Patni Confidential

Demand Planning

Contents

Introduction
Statistical Forecasting Tools
Promotions
Lifecycle Management
Collaborative Forecasting
Demand Release
Benefits of APO-DP
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Introduction

Forecasts are an expectation or prediction of what we think the

future sales will be. As a result, Forecasts are, by their inherent
nature, always wrong!

The goal in demand planning is to minimize the error of between

what we predict and what actually happens.

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Typical Demand Planning Cycle

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Statistical Forecasting tools

Univariate Forecast (Time Series Forecast)
Multilinear Regression Forecast (Causal Forecast)

Composite Forecast
Consensus Based Forecast

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The Forecasting Procedure

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Time Series Forecasting

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Time Series - Concepts

Typically, when forecasting a time series where your forecast is a function of past
demand the following method is applied:
1 Smooth the original raw data to remove variability and to reveal any trends. This is typically
accomplished by calculating a moving average.
2 Estimate Level: Remove any Seasonal Components

Calculate the seasonal index

Take actual demand and divide by average seasonal index.
3 Calculate a forecast off base values
4 Add back the seasonal components via the seasonal index
5 The data is reformulated to build the total forecast

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Forecasting Methods:Time Series

Univariate Forecasting (Time Series)

Future values are predicted based on past values of the same variable, e.g.

Demand t = f (Demand t-1 ,Demand t-2 ,Demand t-3, ., error)

Also known as Univariate Forecasting, because only one variable

used to explain the pattern - Demand history
The second component
(trend) of the Exponential
Smoothing forecast

The third component

(seasonality) of the
Exponential
Smoothing forecast

The first component

(level) of the
Exponential
Smoothing forecast

Components of Time Series

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Time Series -Smoothing Techniques

Parameters: Always between 0 and 1

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Univariate Forecast Model

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Selecting the model

Model

APO Model profile

Pick if the following are the historical traits

Constant

1st Order

Product<10 months history.If product history <21 months and trend not
appropriate,default then to constant

History far too erratic,not sold all the time

Croston

History very erratic.Can sometimes be used if first order giving way to high
average,and you want to bring down the average.

2nd Order

Product has between 10 to 21 months history and has a steadily increasing trend
but seems to gravitate around a constant mean

Holt's

Product has between 10 to 21 months history and has a steadily increasing trend
but seems to gravitate around a constant mean

Seasonal

Seasonal

Products must have 23 months history.Products must have peaks and valleys,but
always around a steady value

Seasonal Trend

Seasonal Trend

Products history are cyclical pattern with some trend-either increasing or

decreasing

Trend

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Automatic Model Selection

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Univariate Forecasting Model:Example

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Actuals Adjustment

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Actuals Adjustment (Contd.)

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Exponential Smoothing Parameters

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Exponential Smoothing Example

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Automatic Outlier Correction

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Workdays Correction

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Univariate Forecast Errors

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Causal Forecasting

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MLR Forecasting

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Multiple Linear Regression Models

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Causal Analysis: Advertising Budget

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Causal Analysis: Mathematical Model

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Composite Forecasting
and
Consensus Based Forecasting

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Composite Forecasting

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Consensus Based Planning:Example

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Promotions

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Impact of Promotions on History and Forecast

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Cannibalization

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Lifecycle Management

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Lifecycle Management and Like Modeling

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Like Modeling

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Lifecycle Management

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Collaborative Forecasting

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Collaborative Forecasting

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Collaborative Forecasting Features

Two types of data transfer are possible:
Automatic Data Transfer
Inbound/outbound interface to transfer time series and orders via
EDI, BAPIs and XML
SAP middleware technology Business Connector (SBC) is needed
for XML data exchange and makes Internet linkage possible

Manual Data Transfer

Data maintenance via browser interface
Only Internet access needed
Use of SAP middleware technology for Internet applications: SAP
Internet Transaction Server (ITS)

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Demand Release

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Demand Release to SNP

Forecast Requirement (FA)
Forecast (FC)

Reservations (AM)
Dependent demand (AY)
Sales orders (BM)
Customer requirements (BS)

Forecast Release to SNP is consumed by

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Requirements Strategy

Requirements strategy is important to decide upon forecast

consumption
Types of standard strategies available in APO:

10
20
30
40

Anonymous make-to-stock production

Planning with final assembly
Planning without final assembly
Planning product

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Methods to Release Demand to SNP

Methods
Mass processing (Release profile)
Release Demand Online

Types of Split for Release

Product Split
Location Split

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Transfer of Demand to R/3

Methods

Release Demand Online

Mass processing (Transfer profile)-(Through CIF)

Frequency of transfer

Depends of Planning Cycle

Also can be set real time
Can be released on Adhoc as well

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Benefits of Demand Planning

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Benefits of APO-DP

Better forecast accuracy

Lost sales reduced
Better inventory management
Removal of bullwhip effect
Better service level
Integration of various legacy systems

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