Demand Planning: The first step in Supply Chain planning

Demand planning or sales forecasting is one of the
most important aspects of any organization, be it in
the services or the manufacturing sector. A services
organization estimates demand for its services and
thereby gears itself up to service demand. A
manufacturing organization estimates demand for its
manufactured goods and works towards activities such as the
supply of raw materials, production capacity, distribution etc.
Demand planning plays a strategic role in any organization as the
planning for a lot of other activities depends on the accuracy and
validity of this exercise. For example, sales and operations
planning is an important function and in some organizations this
planning cycle is triggered once the demand forecasting cycle is
closed. There are many pieces of software available in the market
which help us conduct demand planning in an effective manner.
One of the most widely used of these is Microsoft Excel. Most of
the ERP products like SAP, Oracle Applications and SCM products
like i2 have Demand Planning functionality available in their suite
of product offerings. This article explores some important
functionalities and features that are useful for organizations in
demand planning.

􀁺 Statistical forecasting: Most demand planning exercises
start with a statistical forecast. There are various models,
each catering to different behavioral patterns shown by
products and markets. These include univariate models,
linear models, the multivariate linear and non linear models,
seasonal models, Croston’s model, mixed model etc. The list
is virtually endless. They may look like small words but
selecting an appropriate model for each of the products in a
portfolio can be a time consuming and intricate task. There
are no shortcuts here. A detailed simulation exercise needs
to be carried out to select the best model for a product and
market. Statistical forecasting models need to be
continuously tested and refined. This means that the
demand planning tool should also support a simulation
environment and also the ability to compare different
forecasting models. Depending on the way that data is
stored in the demand planning tool, statistical forecasting
can be done at various levels. There can be a top down
approach or a bottom up approach. A top down approach
means carrying on statistical forecasting at the highest level
and then breaking it down, while the bottom up approach is
the exact opposite.
􀁺 Consensus planning: The demand planning tool should
support consensus planning features since demand planning
is rarely the work of a single person or a single department.
Demand planning is often a collaborative exercise between
different departments and people, who bring in their years of
expertise. That is why a tool should be able to capture their
inputs on top of statistically forecasted numbers.
􀁺 Promotional planning features: The demand planning
tool should also be able to handle promotional planning. An
extensive promotional planning feature is a great asset for
any organization. It helps plan promotions and the effect of
said promotions on other products, like cannibalization.
Cannibalization can be extremely difficult to capture as it not
only affects one’s own product lines in a similar category but
also products in other categories.
􀁺 Lifecycle management: Planning for the demand of a
product spanning its lifecycle is a complex process. They
may not be a simple introduction of new products or phasing
out of existing products; the situation could also call for
replacing an existing product with a new product or multiple
products. Product substitution functionality should be an
integral part of a demand planning tool. This might seem
extremely simple but technically it requires a lot of features,
like the ability to copy historical sales of one product into
another, the ability to play around with he sales figures of
one geographical area in another area etc.
􀁺 Seasonal planning: Seasonal planning is an intriguing
process. It can be a difficult thing to simulate in statistics
with a reasonable degree of accuracy if demand patterns are
not regular. The complexity is due to the fact that festival
seasons can fall in different months of the year in different
years. The time span or the duration of a particular season
could be different in different years. For example winter can
be lengthy one year and shorter next year.
􀁺 User interface: Most organizations start demand planning
with Microsoft Excel. Any organization would vouch for the
fact that Excel is easy to use and over the years they have
become quite comfortable with it. Thus, it makes great sense
if the user interface of the demand planning tool is
comfortable and user friendly. This makes it easy to get
acceptance from the end users.
􀁺 Data management and archival: Another important
feature of any demand planning tool is the ability to churn a
huge amount of data in a reasonable period of time. It
should also be able to archive old data for reference. This
archival process should be easy and should not affect the
current functionality of the product. If a demand planning
tool is built on the data warehousing backbone it can have
great ability to play around with data in many dimensions.
This also makes it feasible to have statistical data forecasting
at various levels not only at the lowest level at which data is
captured. A data warehousing backbone also makes it easy
to look at the data’s various dimensions and levels increasing
the utility of demand forecasting and planning manifold.
There are various other interesting features which would be
important for an organization. Demand forecasting and planning is
the first step in most planning cycles in any organization. Any
errors that creep into the numbers at this point have a ripple effect
later on which only gets amplified. This phenomenon is popularly
known as the Bullwhip effect in supply chain. With the ever
changing nature of the environment that an organization is
operating in along with shortening product lifecycles and other
competitive pressures it is imperative to have a demand planning
tool which should be able to handle the complexities of the
business not only today but also for the future needs of an
organization as it grows.
Originally published by Express Computers.

RFID enabled WMS

In the last few years the scope of the Warehouse Management System (WMS) has undergone a lot of changes, even though the primary object of WMS still remains the same. As the name suggest WMS is meant to manage the resources of the warehouse efficiently. WMS not only manages the material flows and other resources of the warehouse like equipments, labor and space but it also tries to manage the flow of information and plays a vital role in the supply chain. Even though the core functionality of WMS is still picking, replenishment, and putaway but today the role of WMS is continuously evolving and it is expanding to include new areas like light manufacturing, transportation management, distribution, order management, and even the accounting system. Some of the vendors have even gone a step further by adding workflows, EDI and OLAP reporting modules. This evolution of WMS is not an isolated case, over the years even the popular Enterprise Resource Planning packages have undergone metamorphosis and have added business intelligence, supply chain management, warehouse management and other capabilities. The ubiquitous ERP is slowly giving rise to ERP II. The diffusion of role and expansion of functionalities is placing the WMS in same league with other enterprise packages like Enterprise resource planning (II), Supply chain management, Advance supply chain planning etc. This is creating utter confusion in the market and it is apparent that some of the segments would shrink as they make way for the rest. In spite of its new incarnation WMS is finding it increasingly difficult to position itself in the fiercely competitive market. According to a survey the market of WMS has shrunk by almost 3%.

WMS and RFID
Even though Radio Frequency Identification (RFID) has been around for almost fifteen years now but it is only recently that the world has woken up to the immense potential of RFID. One of the obvious applications of RFID is in tracking the inventory with RFID enabled tags (Wal-Mart has already directed its suppliers to gear up and supply goods with RFID tags). The U.S retail supply chain which is today spending around $200 million on RFID is expected to spend around $1300 million by the year 2008. This has a direct bearing on the warehouse management systems. RFID can be utilized to enable the WMS into a real time system. The opening of this new possibility has immediately infused the WMS market with immense possibilities. RFID enabled WMS will not only reduce the operational costs, but will also increased the warehouse productivity by optimizing the storage and resource utilization. RFID enabled WMS can help in implementing collaborative sourcing strategies through real time flow of information with the suppliers.

RFID will not only hit the WMS when the good is received in the warehouse but RFID can also be used at the supplier side to send Advance Ship Notice (ASN). This early flow of information will help organizations to plan efficiently by determining the lead time accurately. RFID can streamline the handover process by removing human intervention of reconciling the goods received with purchase orders and goods being dispatched with sales orders. Suppliers can ship goods with RFID tags at both the case and pallet level. FIFO, LIFO and other concepts in inventory can be easily implemented through RFID. Effective slotting logic can now be implemented through active RFID tags in a warehouse. RFID enabled WMS can automatically route goods to line haul vehicles thus saving time in the loading process. Distribution centers will be RFID enabled which will help in tracking the outbound logistics. Providing updated information and tracking the returned or rejected goods is one of the vital tasks of a WMS. RFID holds lot of promise in this area by streamlining the Warranty Support.

The RFID enabled features will increase the average selling prices of the WMS systems and will open up the gates for a host of other value added services which can be provided by the WMS vendors.

The Approach
The WMS vendors can take a three pronged approach to manage this change. The first approach would be to build new RFID enabled WMS modules which can be bolt on to the existing systems. The other approach is to upgrade the existing WMS to bring in RFID features. The final approach will be to build new RFID enabled WMS which will eventually replace the existing WMS already in place. WMS vendors can work in tandem with the suppliers who have already been asked to become RFID compliant. The first two approaches can be used to help suppliers under immediate pressure in the short run but the third approach would be a long term approach. Most organizations would not be able to reap the benefits of RFID unless it is used create a pull across the whole supply chain.


Immediate Approach
Long Term Approach

RFID Compliant WMS
Upgrade existing WMS to support RFID
RFID enabled WMS modules to be plugged in.
Replace existing WMS with RFID enabled WMS

















The WMS market will slowly crystallize and cluster along the following lines: The first would be the continuation of the standard warehouse management systems. The other would be warehouse management modules as a part of the ERP packages and finally the RFID enabled WMS components.

The challenges
Of coarse the RFID technology opens up the Pandora’s box and there are a number of technical difficulties which need to be tackled before the dream turns to a reality. WMS has to be integrated to RFID readers and they will have to read RFID tags in bursts rather than sequentially, to increase the efficiency. Also the volume of data is going to be enormous which is going to stretch the limits of a WMS. Making business sense out of the enormous volume of data is also a big challenge which has to be overcome. Error Proofing is another technical hurdle which needs to be surmounted. Accidental and inadvertent reading of adjacent RFID tags can result in erroneous data. Different materials like metals and liquids interfere with reads. It is believed that excessive exposure to radio frequency (RF) can lead to certain ailments. Even though this has not been proved scientifically but this has lead to cases where workers have resisted RFID implementation. In addition to this the effect of RF on food and drugs need to be explored. Standardization has to be bought in the RFID reader and printer market otherwise making a WMS capable enough to interface with all the possible readers and printers available in the market is going to be a humungous task. Unless this standardization is brought in quickly it will create mayhem and might even kill the promising market.

The Future
In spite of the capabilities, all is not calm and quite on the western front. There are other important issues which need to be addressed before the WMS market is rejuvenated. ERP is slowly eating away the niche positioning of WMS. Already the popular ERP vendors are including RFID enabled WMS modules in their applications. This might also lead to consolidation in the WMS market through acquisitions. The realizable potential benefits through RFID enabled WMS may not be the same across all regions and industries hence WMS vendors need to quickly narrow down on the promising regions and industries. Retail, Distribution and logistics, Manufacturing etc. are some of the promising industries. Only time will tell if WMS will come out victorious with the new RFID enabled features or will eventually be a victim of the market, but it is apparent that RFID is revolutionizing the way WMS functions.

The article was originally published by Express Computers. For the complete article visit www.expresscomputers.com

How to Evaluate a Sales and Operation Planning System

Sales and operations planning (SOP) is one of the more critical functions an organization must undertake, as its effects span across various departments, and have the potential to directly influence the organization’s profits. A successful SOP department harmonizes the different beats of each division into an agreeable melody. It is definitely a challenge to find an effective tool that can merge the data from different systems to create a coherent picture of the organization.
An SOP system is used by the most important departments of an organization: finance, sales, marketing, and operations. This is why a powerful SOP system can make the difference between the success and failure of an SOP cycle. SOP systems are very useful to senior management, as they allow a “bird’s eye view” (an overall view) of the health of the whole organization. With its graphical representations and dashboards, an SOP system is an indispensable tool for any organization.
The software market is becoming increasingly competitive, which is having a positive effect on the SOP products available. Today, SOP systems have many advanced features, such as real-time dataflow and intuitive user interfaces. A couple of years back, many features like these were considered “nice to have,” but today they are essential. Also, vendors have streamlined their products so that implementation times are more manageable, making the return on implementing an SOP system more attractive. Today, a typical SOP implementation—assuming that the organization is already running an enterprise resource planning (ERP), supply chain management (SCM), and business intelligence (BI) system—should take around three months worth of labor hours.
Predefined Key Performance Indicators and Metrics
Standard key performance indicators (KPIs) and metrics already built into an SOP system is a particularly useful feature that offers many benefits to an organization. Standard KPIs and metrics could be based on popular models, such as the supply chain operations reference (SCOR) model, and they can drastically reduce the implementation time of an SOP system. Most SOP system implementations take a long time to develop reports based on SCOR-based KPIs, so this capability should be a fundamental feature of any SOP system. If this capability is not supported by the SOP system, then a considerable amount of time will go to identifying KPIs and then building reports for them, be they financial or operational.
If the KPIs on budget, inventory norms, sales forecasting error, etc. are built in, then they do not need to be configured from scratch. Furthermore, a visual representation of KPIs in graphs and dashboards helps top management to keep tabs on various “numbers.”
Integration with Different Systems
An SOP system should be able to integrate with different systems. Most organizations have a transactional system, which is usually an ERP system. Such systems are rich with data that organizations could use to their benefit. An SOP system should be able to draw data from these systems to show a realistic value of the KPIs and metrics through internal benchmarking of their historical data.
An SOP system should also be able to integrate with the SCM system. Integration of these two systems gives organizations the flexibility to modify data in the SOP system if certain organizational objectives are not being met. For example, a sales manager might need to change the sales forecast figure of a certain product in order to meet organizational objectives for that product. With the two systems integrated, instead of logging into the SCM system to make this change, it can be made directly in the SOP system, and the information will be updated in the SCM system as well.
An SOP system should be able to extract data from the BI system, such as historical data and calculated metrics. To do this, the SOP system should be sitting “on top” of the ERP, BI, and SCM systems. It is preferable that the dataflow from these systems is bidirectional, but still today, in some cases, technological limitations severely restrict bidirectional flow. For example, data changed in the SOP system may not be automatically updated in the BI system. For an SOP system to have this capability, it should be built on a platform that can integrate with heterogeneous systems seamlessly. This should be a fundamental feature of an SOP system.
In the case of a stand-alone SOP system, the system should be able to load data from files directly so that transactional and historical data can be loaded into the SOP system directly. The system should also be able to download the data into files, and then upload them back into the ERP, BI, SCM, and other systems.
Drill Down
The drill down feature of an SOP system is one of its most important, as upper management can view KPIs at various levels, and take prompt action if required. The manager, for example, can look at inventory turns at the national, regional, or branch level. The manager can also look at the metric at a product level or at a product group level. If proper hierarchies are maintained, then a drill down feature, which is similar to BI reports, can help senior management make appropriate business decisions. The drill down feature greatly increases the efficacy of an SOP system.
Hierarchy Building
Building up a hierarchy across dimensions can enhance the power of the SOP system. Hierarchies can be built directly into an SOP system, or they can be imported from other systems, such as the ERP or SCM system. If a hierarchy is built directly into the SOP system, then it should be possible to map the SOP’s hierarchy with that of the SCM or ERP hierarchy.
The number of dimensions over which a hierarchy can be built in today’s SOP systems is limited. The dimensions most used across industries are the product, customer, and geographical dimensions. The ability to modify these hierarchies is important, as they can change as the business grows or if the nature of business changes. In today’s competitive environment, changes like these can be frequent, and any restrictions in the SOP system on this front will be viewed negatively by the user company.
Simulation
The features discussed above help the SOP team perform simulations using different figures (i.e., revenue objectives). These features also help to monitor KPIs in different business scenarios. Thus, the SOP team can simulate various scenarios, and agree on a figure. These figures can be arrived at after a consensus on a planning cycle is reached among various departments, and can be published for top management. Also, if a drill down feature is available in the SOP system, the KPIs can be built either top down or bottom up. For example, after the KPI values are fixed at the top management level, they can be broken down to the other levels using the hierarchy that has been built into the SOP system. The reverse can also be followed, where the KPIs can be rolled up after the values from the field are taken and finalized. This feature is important because it helps top management test various scenarios.
Built-in Task and Process Management System
The more advanced SOP systems have built-in task management modules. These modules can have built-in workflows that are integrated with a worker’s tasks. Hence, the system can send a mailer to the next person in the workflow once a particular task has been completed. It can also monitor the status of a task by showing what percentage of it has been completed, which gives a visual representation of the amount of work that remains to be done. Tasks can be built into a hierarchy, which can thus help to define tasks at various levels. These levels can be mapped to the levels in the organization hierarchy. A hierarchy of tasks also helps to coordinate the various tasks in the SOP planning cycle as a whole.
In Closing
SOP helps organizations build upon their tactical plan after strategic planning has been done. A broad SOP system can streamline the planning cycle and the flow of information between different entities within the organization. SOP systems are slowly evolving into complex systems, as new features are constantly being added to them. SOP systems today are an integral part of any organization. In some cases, the basic functionalities of an SOP system come bundled with a transactional system (ERP) or an SCM system. These functionalities cover the basic requirements of an organization, but they lag far behind a full-fledged SOP system.
Organizations should carefully evaluate different parameters when selecting an SOP system. They need not add complexity to the SOP system if their business requirements are relatively simple.

Author: Anand Chatterjee.
Originally published by TEC.