Major Improvements To Their Forecasting Systems example essay topic

Forecasting "Best Practices" "Effective demand planning and sales forecasting across the supply chain can bring a host of benefits. Specifically, it can help improve labor productivity, reduce head count, cut inventories, and speed up production flows, and increase revenues and profits. -Edward J. Marie nTo find the "best practices" for forecasting, our team researched many cases of forecasting success, and found five companies with a common theme. Rayovac, the Coca-Cola Bottling Company, AAi.

Foster Grant, the Sara Lee Corporation, and the Scotts Company all had major problems with forecasting, some of them very similar. To address and solve these problems each of these companies made major improvements to their forecasting systems. Although some used similar methods and others very different, these companies found that the right people, process and information technology was the key to efficient and accurate forecasting. Rayovac Rayovac discovered the proper use of forecasting when it implemented its consensus decision-making teams to improve their performance. They believe that the best information comes directly from the customer. Therefore, their forecasting takes place from the bottom-up.

Sales, marketing, finance, and supply chain builds a consensus for forecasting, inventory management, scheduling, warehousing, and transportation. Their consensus forecasting is the responsibility of a cross-functional team. For their annual planning process, a bottom-up and a top-down forecasting procedure is used. The top Key Results Measures (KRMs) are compared with the bottom-up forecast which is developed by the consensus teams. Meetings are held to align the two when there are discrepancies. Monthly meetings are held to update the bottom-up forecast and actions are taken to bring the forecast and annual plan into alignment.

Rayovac has discovered some key guidelines to be used for successful forecasting and planning: 1. Actually using the forecast to drive the business and not just to report accuracy. 2. The people must be committed to one process. 3. A forecast "champion" who has the support of upper management should be identified.

4. The right tools must be utilized, including forecasting software, supply chain software, and communication software. They have also developed a monthly process with specific steps to be followed each week: Week 1: Forecasts are used to build and maintain a quantitative forecast, a consensus forecast, and an annual operating plan based on KRMs. Week 2: The information is reviewed by sales and supply chain management. SKU level information (unique promotions, new customers, etc) is added. Week 3: Consensus team meetings are held.

Week 4: The forecast is disaggregated to distributor levels and is pushed to the ERP system. Inventory and production schedules are optimized. Rayovac has seen improvements in communication among all functional areas, a combination of technology with human intuition and expertise. They also have shared responsibility, goals and risks. Their forecasts are now integrated and reconciled. Coca-Cola Bottling Co.

Consolidated At Coca-Cola Bottling Co. Consolidated (CCBCC) has developed a forecasting system to change their previously decentralized forecasting and production processes. Their new centralized forecast allows the company to have more visibility throughout all facilities and the company can now be more proactive. Their process involves marketing and customer-development groups feeding in price plans from the CCBCC's largest customers. Estimated demand, known promotions, and price points, new product introduction's, and other inputs are added.

They then forecast out 17 weeks, with attention focused on the next four weeks. The forecast is updated weekly and sent to area sales managers who review it and modify it as needed four weeks out. This allows a personal aspect to the technological system. Allowing the forecast to change as things happen has led to improved communication and collaboration with common carriers. Also, inventory is reduced by about half and forecast accuracy has improved 10-20%. Sara Lee Sara Lee has also seen improvements thanks to an updated forecasting system.

Professional demand planners and updated software tools has allowed them to progress. Previously, marketing had control of sales and financial forecasts and little attention was paid to them. Therefore, high amounts of safety stock and high amounts of stock outs ensued. By developing a demand-planning group Sara Lee was able to get the appropriate people resources needed for good forecasting. They also were careful not to involve new technology that would disrupt the process already in place. With the new technology and demand planners in place, the company was able to get inputs from product managers and field sales people.

With their incoming data automatically integrated into the demand planning software, they can forecast from the SKU level up to the family level. Field sales people are now being asked to forecast for the next four months for the largest customer because they have immediate access to the people and therefore, the best view of the marketplace. Forecast accuracy is up approximately 51%, and perfect order fill rates are in around 93%. Continuous improvements are now much easier to attain as they now have good metrics and can see current trends. Scotts In 1999, the Scotts Company was dominating the lawn and garden industry. The company was already leading the U.S. market, and after making a number of major acquisitions including Ortho brand, the company had now became the number one supplier of lawn and garden products in Europe.

But the company still had major problems in its supply chain, due largely in part to inaccurate and unreliable forecasts. Scotts "had no idea which items were actually needed, or where", and to make up for this "safety stocks were unacceptably high" (1). For a company with severely seasonal sales, and a highly complex supply chain with over 800 SKUs, the forecasting system in place was just not working. Forecasting was done on a national level, and accuracy was only 38 percent (1). To solve this problem, Scotts' first goal was to get close to the customers, in order to centralize the information process.

According to Senior Vice President and Chief Information Officer Sumatra Sengupta, at that time Scotts had 17 separate information systems in a highly decentralized organization. For guidance on how to accomplish this goal the company began to benchmark the leaders in consumer products sectors such as Proctor and Gamble, Flextronics, and even Limited Distribution services for ways to enhance its supply chain processes. Furthermore the company acquired the ERP system from SAP AG, R/3, which "set the stage for creation of a single supply chain covering all Scotts' products from 'cradle to shelf. ' " Next in a program called Collaborative Customer Centric, Scotts dispatched business development teams to their three biggest customers, Wal-Mart, Lowe's, and Home Depot.

Supply chain representatives from Scotts remain in these company's headquarters today (1). The next goal to solve the problem was to fix the forecast. To do this Scotts hired Manugistics Group, Inc., which helped fine tune its forecasting model. The software implemented by Manugistics delivered tremendous results. It specified when to make each product, where to deploy it, and how much safety stock to hold. Scotts was able to drop its inventory levels for each SKU, and forecasts were for the first time based on true POS data, instead of manufacturing's predictions.

Later Scotts implemented Manugistics' Logistics management software, which helped determine the impact of promotions to further aid in developing more accurate forecasts (1). The final goal to solving Scotts' problem was to bridge the information gap between Scotts and its customers. At the time the company had no method for managing the quality of the information it was receiving, or dealing with errors in information. To help with this Scotts acquired Data Stage software from Ascent ial Software Corp. This software allowed Scotts to integrate its external information system, and now the company could determine the level of quality of the data from retailers and quickly spearhead errors. The result was that Scotts reduced inventory by $99 million in the channel by 2002. Through these major improvements in Scotts supply chain and forecasting processes, Scotts also improved inventory turns from 1.8 to around 5.5, lowered safety stock and increased customer service, and order fill rates soared to 98.5% by 2004 from the low 90 range it had back in 1999.

Manufacturing plants are now operating at 85% from the 40% in '99, and the number of mixing warehouses has decreased from 18 to 10. According to Senior Vice President of Global Supply Chain Mike Luke mire, the supply chain has taken out over $75 million in costs since 1999. The lessons learned from Scotts: the company went from a "terrible supplier" to a "best practice" supplier in less than five years, by focusing on the people, process, and technology aspects. The company had the right people to decentralize and integrate the process, and even sent its own supply chain people to the customers themselves to improve collaboration with retailers.

Scotts realized the benefits of hiring outside resources to improve its forecasting process, and utilized many new forms of information technology software to improve their homegrown systems. AAi. FosterGrantAAi. Foster Grant is a company that is much different than Scotts, but suffered from similar problems. Being a sunglasses manufacturer, AAi. Foster Grant experiences severely seasonal demand similar to that of Scotts.

Prior to 2000, the company was basically using na " ive forecasts to determine actual demand. According to Vice President of Supply Chain Management Darrin Weigle, "anything in the demand history, as far as customer orders and shipments were concerned, was considered viable demand that could be used to forecast on and project future sales... and there was really nobody even challenging whether the forecasts were anything near the realm of reality". For seasonal, fashion items like sunglasses, this led to disaster. "The system could not distinguish between orders placed in response to true demand as opposed to those for promotions, roll outs, and non repeating events" (2). Warehouses were overflowing, and facilities to handle this overflow were put in, further adding to the already out-of-hand inventory expenses. To solve this problem, Weigle's mission was to "develop and deploy a supply chain strategy involving people, process, and technology that would drive cash out of the company's inventory".

There was no formal supply chain management organization at the time, and because of poor management procedures, the demand history data used in their former ERP system was corrupt, which led to undeveloped forecasts at best. Weigle first got rid of the ERP system. To solve this people problem he put in a formal supply chain organization with an integrated work flow procedure. To change the forecasting process, Weigle now wanted to a system that could facilitate hands on maintenance of demand history to get a true picture of customer demand. To accomplish this, getting accurate point of sale data was critical. The company also needed something to "translate point of sale forecasts from the store level's frame of reference to the shipping forecasts at the distribution center's frame of reference" (2).

This is where getting the right technology was important. The company hired Prescient Systems, which had well known demand planning and forecast collaborator software. The result of the new process with new people, with Precision's technology led to inventory levels dropping 33% month to month and down 46% year to year from the previous year. Order fill rates in 2002 had risen to 98.9% from 88% in 2000, and the company can now forecast point of sale data five months earlier then with their previous system, with only a 30-35% forecast error - not bad for a highly seasonal fashion items like sunglasses. The importance of forecasting cannot be understated. Many companies have found that after successful forecasting and proper use of people, process, and technology have led to increased performance of the company as a whole.

This has been proven in our analysis of the current best practices of forecasting in the workplace.

Bibliography

1. Bowman, Robert J. "Scotts Cultivates a Customer Centric Supply Chain Strategy". Global Logistics and Supply Chain Strategies, July 2004.
2. Hoffman, Kurt C. "Who's That Behind Foster Grant's Demand". Global Logistics and Supply Chain Strategies, December 2003.
3. Marie, Edward J. Demand Planning and Sales Forecasting: A Supply Chain Essential. Supply Chain Management Review, 19994.
Murphy, Jean V. "More Accurate Forecasts Give Sales, Operations Planning New Life at Sara Lee Unit". Global Logistics and Supply Chain Strategies, March 2003.
5. Murphy, Jean V. "Special Issue: Collaborative Commerce Forecasting Tool Lowers Coke Bottler's Inventory". Global Logistics and Supply Chain Strategies, November 2002.