Central Forecasting and

Replenishment Planning in a Retail

Environment: A Case Study
September 17, 2010

Ravi Mandavilli

1
Agenda

 Background
 Implementation Solution
– Process
– Methodology
 Overall Transformational Benefits
 Q&A

2
Background

Multiple independent forecasts

Multiple independent F&R systems

Reporting multiple versions of the truth

Reactive

Limited forecasting optimization

Review of all items to identify exceptions

All items treated the same

Huge inventory and still stock outs

3
Implementation Solution -
Process

4
Forecasting and Replenishment Process Scope
Processes
Collaborative
Replenishment Manage
Inventory Demand Planning,
Planning (Multi- Product
Flow Planning Forecasting Forecasting &
Tier) Allocation
Replenishment

Sub-Processes
Network
Setup/Maintain Strategy Set Up / Maintain Set-up / Maintain
Distribution
Forecast & Planning Replenishment Allocation
Planning

Transportation Generate
Generate Forecast Demand & Supply Execute
(Logistics) Replenishment Plan
& Exceptions Management & Exceptions Allocation
Planning
Simulate & Simulate &
Analyze Forecast Execute Build & Release
Optimize Supply Optimize
& Exceptions Orders
Chain Allocation
Analyze / Adjust Analyze
Simulate &
Plan Replenishment Plan
Optimize Forecast & Exceptions

Simulate &
Optimize
Replenishment

Business Intelligence / Management Reporting

5
Demand Forecasting
Overview:
The purpose of this process is to provide a system-generated demand forecast that will enable supply chain
business processes and serve as an input for planning processes internally across the organization and
externally with suppliers.
Highlights:
• Setup and Maintain Forecast - Provide the ability to identify historical causal data to apply to future events and
incorporate cross-functional input
• Generate Forecast - Create one forecasting system for all purchased products
• Analyze Forecasts and Exceptions - Improve forecast accuracy through management by exception
• Simulate and Optimize - Ensure the best algorithm is used for all forecasted items

Change Impact: (H/M/L)

• H - One centralized process and system that will provide a demand forecast for all products
• H - Accountability for forecast accuracy metrics
• H - Proactive business model supported by detailed business rules and exception processes
• M - Strategic and analytical focus for forecasting activities

Benefit:
• Multiple forecasting algorithms and causal-based forecasting enhance the ability to increase forecast accuracy
and inventory turnover and improve in-stock conditions (inventory, margin, revenue)
• Provide input for “planning” processes across business organizations and externally with vendors (revenue)
• The ability to measure forecast accuracy provides the means to enable organizational accountability
(inventory, revenue)
• Management by exception enables lower headcount and more time for value-add work (SG&A)

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Collaborative Planning
Forecasting & Replenishment (CPFR)
Overview:
Integrate the intelligence of multiple trading partners in the planning and fulfillment of demand. Improve the
partnership between trading partners through collaborative processes and shared information.

Highlights
Demand and Supply Management - Share customer demand forecast with the supplier to strengthen our
partnerships and begin the process of increased collaboration

Change Impact: (H/M/L)

• H - True supplier collaboration, not one-way communication
• H - Prove THD forecasting core competency to supplier
• H - Robust process and technology to enable the efficient sharing of information

Benefit:
• Collaborative forecasting based on accurate forecasting data allows us to reduce lead time, increase cost
out, reduce supply chain inventory and improve in-stock conditions (margin)
• Enable supplier production efficiencies (inventory, margin)
• Increased access to additional supplier market intelligence(margin, revenue)
• Standard practices to encourage increased supplier collaboration across the organization (margin, revenue)

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Replenishment Planning
Overview:
The purpose of the Replenishment planning process is to deliver an automated inventory planning and
execution capability, managed by a centralized organization.
Highlights
• Setup and Maintain: Multiple methods and parameters available to set-up and maintain replenishment plan
• Generate: Multi-tiered replenishment: 2-step distribution and other multi-tiered distribution flow paths
• Build: Replenishment plan for raw need with comparison to rounded, constrained quantities
• Simulate: Experiment with alternate parameter settings and methods to generate optimal business rules
• Analyze: New service level metrics, standard inventory performance visibility, and troubleshooting tools

Change Impact: (H/M/L)

• H- Consolidated responsibility and accountability
• H- Shift to proactive decision-making and fact-based planning
• H- Redefining key metrics around stratified service levels
• H- End to end planning
• M- A robust solution to accurately set parameters to achieve an optimal replenishment strategy

Benefit:
• Improved inventory performance – turnover, in-stocks, DC fill rate (inventory, revenue)
• Reduction in manual touch points, increased time available for value-add analysis (SG&A)
• Increase in visibility of replenishment plan against business objectives and plans (margin)
• Increased visibility, accountability, and consistent procedures (inventory, revenue)
• Sophisticated metrics focused on stratified service levels (inventory, revenue)

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Allocation
Overview:
The purpose of this process is to deliver the capability to allocate (push) the right inventory, on an exception
basis, leveraging the Business Intelligence (BI) from Demand Planning and Replenishment planning.

Highlights
• Set-up and Maintain: Multiple methods and parameters available to set-up and maintain allocation rules
• Generate: Integration of demand forecast into the allocation process
• Simulate: Experiment with parameters to formulate the best allocation method to meet business objectives

Change Impact:
• H - Ability to measure allocation effectiveness against key metrics
• H - Capability to simulate the impact of allocation on inventory levels
• M - Enable a more controlled allocation process with visibility and accountability
• M - Change from multiple allocation systems and executors to single organization and process
• M - Multi-tiered allocation

Benefit:
• Integrated with replenishment planning (inventory, revenue)
• Consolidated responsibility and accountability (inventory, revenue)
• Allocation strategy can be simulated and optimized before it is implemented (margin)
• Any changes to allocation strategy can be implemented quickly and consistently across the enterprise
(SG&A)

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Implementation Solution -
Methodology

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Project Phases

ASAP Methodology: Phases

3 4 5
1
Project Prep
22
Blueprint Realization Final Prep Go Live & Support

 Project Preparation – initial planning and preparation

 define project goals, objectives, scope and implementation strategy
 project team staffing and setup

 Business Blueprint – define “to-be” business process and supporting SAP capabilities
 define and document business processes (business scenario flows, sub-process & activity profiles)
 define SAP capability required to support business process scope (SAP configuration rationale, FRICE list)

 Realization – implement and test business processes in SAP

 configure and test business processes in SAP
 develop and test interfaces, reports and conversions

 Final Preparation – final preparation activities before going live

 complete final system testing and conduct end-user training
 perform data conversions and system cutover to the production environment

 Go Live and Support – transition to production environment

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Overall Transformation Benefits

BEFORE AFTER

One demand forecast serves as input to

Multiple independent forecasts
other business plans and processes

Multiple independent F&R systems End to end F&R systems integration

Standardized set of performance metrics

Reporting multiple versions of the truth
including forecast accuracy

Reactive Proactive planning for future events

Improve capability to track, analyze and

Limited forecasting optimization
leverage causal factor data and history
Automatic exception based work-flow and
Review of all items to identify exceptions
prioritized work load

All items treated the same Multiple methods and parameters

Huge inventory and still stock outs Right product, Right time, Right Place

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Time for Q & A

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