store
Zone
Region
TotalCompany
Bottom-up
Store
Zone
Region
TotalCompany
Top-down
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SAS Forecast Server vs. SAP-APOSAS Forecast Server
Automated forecasting• Automated forecast model
selection• ARIMA, ARIMAX and other
sophisticated forecasting models
Supply Chain Planning based on forecasting rigor
Inventory optimization based on forecast and planning rigor
SAP-APOManual forecasting• Limited basic forecasting
algorithms, technological limitations• Importance of forecasting is
neglected
SC Planning limitations
Inferior inventory optimization algorithms, Transshipment issues for standard and global ATP
Copyright © 2006, SAS Institute Inc. All rights reserved. 23
AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
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SAS Manufacturing Solution
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SAS Manufacturing Framework
Suppliers
Operations Customers
Organization
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Forecasting Reports
Short Term Forecasting• Plan Vs Actual• Actual Vs Forecast• Demand Volatility
− Goodness-of-fit statistics for each model.
− Shewhart-Chart for the forecast error.
− Original Vs Override− CUSUM chart for forecast
errors.
Long Term Forecasting
New Part Forecasting
Maintenance Based Forecasting
Demand Analysis
Forecast Demand Analysis
Forecast Accuracy Analysis
Copyright © 2006, SAS Institute Inc. All rights reserved. 27
AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
Copyright © 2006, SAS Institute Inc. All rights reserved. 28
Sample SAS for Manufacturing KPIs% Product On time in full -> ATP benchmark
Inventory Days of Supply
Inventory Turns
Cash-to-Cash-Cycle and Order-to-Cash-Cycle
Fill Rates, Throughput
Stock Outs
Bottleneck Analysis
Production Capacity Analysis
Production Cycle Length
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Inventory Optimization Reports I
Actual Inventory Analysis
Projected Inventory Analysis
Order Planning
Delivery Performance to Customer Commit Date -> ATP Benchmark
Dynamic Replenishment Planning (DRP)
Efficiency Band
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Inventory Optimization Reports II
Maximum Supply Chain Length (days)
Average Supply Chain Length (days)
Total Stock Cost
Total Safety Stock Cost
Total Pipeline Cost
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AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
Copyright © 2006, SAS Institute Inc. All rights reserved. 32
Extr
act -
> Tr
ansf
orm
-> C
lean
se ->
Val
idat
e -
> Lo
ad D
ata
SAS Data SurveyorSAP R/3
OptimisationEngine
Sample Demand Forecasting and Inventory Optimization ArchitectureRaw Data
Reports
Clean Data
Legend
SAP R/3 SD/MM/
PP
SAP R/3
ForecastingEngine
CleansedHistoricalDemand
Data
IntranetWeb Server
SAS
Dat
a Su
rvey
or fo
r SA
P
Ext.DB’s Scheduling
DB
Secu
rity
SAS/Access
SAS/Access
MS Excel /Access
DB
Client
Manual Override
Internet Access
User Portal
Copyright © 2006, SAS Institute Inc. All rights reserved. 33Netweaver
Integrating SAS®9 with SAP
SAPR/3
SAPBW/APO
mySAPBusinessSolutions
SAP ExI
mySAPMDMXML Java SAP
RFCMQSeries
SAS Solution MartsSAS Warehouse
SAS® Solution Adapters
SAS Integration Technologies
SAS® Data Quality
Reporting and OLAP Business Solutions
SAS® Data Surveyor for SAPSAS® Data Surveyor for SAP
Forecasting Data Mining
ODBO
Copyright © 2006, SAS Institute Inc. All rights reserved. 34
AgendaThe challenge
A real-life example: How much money is in the game?
What our customers say about SAS Forecasting
Forecasting with SAS
The Solution: SAS9 EIP + SAS SCM + SAS Manufacturing
From forecasting to SC Planning and Execution
A sample SAS on SAP solution
Like to know more?
Copyright © 2006, SAS Institute Inc. All rights reserved. 35
SAS Forecast Server
Please visit tomorrow’s session:
“Enterprise Forecasting using SAS Forecast Server”, Udo Sglavo, Thursday, 18. May,9:00 – 9:35am, Auditorium Le Saleve
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Article in SAP Insider featuring SAS Forecasting (April-June 2005 edition)
http://www.sas.com/reprints/sci_sapinsider_0405.pdf
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SAS Forecast Server Resources
URL: http://www.sas.com/technologies/analytics/forecasting/forecastserver/index.html
Factsheet: http://www.sas.com/technologies/analytics/forecasting/forecastserver/factsheet.pdf