t IPS

PRACTICAL

TO IMPROVE
DEMAND
PLANNING
THE IMPORTANCE OF
DEMAND PLANNING
Most executives agree that the ability to generate an accurate forecast has a significant impact on long-
term business success. The forecast directly affects an organization’s ability to satisfy customers, manage
resources and grow the business cost effectively. An improvement in forecast accuracy—even just one
percent—can have a ripple effect across the business including significantly reducing inventory buffers,
obsolete products, expedited shipments, distribution center space, and non-value added work. In turn,
these improvements can translate into higher customer fill rates, customer satisfaction and ultimately more
revenue with higher margins.

A 1% Improvement in Forecast Accuracy Leads to…

2.4% decrease in order-to-deliver days (cycle time)

0.4% increase in perfect order performance (on time, in full)

2.7% reduction in finished goods inventory (days)

3.2% reduction in transportation costs (percent of sales)

3.9% reduction in inventory obsolescence (percent of inventory value)

Source: Consumer Goods (nonfood and beverage example) “Win the Business Case for Investment to Improve Forecast Accuracy,” Gartner, May 2017

This e-book provides tips to leverage strong demand planning and optimization capabilities at your company.

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7
TIPS TO IMPROVE
DEMAND PLANNING
PRACTICES
If you have experience forecasting demand for products or services, you know that obtaining consistently
good forecast accuracy is a mix of science and experience. Here are a few steps demand planners can take to
improve the demand planning process and as a result, forecast accuracy:

TIP 1 Learn from your peers. There is abundant material available on how other companies
have improved their demand planning capabilities. Use it!

TIP 2 Build the business case. To gain support for improving forecast capabilities, supply chain
practitioners must show the relationship between forecast accuracy and shareholder value. Use the Dupont
Equation on page 5 to articulate how an improvement in forecast accuracy impacts company performance.

TIP 3 Plan and manage talent. Creating a good sales forecast requires several skills: a strong
understanding of statistics, in-depth product and customer knowledge, and experience in combining data
to develop a forecast that all business functions can use. Companies need a well-defined strategy to acquire
and retain planning talent.

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 Demand Planning
TIP 4 Engage analytics: There are more than 700 key Enables Smart Spending
performance indicator (KPI) measures available that can simply
overwhelm a planner. Combined with the quantity of both 80%
structured and unstructured data available from internal and
44%
external systems, planners need an engaging and intuitive
analytics platform to surface the relevant information and
provide guidance in any areas that require attention.
Business units work collaboratively with finance
throughout the budget/ planning process

TIP 5 Identify an executive champion: 60%

Without an executive champion and clear support from
27%
executive management, it’s tough to achieve significant
forecast accuracy improvements.
Ability to integrate and align sales forecasts with
overall business revenue and cost forecasts
TIP 6 Eliminate spreadsheets: Studies show
60%
that spreadsheets provide inadequate demand planning
functionality and are riddled with errors. Get rid of them!
15%

TIP 7 Use a mix of forecasting techniques: Ability to connect and analyze financial and
operational data
A major ingredient in forecasting success is the ability to apply
a series of forecasting techniques tuned to perform best at 50%
different phases of the product life cycle. See the next page for
18%
a convenient list of eight top forecasting methods.
Ability to perform “what-if” scenarios and
change analysis

Demand No Demand
Planning Planning
Source: Aberdeen Group, March 2016
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THE DUPONT EQUATION:
10% INCREASE IN
FORECAST ACCURACY
Increased from $500 Sales Increased from
million to $550 million Revenue $150 million to
$160.1 million
- Profit
Inventory carrying cost
decreased by $1.1 million
Return on SV
Obsolete inventory cost Costs increased from
decreased by $0.84 million 38.96% to 47.7%
Transshipment cost
. Shareholder
decreased by $0.15 million
/. Value

Working
Inventory investment
Capital
decreased by $50 million
(Inventory)
Capital
+ Invested

Decreased from
Fixed $385 million to
Capital $350 million

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8
TIPS TO CHOOSE THE RIGHT
FORECASTING METHOD
A variety of forecasting methods are applicable to any particular type of supply chain scenario. Leading
supply chain organizations employ multiple methods tuned to leverage available historical data and market
knowledge of a product. The best tip is to pick the most effective and flexible models, blend their best
features, and shift between them as needed to keep forecast accuracy at its peak. In Logility’s experience
working with more than 1,300 organizations ranging across dozens of industries, eight specific forecasting
methods stand out. Their unique strengths combine to deliver powerful, flexible and accurate results.

Modified Moving Modified

1 Holt
2 Average
3 Inhibited 4 Parent-Child

A best-fit statistical Best for products whose A derived model used to A derived model
technique used when demand histories have produce a zero forecast. technique used to forecast
demand is trended, but random variations, This is often used when products as a percent of
does not vary by the time including no seasonality or a product is being the forecast for another
of the year. The Holt- trend, or fairly flat demand. discontinued or when a product (dependent
Winters variant is used different method, like demand).
when demand exhibits Kanban or Stochastic
seasonality. efforts, is being used to
plan inventory.

Modified Demand Proportional Causal

5 Croston
6 Profiles
7 Profiling
8 Modeling

An intermittent demand An attribute-based An attribute-based Used to calculate the

technique used for technique used to model technique used to additional demand or
products such as slow- new product introductions disaggregate higher-level “lift” from promotions or
moving parts that have and product end-of-life forecasts into lower-level events.
low demand or some zero retirement. forecasts using user-
demand periods. defined attributes.

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2
TIPS TO TAKE DEMAND PLANNING
TO THE NEXT LEVEL WITH
MACHINE LEARNING
The evolution to using artificial intelligence and self-learning algorithms to accelerate supply chain planning
is inevitable. In fact, there are early examples of the potential of AI to improve both supply chain planner
efficiencies and provide better or optimized supply chain decisions. The question is, are we, as a profession,
ready to embrace Machine Learning? If so, what does that mean and how do we get there?

TIP 1 One way to get started with Machine Learning is to look at your Demand Planning
capabilities. For example, a “Best-Fit” forecasting algorithm automatically switches to
the most appropriate forecasting method based on the latest demand information,
ensuring you create the best forecast for every product at every stage of its
life cycle. The algorithm evaluates forecast error each forecasting cycle and
recommends or automatically selects the forecasting method that will produce
the best forecast. “Best-Fit” forecasting is a basic form of Machine Learning.

TIP 2 Another tip is to examine today’s Machine Learning capabilities found in

software solutions that use algorithms to continually analyze the state of your
supply chain and recommend or automatically execute plans to meet customer
requirements. Optimization driven by algorithmic planning is an early form of
machine learning that relies on a set of provided information (supply chain facilities
and capacities, transportation lanes and capacities, customer service requirements, profit
requirements, etc.) to automatically make optimal decisions.

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1 CUSTOMER TIP FOR
IMPROVED VISIBILITY
“
“ Enhanced visibility provided through our Logility solution ensures we have
the information and data we need to make quality strategic decisions.
Michael Burke - Director, Supply Chain Planning, Continental Mills, Inc.

WEBCAST
SUCCESS STORY:
Continental Mills Finds a Recipe for Supply Chain Visibility
Continental Mills is a third generation, family-owned maker The Bottom Line
of breakfast, baking and snack brands. Its products are
■ Reduced inventory obsolescence from $1M/year to
sold through retail, foodservice and club store channels
almost nothing
throughout the United States.
■ Improved inventory turns by 20%
Challenge
Gain supply chain visibility, improve resource efficiency, and ■ Increased resource efficiency in the forecasting process
evolve the sales and operations planning (S&OP) process. ■ Reduced forecast error in one division by close to 50%
Solution ■ Achieved a record service level of 99.48%
Continental Mills deployed Logility Voyager Solutions™ and
■ Improved data accuracy and visibility throughout
accelerated inventory turns, increased resource efficiency
the business
in the forecasting process, boosted forecast accuracy, and
improved data accuracy and visibility throughout the business. ■ Can evaluate multiple scenarios to support dynamic
business needs
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ADDITIONAL
RESOURCES

Beyond Basic Forecasting Are Spreadsheets Sabotaging Eight Methods

Your Supply Chain? that Improve Forecasting Accuracy

W H I T E PA P E R W H I T E PA P E R W H I T E PA P E R

Beyond Basic Forecasting Are Spreadsheets Eight Methods that

White Paper Sabotaging Your Supply Improve Forecast
Chain White Paper Accuracy White Paper

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ABOUT LOGILITY
With more than 1,300 customers worldwide, Logility is a leading provider of
collaborative supply chain optimization and advanced retail planning solutions
that help small, medium, large, and Fortune 500 companies realize substantial
bottom-line results in record time.

Logility Voyager Solutions is a complete supply chain management and

retail optimization solution that features an advanced analytics architecture
and provides supply chain visibility; demand, inventory and replenishment
planning; sales and operations planning (S&OP); integrated business planning
(IBP); supply and inventory optimization; manufacturing planning and
scheduling; retail merchandise planning, assortment and allocation; and
transportation planning and management.

For more information, contact Logility:

Worldwide Headquarters 800.762.5207

United Kingdom +44 (0) 121 629 7866

www.logility.com

Visit our library of educational materials including white papers, webcasts,

customer videos and more.

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