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About Demand Planning LLC

Demand Planning LLC, based in Boston MA, is a consulting boutique comprised of seasoned experts with real-world supply chain experience and subject-matter expertise in demand forecasting, S&OP, Customer planning, and supply chain strategy.

We provide process and solutions consulting, as well as customized training across a variety of industries.

Through our knowledge portal DemandPlanning.Net, we offer a full menu of training programs through in-person and online courses, as well as a variety of informational articles, downloadable calculation templates, and a unique Demand Planning discussion forum.

  • 11Jan

    As a consultant, I get asked this question a variety of times.  Why should we improve forecast accuracy?  What is it worth to us?  What is the business case to spending money to improve the process and implement some expensive demand planning software?

    There is value in this for sure – the evidence comes from the fact that year-after-year companies continue to hire more demand planners and invest millions of dollars in putting together processes and software packages.  Now to dissect this, let us look at the Service-Cost Balance model that we preach in our workshops.

    Improving the demand forecast directly gets to two things that are important to companies:

    1.  Increasing the top-line – Improve customer fulfillment and delivery and increase the level of Sales.  Nothing works like reputation or service performance.  People flock to your company products and services if they are satisfied with what you offer.  The converse will be painful – bad news spread like wild fire.

    2.  Improve the bottom-line through process efficiency – Optimize inventories by trimming the level of inventories, cutting obsolescence and producing just enough to meet your demand.

    3.  Eliminate process costs – Expediting, over-time that may otherwise be required to fulfill volatile and unpredicted customer demand.

    Now if we want to quantify the benefits from forecast accuracy, it is difficult to quantify the first item.  What is our lost sales?  What is the effect of one point reduction in fill rates?  Did it cause lost sales?  Did we lose a customer?

    It is a little easier to look at the savings in inventory through improvements in forecast accuracy.

    At any time, your inventory level is comprised of Safety Stock to meet demand and supply uncertainties and the inventory needed

    But your average inventory = Safety Stock + Lead time demand or (order quantity if you are using the min-max method to deploy).

    We can find a relationship between the amount of safety stock you can decrease for each percent point reduction in Forecast Error, since forecast error figures directly in the Safety Stock calculation.

    Safety Stock = Forecast Error * Service Level Quotient * Square Root (Lead Time)

    From simple calculus, the effect of one unit reduction in Forecast Error is just the product of Service Level Constant * Sqrt (Lead-time).  So at 98% service level with a lead time of say two months, the effect of one unit reduction in Forecast Error is 2.90 Units.

    What is the impact of a % point reduction in MAPE?  The answer depends on the level of your current forecast quality.

    However, the relationship of inventory reduction to your current MAPE Level is not linear.   The calculation on the reduction in inventory is a function of your current level of forecasting.  This determines the quantity of inventory reduced for each percent point improvement in Forecast error.

    If you are at 50% MAPE on average currently, the reduction would be 2% of inventories for each point improvement in forecast error.  IF you are at 25% MAPE currently, the improvement will be 4% for each point reduction.

    This is actually a conservative estimate since it considers only the safety stock component of the total inventory.

    If your forecast is an over-estimate of the Lead time demand, then you carry additional inventory not accounted for in the above calculation.  This will also introduce obsolescence risk.

    So a lower bound is to just use the reduction in safety stock but being aware that a better forecast will also allow you to deploy better to the lead time demand.  Better forecast can also help you reduce production and logistics costs such as over-time and expediting costs.

    So if you have $200MM in inventory and let us assume that 25% of that total is safety stock then you have $50MM in safety stock.

    A reduction of 10 point MAPE will result in a reduction of $10MM in safety stock.  10 point MAPE reduciton =20% reduction in Safety Stock or $10MM assuming currently your average MAPE is 50%.

    Again this does not consider any reductions in the inventory carried to cover lead time demand (particularly due to forecast bias) or obsolescence that results from unsold inventory.  Obsolescence is a bigger risk since you lose all of the inventory investment.

    Next question is what does the reduction of $10MM in inventory really mean to you?  This completely depends on the inventory carrying cost for your company.

    Inventory carrying cost can be any where between 12% to 40% per year.  So in financial terms, a $10MM reduction in inventory could result in bottom line improvement of $1.2MM (at 12% carrying cost) to $4MM.

    Now we are talking real dollars……………..

    Let us try to save some of those costs by bettering the demand plans!

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  • 01Jan

    As we are about to ring in the New Year, here is a moment to contemplate on what we have seen in 2012 and what looks like in 2013.

    It appears 2013 will be the year to shift major paradigms!

    Since I am not psychic, I am just looking at trends to see if they extend, fold or just just go no where!!

    1. The Big Data Bandwagon will get even bigger!

    Just like outsourcing was the buzzword in 2002, Big data is the current buzzword to attract venture funds, IT investments and even for job seekers to find a higher-paying job! Big Data buzz will get even bigger in 2013!

    2. Integrated Business Planning will take over from S&OP!

    More c-Level managers will start to look for a process that can effectively leverage Big Data above to make decisions based on predictive analytics! Only the thought leadership will happen in 2013. The technology and the software field is wide open with no identifiable players ready to facilitate IBP.

    3. Outsourcing Demand Planning Best practices will become more prevalent

    Companies in SMB will look to outsource their demand planning efforts, not necessarily eliminate demand planners, but the process to achieve consistency and sustainability in demand planning!

    4. We will see much higher visibility of Demand Management!

    The entire process to demand shape, sense, plan and manage demand will achieve higher visibility in Corporate America. People with such skills along with business experience will be most sought after for lucrative positions through out the world!

    5. User-unfriendly technologies will suffer a bigger blow in 2013!

    Software technologies that are not user-centric or user-focused will find themselves losing market share in 2013 with potential casualties including SAP and Apple (yes – Apple Computer has joined that camp in the post-Jobs era)!

    Let us prepare for 2013 and do the right thing and make the right moves!

    All of us at Demand Planning Net wish you a happy and prosperous New Year 2013! Enjoy a fun and safe New Year’s Eve!

    Sincerely,
    Mark Chockalingam
    Demand Planning LLC

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  • 23Nov

    This has been a recurring challenge and a potential land mine when it comes to the raw number crunching in demand planning.  Zeroes and Nulls……….

    Is the Null the same as a zero?

    Although excel formatting can code a zero as a dash, can a zero be interpreted as a Null?  If so when and when not?

    Similarly, including some may also be bad for the health of your demand forecast.

    Leading zeroes – Will you include them in developing a statistically modeled forecast.

    How about nulls in the middle of the data? These either show up as nulls, .dots, or some times as zeroes.

    Ok.  Now that I have asked too many questions, I will also propose some answers for you.

    Generally Nulls can never be treated as zeroes.  They are different things.  Nulls mean nothing, the absence of anything.  Nulls mean no data or no observation.  If you average a series with nulls, the nulls count in either the numerator or the denominator.  Zeroes are different.  If you average them, they will have no contribution to the numerator but will count as an observation in the denominator so you will have your average reduced with the presence of zeroes.

    At least in demand forecasting, we can coin the following rules:

    1.  Leading Zeroes can be interpreted as Nulls. 

    At times a product may be slated to launch in a specific month and hence the system may start recording zeroes as data if the launch is delayed.  Leaving them in may result in a poor statistical forecast.

    2.  Nulls in the middle can be interpreted as zeroes.

    Some systems may record nulls if there is no demand activity.  However if the nulls occur in the middle of a time series history, I would recommend they be treated as zeroes.   Most intermittent demand data is characterized by zero sales volume frequently.  If you leave them as nulls, this will inflate your average and generally result in a upwardly biased demand forecast.

    Imagine this scenario:

    90 Null Null 90 Null 90 Null Null 90 Null Null Null 90.

    If you ignore the null, then your demand forecast will be 90 per month if you use the average as the model to forecast. If you interpret the null to be zero, then your average will be 30 units a month.  If the customer has a three month requirement of 90 units and orders only once in every three months, then 30 per unit seems more likely as a forecast.

    3.  Trailing zeroes and Nulls

    Exclude or include?  What do you do with these?

    They look harmless to me if you have a decent exponential smoothing engine. Do you agree?

    We will discuss our approach in detail in our Demand Planning and Sales Forecasting Tutorial workshops scheduled for Feb 2013 in Dallas, TX.  We go into the nuts and bolts of many practical challenges that demand planners face.  This is why our workshop is considered to be the most practical and hands-on when it comes to Training for Demand Forecasters.

    Ignoring these nulls and zeroes can be perilous and lead you down the wrong path.  This may affect both your forecasting and inventory setting.  More dangerous to ignore these if you are calculating safety stock parameters.

    You can see more info on our workshop at http://demandplanning.net/demandplanning_tutorialCA.htm. I am told that we have just a handful of seats left for the early bird quota.

    Have a great holiday!

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  • 22Nov

    Life has been extremely busy……..  Busy some way or other – information overload, volunteer work, entertainment galore, vacation on a planned schedule, parties, meetings, commitments………

    Finally a day to sit up and think about the things that I am thankful for.  Thankful for the time spent with the family at home waiting for the faithful chicken to finish cooking, for the beautiful sunny afternoon in Boston…..

    For the opportunities to serve and enrich the community I associate with, for the many friends that are here, there and everywhere with expectations and obligations and willingness to help……..

    For the unknown friends that willingly wanted to connect with me on Facebook, Linked-In, Google+ – some people I had never met in my life…… but look forward to some day.  If I let go of the fears and inhibitions and apprehensions of the unknown, the unknown is indeed a pleasant thing when you start to know slowly.

    For the parents, relatives and friends in far-off shores that live with the hope and faith of presences and blissful meetings in the future sometime….

    For life to have the faith in humanity and eternal renewals of life as we know it…..

    Thank you!

    Happy Thanksgiving Day!

    November 22, 2012

    Boston, MA

  • 20Jul

    Is there a single KPI for the entire organization? Possibly, two metrics qualify as good KPIs.

    1. Net Profit = Total Income minus all Expenses. This is a Dollar number and ignores the scale. It can be measured with a target like an EPS target or a profit target. But this measures fails as a comparison metric. So the correct format will be Return on Investment. I believe this is highlighted in APICS CSCP courses. Remember Dupont Analysis.

    1. OTIF – This is a noble measure as well. Most supply chains should strive to provide the required service level to keep customers happy. But service levels cost money – real money in fact plenty of dollars. So this has to be balanced against the cost of providing the service ==> inventory costs, expediting costs, reserve capacity costs. One can provide OTIF if they have an unlimited cost budget.

    So this OTIF does not qualify as an organizational measure unless measured against cost. So we have the problem of “no denominator” here. No corporate management will like an OTIF level at a very high execution cost. You can lose your shirt and go out of business. Even Charitable organizations should have an OTIF measured against execution cost.

    I generally believe there should be two metrics for every function.  See my other entries on this blog and the www.demandplanning.net web pages.

    Going back to single KPI for the entire organization, that may still be possible if we look at Corporate Finance literature………

    Even ROI does not qualify as that single measure. Finance literature says that ROI is not adjusted for firm risk. For example, you can borrow a lot of money and invest. This will increase your firm risk.

    At least according to the Noble laureates in Finance, the single best measure for a company is its stock price. The goal of a CEO is to maximize stockholder value.

    Perhaps that sounds too capitalistic, but that is one reason most middle management to upper management gets rewarded with stock options. Perhaps everyone in the organization should be rewarded with some stock options.

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  • 24Jun

    There was big discussion on the APICS Board about the single KPI to use to measure the manufacturing operation.  This is a great question because the user forces people to think of a single KPI to preclude all others.  So the idea is to cull out the most important metric – not a consultant’s omnibus recommendation that provides a laundry list of metrics.

    What should it be?

    • Cost of production per unit
    • TAKT time
    • throughput
    • waste
    • service levels
    • profit
    • Return on Investment
    • Yield

    They all look like good measures but none of them would qualify as the single most important metric for manufacturing.  I always preach that there should be two metrics for each function-

    1. A local functional metric – to measure what they do best and how they best they use what they learned in college for their particular operation.
    2. A holistic organizational metric that they control – This measure is not so obvious and easy to miss.

    It so turns out that many organizations measure their functional organizations by the first one but totally miss the boat on the second one.  To compensate for this grand miss, they come up with another metric that is really a functional metric for some other function.

    For example, they may measure manufacturing by profits or ROI or service levels – which they do not control.

    Let us examine service levels or profits. Measures that are noble indeed but manufacturing does NOT control them. They need to be measured on these as well, but these two measures are indeed KPIs for the entire organization. There is no special incentive for manufacturing to achieve these measures.

    The holistic organizational metric for manufacturing is Schedule Adherence – the percent of production plan that they achieved on time (may be with some slack say +/- 2 days), in full (may be with some slack say +/- 5%), perfect quality (99% acceptance).  Manufacturing fully controls this metric and the rest of the organization is desperately hoping that they will produce to the production plan – a plan that was carefully put together after considering the demand forecast and the degree of the forecast error in the form of safety stock.

    If they do not adhere to the production plan, then everything else is a hog wash. Driving to profits or ROI is indeed wasted effort – one that involves everyone in the organization chasing their tails.

    Schedule Adherence – YES the one KPI that manufacturing controls almost exclusively.

    Schedule Adherence – YES the KPI that tells the rest of the organization that manufacturing is a team player. It reviews and adheres to the demand plan or the demand forecast and the resulting production plan or MRP run that it uses in its detailed production schedule.

    Schedule Adherence – YES the KPI that gives confidence, as you rightly mention, to the rest of the organization that they can deliver to the required customer service levels and manufacturing will NOT produce too much or run large batches to improve their efficiency and lower their cost.

    Their functional metrics can be costs, throughput and efficiency but their organizational metric should be Schedule Adherence.

    A manufacturer’s passion to drive to lower costs and better thoroughput is rightly checked by schedule adherence.  Produce the right quantity at the lowest cost possible!

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  • 14Jun

    In the post jobs-era, Apple has even grown bigger in terms of the accolades and the lime light it is enjoying.

    • iPhone 4S launching SIRI your voice slave.
    • iPad3, just launched after I bought my iPad2.
    • Tim Cook becoming the new jobs-like cZar of Apple company.  Supply Chain Pundits should take pride in the fact that he started as a humble supply chain manager in Apple.

    I only remember reading it in my MBA courses how Apple became prey to the open architecture of the WINTEL computers.  Microsoft supplied the OS, Intel made the engines and anyone can put together an IBM clone computer.  It so ended up that everyone other than IBM started making the PCs – remember IBM sold the PC business in its entirety to Lenovo.  Apple Stock went to the single digits in the mid-eighties.  Barely survived until the return of Jobs and the launch of the iMac and the iPod.

    Then it flourished.  Jobs magic created a variety of iProducts – iPod, iPhone, iPad and iWhat………….  The company is the most valued in the world at $535 Billion dollars as of June 2012.

    The valuation represents the sum of all expected future profits or what the investors are perceiving it can make in profits in the future.  Another way to say it is the company has boat loads of iMagic up its sleeves to make more money not just from the iProducts it already has but also the new iPotential it has in its pipeline and to be released.

    Just in terms of size comparison, the following statements reveal how valuable the company is:

    1.  It has $28 Billion dollars in Cash

    2.  The second largest company Exxon Mobil is $200 Billion smaller in market cap.

    3.  The Value of the company at more than half a trillion dollars is one-thirtieth the GDP of the United States.

    4.  The company’s Market cap exceeds the Gross Domestic products of most countries and just as large as the economy of Saudi Arabia or Sweden.

    Now it strangely feels like Deja Vu again.  However, WINTEL is not back to unseat Apple.  Perhaps something similar.

    There is a company called Google that has an OS called Android.  It makes it available to any handset maker that wants to use it.  HTC, Samsung and LG are happy to make those phones and sell it on the cheap.  And Google has decided to buy its own handset maker in the form of Motorola, so it has a captive unit that also turns out DROID phones.  Sleek, futuristic, and just smoothly and rapidly evolving.

    And Apple is starting to make mistakes……….  mostly in the OS.  Every upgrade I installed on my iPhone 4 since the passing of dear Steve Jobs has been a fiasco.  I lost my music, data and apps and other pesky issues.  Losing the music is the strangest thing.  The music all disappeared from the iPhone but the computer said it is still there……… Oh Well.  Had to wipe and reload everything.  Not fun!  Apple may say I am techy enough for the new OS.  But Jobs never made products for geeks or tech people.  He made usable products for the users. period.

    When another OS looks like the greatest threat for Apple, the company is bungling on its OS.

    I know Apple always looked to Microsoft to make office applications for its iMacs.

    Is there a day to come when Apple may potentially become a handset maker licensing the Android OS?

    Quo vadis Apple?

  • 23Mar

    Companies are rushing to upgrade from the APO 4.1 and 5.0 versions to the new SAP SCM 7.0  As the purse strings are loosening up this year, companies are spending more money in ECC and application upgrades.

    What are the big differences between the 4.0/5.0 vs. 7.0?  There are some marginal improvements that the tech shop may admire but anything for the planning community?!

    We also hear that the planners have not been using the Statistical modeling features in APO.  Will upgrading to 7.0 persuade the planners to use the Stat Models more?  Not just more, just even barely?

    IT implementation teams say that Stat models are not a priority given the budget constraints they have.  So more millions before and no stat models.  Now five years and many millions later, we have a shiny new upgrade and again the stat models are not a priority.

    I have been preaching Usability for the past few years.

    Put together fine tools  – But help the users in making the transition to the tool – give them better understanding – Make the new tool more usable!

    Give them the reports they need.  Provide them an exception based workflow!

    APO has good statistical models.  They will help you move the peanut forward but only if these models are better understood and leveraged.

    We just re-launched the marketing campaign for our Usability Consulting – Model tuning and model matching to product profiles are important elements of the Usability training. 

    Once implemented the Usability project will harmonize the use of models across planners from various geographies for the same business/product family.  There will be streamlined work flow.

    We help you answer the following questions:

    1. Am I using a Pareto Approach in my APO planning process?
    2. How can I leverage APO DP to improve our forecast accuracy?
    3. Why does APO mostly give me flat forecasts? How do I fix this?
    4. What are Alpha, Beta, Gamma, Sigma and Theta? How do I leverage these parameters?
    5. What is the correct level to model so as to improve the overall accuracy at the SKU level?
    6. What are weighting profiles? How does it affect my final forecast?
    7. How can I control time trend using trend dampening profiles?
    8. Are there products and customers that are better left to APO’s automated modeling strategy?
    9. Which models to choose for what family of SKUs?
    10. What are custom modeling profiles?
    11. How is APO helping us simplify and improve the promotional planning process?
    12. How do I create Multiple Linear Regression Models in APO?
    13. Are we using the system defined error metrics in APO? Why are they different from the classic MAPE calculations?
    14. How do you conduct phase-in/phase-out of products?
    15. When should I not use the Croston’s Model?
    16. Why am I getting 9,000+ alerts every morning?

    Perhaps the stress test of your new implementation or upgrade will be to ask the team if they can answer the above questions.

    Our Model tuning and training project can be launched any time -but it is better to launch it sometime during the middle of the configuration calendar before the go-live.  This way the training to the planners can be combined with the Navigation training.

    The benefits will be substantial:  improved forecasting process, workflow and significant supply chain benefits and cost savings.

    What does it cost you?  Not much – perhaps one-fiftieth of what you paid for the APO DP implementation or some where in that ball park.  We finish everything in ten to twelve calendar weeks.

    The detailed brochure on this Model Tuning and Training service is available for download at http://demandplanning.net/documents/SAP-APO-DP_ModelTuning_v2.pdf.

    Happy Forecasting!

    Mark Chockalingam

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  • 02Mar

    Welcome to DemandPlanning.Net’s short video presentation. In this video we will talk about a quick approach to Safety Stock Planning.

  • 02Aug

    Recent reports have suggested that manufacturing has been the silver lining in the weak recovery.  Growth has been stronger in the manufacturing sector compared to other sectors.

    One of the key reasons for outsourcing is the cheaper labor available elsewhere – but is that offset by the higher cost to transport goods into the point of consumption in the USA?  We talk continuously about the goodness of shortening lead times and try to stabilize lead times.

    Lead times are essentially an evil when it comes to managing a tight inventory balance sheet.  Putting this mantra into practice, one would think we are better off moving production close to the point of use.  This cuts lead times and reduces uncertainty on the supply side.  This helps you operate almost just in time and hence lower your costs across the board.

    What else could drive the change?  What do you see as trends in the newly emerging recovery?

    Demand Planning LLC is currently researching this area, particularly container and bulk movement.  We noticed in our research that most shipping companies are struggling. Their stocks have declined gradually to multi-year lows – Carriers that transport oil, dry goods and bulk haulers have all declined in value over the last few years.

    Is this a forecast of continued weakness in the global economy or shrinking international trade or just move to making more production happen domestically in their respective countries?

    Companies that own Oil tankers have suffered the most – Frontline, General Maritime Corporation etc.  The latter is trading close to multi-year low of $1.  The other bulk carriers have also been hit with excess capacity and declining demand.  This could be the classic boom-bust scenario where the carriers have invested in excess capacity during the boom and get caught when the slow down hits them.  However, there are other possibilities.

    Stay tuned for the results of our research study.  Please drop me a line if you are interested in an abstract of our findings.

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