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Technology Helps Planners Collaborate on Forecasting

Robert A. Geller

One group is from Mars, the other from Venus.  Marketing people are blue-sky optimists; operations people, dour realists.  Marketing people are revenue driven; operations people think in terms of units that need to be produced.

The basic truth behind these statements won’t provide grist for the next bestseller.  However, the different approaches taken by these groups and others can lead to drama of another sort.

The high wire balancing act companies must perform these days to meet competing objectives of reduced costs, flexible manufacturing, and ever higher customer service levels is placing pressures on corporate planners like never before.

Yet, even today, forecasting in most organizations is done in a scattershot and disjointed manner.  Each operational area typically uses their own planning process, as dictated by departmental management and systems.

Despite the move to better, enterprise-wide tools for supply chain management, the forecasting modules that are found in these suites are relatively immature.  And most don’t provide easy ways to reconcile the various formats used by different departments.

This article takes a look at the experience of four companies that broke from the mold to make real strides in collaborative forecasting.  They made these advances without investing in costly and complex groupware, Intranet or business process reengineering initiatives.  Instead they opted for relatively inexpensive PC-based software from Delphus Corp, Morristown, N.J.

Clear Benefits

“Peer Planner improves the forecasting process because it provides a comprehensive framework”, said Delphus president Hans Levenbach. “Peer Planner’s structure enforces a unified, consistent format,” Hans continued.  “It integrates unit and revenue forecasting.  This can be helpful because the tendency is for production managers to plan in terms of units, and the sales department to forecast revenues.”

The truth behind this statement can be seen from the experience of Clear Shield National.

Clear Shield National is in the plastic utensils business. The $200M, Wheeling, Ill. company makes plastic straws and cutlery.  However, they were finding that getting accurate forecasts back from the sales team was like eating with their hands.

“The reps would simply look at last years’ sales”, said Greg Johnson, Operations VP.  “Some just resubmitted these numbers without even making any changes”.  Compounding the problem was the fact that the paper-based system was time consuming, manual, and prone to errors.  Further, the sometimes-convoluted paper trail fostered a lack of accountability.

To tackle these problems, Clear Shield decided to implement Peer Planner software earlier this year, and is currently preparing for a rollout of the PC-based system.

“We chose Peer Planner because the software gave us a way to automate the forecasting process,” said operations VP Greg Johnson. “Historical results give the sales team a starting point. Peer Planner software will then give them an easier way to review theses numbers, modify forecasts, and send them back, electronically”.

It will also give them a way to go back and check forecast modifications and monitor accuracy over time.  And, with 20% of a Clear Shield salesperson’s bonus based on forecast accuracy, you can be sure they will take the new system very seriously.

According to Johnson, Clear Shield National should be fully operational with Peer Planner sometime in the second quarter.

Pet Solution

Ralston Purina’s Golden Cat division has been using Peer Planner for three years.  In addition to using the system to help collaborate internally, they have taken the innovative approach of bringing supply chain partners into the planning picture.

Internally, the logistics area uses Peer Planner to consider feedback from various planning groups when preparing forecasts.  They decide if the information is significant before modifying production plans. “If  sales tells us that Wal Mart will need an extra 450,000 cases because of a promotion they are running, that’s significant!” said Linn Crocker, transportation manager for Golden Cat.

They also share Peer Planner forecast information with suppliers on a monthly basis.  Although there’s no direct electronic connection (data is exchanged via Excel spreadsheets), the process helps to alert suppliers in advance regarding Golden Cat’s plans.  This information exchange has led to more productive and predictable relationships with suppliers.  As an example, Linn cited the improvements made on both sides when Golden Cat used the insight they gained to modify requirements from one of their packaging vendors.

Kodak Moment

For Eastman Kodak, the picture was clear: the potential cost reductions and planning improvements were so compelling that it was an easy decision to implement Peer Planner.

“Peer Planner is building a bridge with our customers, giving us a way to improve planning and processes across organizations” said Len DiGristina a supply chain manager and long-time employee of the Rochester, N.Y. company.

Len works in Supply Chain Management and Logistics, a unit that supports Kodak’s worldwide chemical and synthetics manufacturing operations.  They assist with master scheduling, inventory management, and production planning for internal customers, some thirty sites scattered around the globe.

Kodak stocks about 2,000 different types of chemicals.  These are converted to 400 end chemicals, which in turn help produce film and paper products for Kodak.

Len’s group is responsible for $60 million in inventory, which carries a safety cushion of $20 million at any given time. He realized that the latter number could be reduced without compromising customer service levels if his group could better understand, and reduce, forecast error.

Previously, Kodak looked at demand variability at the catalog number level. To get down to the SKU level required a laborious process of printing screenshots from their MRP system for each SKU.  

Now, data from the MRP system is loaded into Peer Planner. The program shows graphically, on one screen, a view of forecasted versus actual demand for each customer over time.  These reports can be printed or distributed electronically.

Armed with this information, Len’s group is now in a better position to get to the root cause of demand variability. “We are elevating the level of data with our customers”, said Len. “It’s a little bit like behavior modification. If you are at the top of the list, if the forecast error is significant, we must figure out why the ‘behavior’ is bad”. 

And, the way Len sees it, just a couple of big hits would pay for Peer Planner.  Kodak’s inventory carrying costs are 30%.  “If we can reduce our safety stock by just %, it would be a big win”.

Kodak is also relying on Peer Planner to improve the quality of long term strategic planning.

Their annual operating plan takes an 18-month view of expected demand. It is updated monthly in a process vital to understanding Kodak’s capacity to deliver in this time frame, and how to best load plants.

Here, again, Len expects that Peer Planner’s “time-lapse snapshot” of forecasted data will help pinpoint which customers are causing the most long-term demand variability.

“It is a nice thing to be able to capture forecast every week, to see who is doing the changing,” explained Len.  “For example, if customer A forecasts 50K units for 1998, and three week later, the annual drops to 20K, we would want to know why. A good reason would be their sales forecast changed; a bad one would be scheduling error.”

They have spent much of the past several months readying Peer Planner for a launch; much of the work involved running tests, and setting the system up to receive data inloads from their Xantel master scheduling system. Although the system won’t be fully operational until May, Len agrees that by all indications Peer Planner will be a success.

Forecasting Power Tools

A well-known power tools maker saw the need for a new forecasting system in late 1996. They were struggling at the time with an antiquated mainframe-based manufacturing system that was manual, labor intensive and just not up to the task. 

In a market in which a 98% fill rate is expected, they realized that they had to make their move quickly. “If we don’t have it in stock, Home Depot will go to the competition”, explained Anne, forecasting manager.  Her group forecasts power tools and accessories.

“For us, fill rates are the number one issue”, she went on. “And the easiest, most measurable and correctable way to improve fill rates is by improving forecasting accuracy”.  However, given the company’s large and complex product line, and extensive customer base, this was no easy task.

At the time, plans to install ERP software from SAP were already in the works.  Anne looked at the forecasting module they would be getting in SAP R/3, and realized what they needed was something even a bit more industrial strength.

Then, the company made the bold decision to try something different. They opted to explore the possibility of implementing a dedicated forecasting system. A committee researched 6-7 solutions, and then decided to go with Peer Planner.

“Simply put, Peer Planner gave us the tools to get where we wanted to”, explained Anne.

After purchasing Peer Planner, the manufacturer worked closely with Delphus Corp. to tailor the software to their specific requirements.  Part of the effort entailed setting up Peer Planner as a hub, to collect forecasting data from the field sales team.

The result was a system that transmitted baseline forecasts to the field, allows reps to override baseline forecasts using their hard knowledge of market and customer conditions, and then electronically transmits the data back into Peer Planner.

First, baseline forecast data is transmitted over their LAN to national sales managers.  The managers access the data on their PCs using a Visual Basic front end.  They massage the data, and Anne reviews the results in Peer Planner. Finally, she prints a report, which she reviews with the production manager. They then work together to modify the projections further, if needed.

The system has led to a number of improvements in the way that the company produces forecasts.

It helps the reps servicing independents and small chains, where demand is fairly stable over time.  “Peer Planner makes it easy for field sales to produce good, mathematical forecasts, and saves them time”, reported Anne. 

Demand for national accounts can swing wildly, on the other hand, due to the impact of special promotions, for example.  Said Lori Ann: “Peer planner gives national accounts the world’s best 3D filing cabinet.” The program takes historical data and automatically splits it by national account. They can view the data any way they want, drill down, view by customer, by product, etc.

The most concrete benefit has been the way the system helps them work together to prepare accurate forecasts.  “Peer Planner gives us direct, first-hand knowledge of customer demand as understood by the salespeople.  It gives the reps the ability to statistically forecast a specific piece of business by their own set of parameters.”