Monthly Archives: August 2008

Supply Chain Digest’s Eight Step Forecasting Process Using Demand Planning Software

Every now and again I like to address the forecasting process because, as a sourcing and procurement professional, you are often negotiating contracts against a perceived volume leverage based as much off of a forecast as it is based on historical data. In Part I we reviewed judgmental and statistical forecasts and explained why you need to balance both methodologies when generating your forecast, in Part II we addressed commodities forecasting and how you need to base it on the right data and the right factors, and in Part III I directed you to Forecast Less and Get Better Results that demonstrated that the conventional wisdom that companies need to project forecasts and plans far into the future at a highly granular level is not necessarily right. Then, in Forecast with Foresight, I pointed you to a Supply & Demand Chain Executive article on a study about re-thinking demand management that noted that active/predictive demand management is necessary for good forecasting.

Part of active/predictive demand management is good demand planning. Good demand planning involves good demand planning software, so it was nice to see the Supply Chain Digest editorial staff print a short guide on how to attack the process, even if the first two steps didn’t fully address the problem.

The process, which was still quite good, that they presented was:

  1. Load Historical Data and Create Master Data
    Identify the key data elements that need to be considered and load them.
  2. Clean the Historical Data
    There are almost always problems with the quality and completeness of the data loaded into the system. E.g. “demand” may not be true demand, because it is taken from “sales” data, and will not include “stock-outs”.
  3. Generate a Statistical Forecast for Existing Products
    Use demand planning software with built in statistical models to find a “best fit” that will give you a starting forecast.
  4. Prepare Forecasts for New Product Introductions (NPI)
    Use the demand planning software to identify products with similar sales trajectories which will be used as the starting forecasts for the NPIs.
  5. Override Statistical Forecasts with Judgmental Input
    Use data from sales channels, knowledge about changes in market conditions, and expert insight to smooth the forecasts into the most realistic forecasts possible.
  6. Adjust the Baseline Forecasts for Promotions
    In certain industries, like consumer goods, promotions can have a huge impact on sales volume and need to be factored into the baseline forecasts.
  7. Manage Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR) Processes
    Be sure to communicate data to both customers and internal managers responsible for these programs.
  8. Generate a “One Number” Forecast
    Integrate forecasting into a Sales and Operations Planning (S&OP) that brings together executives from key areas of the company to ultimately agree on a single forecast number and execution plan that will drive both the demand and supply sides of the enterprise.

The one change I’d make would be to replace the first two steps with the following:

  1. Do a Spend Analysis
    A spend analysis project, performed by a spend analysis expert that uses a real spend analysis tool, will load all of your relevant data, cleanse it, normalize it, and properly classify it in multiple spend cubes. The resulting cubes will allow you to perform the analyses necessary to identify which data is relevant, which data is statistically significant, and, more importantly, which products require significant forecasting efforts and which products are relatively stable year after year. Products with relatively stable sales do not need significant forecasting efforts, because expected demand can be easily determined from the spend analysis. On the other hand, products with variable sales, especially those products with a seasonal demand that are heavily influenced both by manufacturer promotions and competitor’s promotions for similar products, require detailed forecasting efforts.
  2. Load the Relevant Data
    Once you have identified those products that require forecasting efforts, you can load the associated data that is needed to run the statistical models, to determine the effects of planned promotions, and determine the appropriate demand forecasts.

Are you an Import Genius?

I recently had the chance to check out Import Genius, which made the top ten list of the most innovative and exciting start-ups on, and I must say that it is impressive. Billed as a site that provides timely, detailed shipment data for every ocean container that enters the United States, it appears to live up to its promise. In addition, the search interface is fast and the export to CSV allows search results with up to 40,000 rows to be exported to a CSV, which can be downloaded in an automatically generated zip file for faster transmission.

With an ability to search by product, consignee, consignee address, shipper, shipper address, notify name, US port, foreign port, bill of lading, carrier code, and vessel name for any date range, it’s quite powerful for a new offering. Testing it out, I found that Apple Computer Inc. received 42 shipments between June 1, 2008 and August 18, 2008, 30 from Amtran Electronic Co. Ltd. and 12 from Quanta Computer Inc No. 68. The Amtran Electron Co. Ltd shipments were for “LCD Monitor For PC” and the Quanta Computer Inc No. 68 shipments, all on June 1, were for “GENERAL APPLE ACCOUNT PAYABLE BY”. Take a guess as to what those shipments were for. In addition, 37 were from Shanghai and 5 were from Tokyo, 24 went to Long Beach, and the remaining 18 went to LA. The average number of LCD monitors per shipment was 539 CTNS (containers) while the average number of mystery products per shipment was 501 CTN (cartons). The country of origin varied between the Bahamas, Greece, China, Liberia, Singapore, Japan, Liberia, and the Marshall Islands for the monitors while the mystery product was sole sourced from China. Eight different vessels were used: the Hanjin Praha, Concord Bridge, Xin Yan Tai, CSCL Seattle, Dong Hai Bridge, Clifton Bridge, CSCL Hong Kong, and the Long Beach Bridge. Additional information available for export includes the shipper address, consignee address, party to notify, party to notify address, bill of lading, arrival date, weight, container, and other marks and numbers. If I’d been watching carefully, as Import Genius was between mid-March, 2008 and mid-May, 2008, I’d have noticed that Apple Computer Inc. and its logistics partners imported 188 ocean containers of a product type never before declared on its shipping manifests.

As partially highlighted in this Washington Post article, which calls Import Genius The Disruptive Shipping Database, there are numerous uses for Import Genius‘ service, which include:

  • Penetrating your competition’s business strategy
    Analyze your competitor’s import activity, identify their suppliers, and discover new endeavors before it hits the news.
  • Keeping your suppliers honest
    Watch the inbound shipments of your suppliers, identify threats and opportunities, and catch cheating factories who are counterfeiting your goods or stealing your IP in the act!
  • Identify new competitors before they emerge
    Find out who else your suppliers are supplying to – if they are supplying similar products to companies you don’t know, there may be new competitors on the horizon.
  • Identify new suppliers
    Find out who your competitors are using before their new products hit the stores!
  • Find out your leverage with your suppliers
    You can figure out what percentage of US business you represent by tracking all shipments against what percentage of shipments are yours.
  • Find new customers.
    Find out who your competitors are shipping to.
  • Identify new customs brokers, importers of records, and similar third party services.
    All of this information is available in the import records.
  • Make your patent infringement suit bullet-proof.
    Upon discovering a patent violation, use Import Genius to trace the goods back to their source overseas.
  • Perform due diligence on privately held companies in emerging markets
    By examining detailed records of a company’s US exports, you can reduce the risk for investors in markets where available data is scarce.
  • Stock Market Predictions
    A detailed snapshot of a company’s imports can serve as a leading indicator for new product releases, revenues, and key performance indicators.

So check out the company that, according to Freakonomics blogger Justin Wolfers, offers Amazing New Trade Data that may enable bright economists to fine tune our understanding of the dynamics of international trade. It’s certainly worth a few minutes of your time, especially when enterprise access (which permits up to 300 searches per day across the entire trade database) is less than $5,000 per year!

Squeeze the Most Out of Your Supply Chain

Supply chain investment is on the rise, but many companies are finding that effectiveness still declines over time after the introduction of a new solution. Why is your average supply chain, powered by best-of-breed technologies, still not operating at peak efficiency? I’d argue that there are a number of reasons, including lack of proper visibility, lack of proper monitoring processes, and lack of proper training, but a recent article in Supply and Demand Chain Executive took a different twist. In Squeezing the Most Out of Your Supply Chain, the author, who notes that it is likely that your average supply chain is not operating at peak efficiency, indicates that a supply chain opportunity assessment can help you you determine if, and where, this is happening. This implies that one of the reasons your supply chain is not efficient is that your average company probably doesn’t know where it should be focussing and that the systems it is employing might not be the right systems or the systems the company needs the most.

A supply chain opportunity assessment gives your company a complete look at the overall state of one of its most critical functions and provides your company with a comprehensive list of opportunities for improvement. With this knowledge, your company can define a set of actions to improve its operating efficiency and ensure that its supply chain is properly designed to support growth and flexibility to prevent supply disruption.

A supply chain assessment is a straightforward process, which, as per the article, can be boiled down to a succinct series of steps.

  1. Define the scope.
    Business Unit or Entire Operation? Subset of processes or full spectrum? Although you should assess your entire supply chain, it’s often best to start small, focussed on key areas, to generate some initial improvements and wins that will fund future assessments.
  2. Examine the ongoing challenges in your business model.
    Document how information, materials, and financials flow through the organization and review the metrics that are being used to evaluate effectiveness. This will help to reveal the challenges.
  3. Identify key issues impacting performance and perform a root-cause analysis.
    Also be sure to compare the company’s existing processes to industry best practices. This will help you zero in on the real improvement opportunities.
  4. Identify and prioritize opportunities.
    Determine the potential business impact of each opportunity and the relative ease with which they can be realized. Then select the most valuable ones and start with those.
  5. Develop a solutions roadmap.
    Once you’ve identified the appropriate improvements, develop a roadmap that outlines the project plan, estimated timelines, and expected costs. And follow through!

The Shared Services & Outsourcing Network – A Useful Resource for Sourcing Professionals

Not too long ago, the Shared Services & Outsourcing Network was brought to my attention. Even though I was afraid that it might be another Supply Chain Social Network, I decided to check it out anyway. I’m glad I did. It’s along the lines of the type of Knowledge Network that I’ve been promoting behind the scenes for a while now — and I’m glad to see that they’re starting to appear.

The site supports two types of members: Premium Member and Associate Member. Premium memberships cost 149.99 a year and come with exclusive access to Shared Services News magazine, regular e-newsletters, full access to online articles, and upcoming job section access and three free job postings a year. Free associate memberships come with access to some of the articles on the site, the regular monthly newsletter, up to four specialist alerts, and basic access to the upcoming job section.

I signed up for a free associate membership. The Industry News goes back four months, and is indexed on five topics (strategy & governance, process & technology, people & culture, customer satisfaction, and globalization) and four functions (human resources, IT, finance & accounting, and other). The networking is limited to knowledge sharing Q&A forums and Blogs (which include Peter Allen from TPI, Sam Poston of ScottMadden Inc, Dave Griebl of Monster Worldwide, and Ed Martinez of BellSouth Affiliate Services Corporation). The event listings are reasonably well populated, and broken down by Continent and Country and there are numerous resources for on-line learning including interviews, presentations, podcasts, and webinars.

In all, I think it’s a good resource for sourcing professionals who need to manage shared services or outsource business processes. There’s a significant amount of information available for free members, and with over 7,000 global members, a wealth of information available for premium members – which I believe would be a great investment for any organization that’s looking for a shared services or outsourcing partner. Take a few moments and check it out. I think it will be worth your time.

The Purchasing Leader’s Guide to a More Successful Team

Recently, Next Level Purchasing published The Purchasing Leader’s Guide to a More Successful Team that outlined Seven Steps For Improving Skills and Getting Better Results. Noting that many organizations only have one or two superstar team members that can handle the most challenging projects, that a purchasing department should be the organizational center-of-excellence, and that there’s no reason your entire team can’t excel, Charles Dominick, President & CPO of Next Level Purchasing put together a simple seven step process that any organization can follow to improve their team. The document might not cover every possible thing that one could do, but it’s a great start as any department that effectively implements and masters the steps provided will certainly be above average as a result.

The seven steps outlined by the document are:

  • Document Departmental Goals
  • Identify the Necessary Skills
  • Develop a Methodology to Assess Skills
  • Determine Skill Gaps
  • Define a Skills Development RoadMap
  • Improve Skill Levels
  • Measure & Sustain Improvements

They are important because:

  • It’s hard to identify necessary skills without goals.
  • Once you’ve identified the skills, you can identify who should have them.
  • You need to know how competent your people are with respect to each required skill to assess gaps.
  • You need to know what the gaps are in order to identify appropriate training.
  • The roadmap helps you identify which skills are important.
  • Skill level improvements are accompanied by improvements in sourcing results.
  • Measurements let you know how effective each skill level improvement initiative was and helps you select the “training” that is most appropriate for your team.

And you should definitely download The Purchasing Leader’s Guide to a More Successful Team because:

  • It gives you some examples of the right way to state measurable goals.
  • It outlines common skill dimensions that you should be sure to consider.
  • It defines three different skill assessment methods.
  • It tells you what’s important when it comes to skill gap identification.
  • It describes five different ways you can prioritize professional development.
  • It outlines different ways you can improve skill levels.
  • It gives you some ideas for measuring skill improvements in a manner that can be communicated to management.