the impact of business strategy on forecasting and forecast performance 20170319

The impact of business strategy on forecasting and forecast performance

Contact person: Prof.dr. Bram Desmet

[email protected]

+32 497 58 28 60

My name is Bram …

• Academic• 1998, Master in Mathematics, Gent• 2002-2004, Executive MBA, Vlerick Business School• 2006-2009, PhD in Operations Research, Gent, “safety stock optimization in multi-echelon supply

chains”• 2010-…, Adjunct Professor at the Vlerick Business School• Co-promotor of a Phd on “Demand forecasting using exogenous leading indicators”, with Dr. Nikos

Kourentzes• Working on a book on “Supply Chain Strategy and Financial Metrics”

• Business• 1998 - 2003: IT manager, Arcelor-Mittal, Gent (Sidmar)• 2003 - 2016: Partner Strategy – SupplyChain – Operations, MÖBIUS• 2010 - …: CEO, Solventure, S&OP software and software based services• Sector experience: aftermarket, chemical/pharma, consumer goods, discrete/high-tech, metals,

retail, recycling, SME's (+50 companies)

• Contact info• [email protected], +32.497.58.28.60

Customer-Product

Segmentation

Strategic Canvas

Product Management

Review

PLC & Event Mgmt

DemandReview

CollaborativeForecasting

Inventory Review

Policy, Parameters, Monitoring

Supply Review

Distribution, Production &

Supply Planning

Executive SIOP

Scenarios & Decisions

Globally yours.

Your SiOP software

• Designing and developing SiOPsoftware since 1993

• HQ in Wilmington (De, US), offices in Belgium (Antwerp), India (Mangalore)

Your partner for SiOP

• Experts in designing and implementing SiOP

• European channel partner of Arkieva

• HQ in Belgium

Listed as a challenger in theMagic Quadrant of Gartner.

Listed as a system of reference byLora Cecere of Supply Chain Insights.

service

cash

ROCE

cost

Agenda

• What is Strategy?

• What is Supply Chain?

• Impact of Forecasting on Supply Chain?

• Impact of Strategy on Forecasting?

• Conclusions

What is Strategy?

Market leaders are

‘extremely disciplined

and focused’ on 1 of 3

strategic options

Treacy & Wiersema,

1995

Operational Excellence Product Leadership Customer Intimacy

• ‘Best price’ and/or

• ‘Best access’ (‘fast, easy,

painless’)

• ‘Best product’ • ‘Best service’ and/or

• ‘Best connectivity’

(‘relationship orientation’)

• Efficiency through process

thinking

• Zero-defect service

• Best product through

continuous product

innovation

• Clear innovation strategy:

where to place the bets?

• Understanding the broader

problem

• Having expertise about the

customer’s business

• Customers carefully selected

• The operations department

drives the company

• Attention is paid to process

speed and quality

• R&D is key: idea management

• Marketing is also key: educate

people with a missionary zeal

• Get engineers, designers, and

marketers systematically

together

• Demonstrate expertise and

experience

• Strengthen the relationship

• Build loyalty: focus on

customer retention

What is Supply Chain?

SCM = balancing the SC triangle of service, cost and cash


e.g. reduce cost by

sourcing in far East


e.g. increase market

share by extending

product portfolio


e.g. reduce inventory

by lowering safety

stocks


Focus/incentives in a

typical production

company …


Resulting pressure in

the triangle

Balancing the triangle = optimizing ROCE

Aligning the supply

chain triangle is about

maximizing ROCE

Top-line

EBIT

ROCE

Impact of Forecasting on theSupply Chain

Building KPI dashboards

Service

Cost

Cash/Capital

Employed

Turnover

Margin

Return

Process / Diagnostic

Forecast Accuracy as a key driver of supply chain performance

Service

Cost

Cash/Capital

Employed

Turnover

Margin

Return

Process / Diagnostic

Forecast

AccuracyBias (MPE)

Accuracy

(1-MAPE)

Impact of Strategy on Forecasting

Market leaders are



strategic options

Treacy & Wiersema,

1995


• ‘Best price’ and/or

• ‘Best access’ (‘fast, easy,

painless’)

• ‘Best product’ • ‘Best service’ and/or

• ‘Best connectivity’

(‘relationship orientation’)

• Efficiency through process

thinking

• Zero-defect service

• Best product through

continuous product

innovation

• Clear innovation strategy:

where to place the bets?

• Understanding the broader

problem

• Having expertise about the

customer’s business

• Customers carefully selected

• The operations department

drives the company

• Attention is paid to process

speed and quality

• R&D is key: idea management

• Marketing is also key: educate

people with a missionary zeal

• Get engineers, designers, and

marketers systematically

together

• Demonstrate expertise and

experience

• Strengthen the relationship

• Build loyalty: focus on

customer retention

Market leaders are



strategic options

Treacy & Wiersema,

1995


• Simplicity drives efficiency

• Will have the most simple

product portfolio

• Will try to ‘stabilize

demand’ to ‘maximize

efficiency’ of the

operations

• Is driven by ‘customer

complexity’

• Will have the broadest

product portfolio, in a bid

to act as a ‘one-stop shop’

• Will have ‘customer-

specific products’

• Is driven by ‘product

complexity’

• The product technology is

the differentiating factor

• Active in ‘niche markets’

and focused on ‘early

adopters’

• Most easy to forecast

• Most willing to ‘shape

demand’ in such a way

that forecasting becomes

easier

• Ultimate fit for statistics?

• Forecasting challenge is

dealing with the ‘large

number of SKUs’

• There will be a ‘long tail’,

there will be ‘customer-

specific’ products, ... leading

to intermittent demand

• Fit for ‘collaborative’

practices?


dealing with the ‘market

uncertainty’

• New products in new

markets?

• Fit for qualitative

techniques like Delphi?

Brand New Digital Cinema Laser Projector

How many will we sell??

• Assume there are around 100.000 cinema rooms

worldwide

• Assume 20% of the cinema rooms is expected to switch

to laser projection over next 5 years: 20.000 laser

projectors / 5 = 4.000 per year

• Barco is the current market leader in digital cinema

projection, up to 50% market share

• If we serve half of that volume ... That gives 2.000 per

year

What if we’re wrong??

• if we overestimate with 25%, or 500 projectors …

Forecast Accuracy

• Bias may be the biggest challenge here!!

Market leaders are



strategic options

Treacy & Wiersema,

1995




product portfolio




operations


complexity’







complexity’





adopters’





easier




number of SKUs’






practices?



uncertainty’


markets?



Forecasting a broad product porftolio

• Different product ranges, each with a wide range of SKUs with

different specifications (light output, short angle, ...)

• Problem of the ‘long tail’ … not all items selling equally well

• Problem of ‘accessories’ which are not independent of

projector sales

• Being sold via ‘distribution channels’ instead of ‘directly to

end customers’

• Challenge to forecast on ‘sell-out’ instead of ‘sell-in’ (and

collecting ‘sell-out’ information!!)

• Demand shaping via promotions, end-of-quarter sales peaks

• Distributors may be ‘small organizations’ without a

professional staff allowing proper demand forecasting

What if we’re wrong??

• Technology is changing fast, if we have too much inventory,

we mos probably need to write it off (at least partly)

• Much of this stuff is produced in Asia … with long

replenishment lead times. Underforecast may lead to lost

sales!!

Forecast Accuracy

• Next to bias … forecasting the mix is a key challenge!!

Market leaders are



strategic options

Treacy & Wiersema,

1995




product portfolio




operations


complexity’







complexity’





adopters’





easier




number of SKUs’






practices?



uncertainty’


markets?



Simplify forecasting … or avoid it all together!

• Will typically have a small range of basic quality products

• We try to avoid ‘peaks’ as to smooth production, as to minimize

cost

• May not ‘produce-to-forecast’ but only ‘make-to-order’

• In case of ‘produce-to-forecast’ … may ask for commitments and

limit downside or upside

• In case of ‘make-to-order’ … may impose big order quantities,

and shipping in full containers

What if we’re wrong?

• We stabilize demand, limit downside or upside, or even make-to-

order … limiting the chances that we’re wrong

• The ‘burden’ of the forecast error is put on the customer, e.g. the

electronics retailer

Forecast Accuracy

• Bias controlled by limit on downside or upside

• Mix controlled by limited assortment

• Or potentially controlled all together, by working Make-To-Order

Market leaders are



strategic options

Treacy & Wiersema,

1995




product portfolio




operations


complexity’







complexity’





adopters’





easier




number of SKUs’






practices?



uncertainty’


markets?



What did we learn today?

Lessons Learned

1. Different strategies lead to different forecastingchallenges and hence different accuracy targets

2. Supply chain management is about balancing service, cost and cash

3. Regardless of the strategy, improving the forecast, is key in improving the supply chain performance