Keeping one step ahead - Demand Forecasting & Planning/Production Scheduling report July 2008

To keep pace with increasingly complex market demands, coupled with a desire within the vendor community to stay ahead of the competition, the Demand Forecasting & Planning/Production Scheduling software space is fast evolving. Manufacturing & Logistics IT spoke with a number of leading analysts for a glimpse of the development front line.

Early adopters of Demand Forecasting & Planning tools have benefited from the greater usability of the software and better visibility of supply chain issues, whilst the leading end users have gained significant business value from the optimisation capabilities of the software. This is the view of Subrahmanyam V Akella, principal consultant within TATA Consulting Services Global Consultancy Practice. Consequently, most of these companies have made strides in areas of on-time deliveries, driving repeat sales, inventory reduction, production & distribution cost reduction and the ability to operate efficient supply chains using a lower level of assets, he said.

Driving additional levels of value
However, according to Akella, recent developments are much more about driving additional levels of value by closing the loop between planning & execution and enabling planners to be more agile by adjusting their plans more quickly in the light of actual realworld events. In the past, many plans were dead on arrival, he said. The objective now is to be able to feedback actual events into a new version of the plan, allowing the planner to find alternative ways of still making the plan numbers even when the existing plan is off-track with actuals. So the emphasis is on being able to react quickly to events, being able to run what-if scenarios and choose between different planning options, being able to plan incrementally (fixing parts of the plan and working only on the areas that look less robust), being able to incorporate elements of the workflow that still get done in spreadsheets through two-way Excel integration, and being able to embed the planning tools within the companys business process through the use of Service Oriented Architecture (SOA) technology.

Tim PayneIn addition, Akella believes the ability to configure the software solution according to the desired business process is key attribute. So vendors who are able to offer ways to adapt their software to the needs of the business are making headway at the expense of those whose software is inflexible and unable to adapt to different workflow requirements, he remarked. Gartners Tim Payne observes that there has been a fair degree of commoditisation within the world of Demand Forecasting & Planning solutions. If you look at the different venders, they may claim theres some difference in the mathematics of the formulas or the algorithms they use, but, in essence, there isnt generally a great difference. OK, some have different algorithms, but theres not much in terms of major differentiation between these vendors. Payne added that the users themselves tend to fall within one or two camps. There are those that are coming off spreadsheets or coming off ERP-based forecasting. Theyre looking for something new and tend to think of Demand Planning as part of an integrated suite of supply chain planning capabilities. So, a Demand Forecasting & Planning solution has got to be able to create a forecast but it should also be able to link in with the users replenishment plans and so on.

Secondly, Payne points out that potential users look at the demand management processes that need to be put in place, and want to know if solutions on the market can offer workflow capability, and whether the sales & marketing team could get involved in its use and benefits. Basically, the user may also want to consider collaboration issues, said Payne. So its not just the logistics group or the supply chain group or whoever that are creating the forecast sales & marketing can also add something to the base line for a forecast. Therefore, the differentiation here is in terms of how good the collaboration tools are. One dimension here, according to Payne, is how companies are increasingly putting more Excel front ends on these types of systems. Sales & marketing quite like working in Excel, so if they get a spreadsheet that they can manipulate and if that can be pulled automatically back into the business applications to update the forecast, companies tend to get better acceptance from staff, he said. In terms of the workflow and the process maybe in the role up to Sales & Operations Planning users are thinking about how they can get an agreement at an aggregate level with the demand plan and how this relates to the supply plan. Thats really where they are moving to.

Where there is difference coming in is in things such as very short-term forecasting, maintains Payne. There are some vendors that provide a capability that is more dynamic than some others, he said. Typically, users will still forecast in the monthly buckets, with some moving to weekly. But what some users in some industries are finding is that they actually need to be a little more specific and precise down at the daily level. So they apply an add-on capability to the front-end of the Demand Planning application, which looks at the order profile and order patterns coming in through the order management process and at a customer level or location level etc. starts to detect patterns. The solution in effect knows what the overall forecast should be and uses the longer-term monthly forecast for more resource positioning capacity and longer-term planning, whilst also having created a daily forecast, which is more aligned to the way that the orders are actually coming in from a shop, a store or end customer. So, a companys deployment decisions in the very short term are more aligned to what the true demand pattern is like.

Less flaky
Payne adds that within the category of Demand Planning are also things such as Demand Signal Repositories. This means that if users has Point-of-Sale data they can bring that in, filter it and interpret it or they may have RFID reads that relate to some proxy of demand. So thats really where the differentiation or innovation is probably getting more focused now. Capgeminis Ian Batey reflects that Demand Forecasting & Planning is a part of the manufacturing IT market that has been well serviced over the years and, from a technology standpoint, is an area that has become more solid and less flaky. For example, these types of applications can now handle the volumes that used to cause them some trouble, he said. A number of international companies need to pull together forecasts or plans across different factories, divisions or countries and in the past many have often had a problem in consolidating this information. Now, with the enhanced core skills of these solutions its a more straightforward process.

Ian BateyBatey added that the whole area of connectivity should also be highlighted. In order to gather data from remote locations or business teams, companies have to have a way of connecting. Service Oriented Architecture (SOA) and plug and play are core foundational means of achieving this. He also points out that Excel is still the world-leading planning tool, and that there is now greater ability to pull an Excel spreadsheet within what would be a traditional Demand Planning solution. Most Demand Planning tools ban now be easily linked to Excel, said Batey. In addition, he reports that the main vendors are all talking about Sales & Operations Planning (S&OP) tools. What this usually means is a re-packaging of their Demand Planning applications and a little bit of Reporting/Business Intelligence to pull it together, he said. And in my view thats pretty much all you actually need because the point of S&OP is to present the right information at the right summary level to the right people so that they can make decisions.

Industry-specific applications
As regards Production Scheduling tools, Payne observes that when users look for a point solution it invariably tends to be in this area. A company might use a Supply Chain Planning suite for its Demand Planning, Replenishment Planning and Master Planning requirements. Then it may wish to use a Finite Scheduling application that provides a realistic model of the shop floor in order to sequence the orders. Payne also points out that there are very industry-specific, niche Finite Scheduling or Scheduling systems that have developed to focus on specific industries such as such as oil & gas, process or discrete. Some of the bigger vendors such as SAP, Oracle and others have one scheduling system that can be configured to operate in process or discrete, whereas others such as i2 and JDA have a selection of focused scheduling tools; for example, for process, discrete, automotive and so on, explained Payne.

In terms of terminology, Batey points out that Capgemini tends to use the term Advance Planning & Scheduling (APS) for all of the above, including Demand Planning and S&OP and one of the modules might be Finite Scheduling, for example. Batey reflected that leading solutions are much tighter than they used to be. For example, its now much easier to get real data from real events in the SAP world and make sense of them from a Planning perspective, he said. Then when youve done that you can pull the data back into the Execution system where it would be recognised as the new plan and new sequence. Batey then considered that state of play within the world of Best of Breed Finite Scheduling solutions. If youre extruding steel bars, for example, you usually have some kind of rules that say what order you can sequence in, and this usually means beginning with the bigger bars and then going down in size sequence so youre not making massive changes to the plans and settings as you go along, he said. And what weve seen in the Finite Scheduling space is lots of very good niche optimisers for these kinds of problems. So they can deal with the really precise constraints down at the detail level in a manufacturing plant.

Degree of optimisation
With regard to the degree of optimisation taking place, there are some quite flexible scheduling tools that are coming onto the market now which are all aimed at being able to model far more complex production environments; such as chemicals, paper or metals production. Metals is very complex in terms of all the business rules and requirements that need to be taken into account, Batey stressed. So, there are some very specific applications that are being developed there. What venders have been doing is offering much tighter integration and linkage between the production schedules, the overall plans and the Inventory Planning capability, so the plans are becoming more integrated. Batey also observes that there is a general trend to shift schedules in some cases down to 90-minute schedules. Exactly how many companies have achieved this I would hesitate to say, but everybody is driving in this direction, and the vendors are increasingly looking to provide solutions that can facilitate this sort of requirement, he said, adding: And this ties-in with some of the real-time things that are starting to appear, such as more mobile-based technologies able to transfer data from the field in real time to back-office systems.

Payne points out that there are a couple of European venders now that are very focused in the process area. They are tightly bringing these components together and, in this respect, you really cant make a distinction between Scheduling and Planning because the argument of these vendors is how a company schedules has to have an impact on the Master Plan and vice versa. This is particularly the case in a Make to Order or Configure to Order environment where customer order promising is a key capability that companies need to offer customers. Theres a vendor in the US, for example, that offers Master Planning and Scheduling functionality that is totally integrated, so companies dont have to think thats my long-term plan so Ill hive off the first two weeks of this plan in detail into the scheduling application; the scheduling and planning can be done together because you need to reflect some of your scheduling rules and constraints into the longer-term plan in order for the longer term plan to be more feasible when you drop it back into scheduling. So, this is a two-way, much more tightly integrated capability.

There is also the issue of multi-site scheduling to consider. Some of the more complex scheduling systems are being used by companies that have ERP systems in each of their factories; the data from which is then fed into their scheduling tools. However, the scheduling tools are often individually chosen by local factories on the basis that they each believe the users will prefer a certain solution to the old method of relying on a whiteboard in the scheduling office, explained Payne. However, companies now want to get more of a network scheduling view, because they may schedule in more than one factory and are passing components from one factory to another for assembly. They therefore need to see those schedules more tightly integrated for more effective modelling of multi-factory networks from a scheduling perspective. Payne added that this is particularly the case with regard to areas such as industrial equipment where many parts get moved around; being machined in one area then being moved to another factory for assembly or sub-assembly and so on.

In addition, Payne has witnessed a split between companies that are looking to automate their processes which could involve the integrated suites of SAP and Oracle, for example versus companies that are looking to innovate in certain areas and need to become more focused, using Advanced Scheduling technology, for example. The areas of innovation could relate to external collaboration, inventory optimisation, Sales & Operations Planning (S&OP), Integrated Business Planning (IBP), daily forecasting, more responsive forecasting, Vendor Managed Inventory (VMI) and so on. The good news is vendors are offering more capabilities and are bundling-in more services. Now, its not just a case of supplying the application and telling the user to plug it in and make it work; vendors are increasingly having to help users in terms of enabling a business process or changing the processes the user already has in some way.

Payne added that vendors can also bring in domain expertise if they have, for example, installed a certain type of application many times in, say, the paper industry. Payne points out that they can also help the user in terms of analytics to look at product profiles or demand profiles. And maybe there is some segmentation that needs to be done to help tune the application more specifically to the users requirements. So its not just down to the customisation of the code but it could also concern the configuration of the application, said Payne. It can also be about changing some of the concepts that companies have been used to using, plus theres often some Business Process Mapping work or reconfiguration that needs to be done too.

Akella reflects that, at one level, it might be argued that the vendors are less differentiated. For example, he points out that APS is becoming more commoditised as more vendors have at least a basic functional offering within their products. And, from a technology perspective, Akella observes that they all claim to be moving in the direction of SOA. However, the proof is in the pudding, he said. If supply chain is a competitive weapon for a particular company, or if supply chain performance is very important to business success, then that company will do well to work with the real supply chain specialist vendors and service providers because commoditised SCM produces commoditised results. And a directional commitment to SOA is no substitute for actually having an open technology platform that allows integration of existing as well as new systems into a composite application that addresses the specific business problem at hand.  The added value of being able to leverage a library of Supply Chain Management Workflows for use in a variety of business situations and being able to draw on the wisdom of people with real-world experience of addressing these challenges is enormous.

Best of Breed
Focusing on the issue of Best of Breed solutions within the Demand Forecasting & Planning/Production Scheduling arena, Akella maintains that the depth of functionality and capability that the specialist solutions vendors can provide is only worthwhile if the functionality offered is of valuable to the business in question. But if a company needs to be able to evaluate the impact on its business of moving production offshore, and to understand the full costs of doing so in terms of additional inventory/transportation costs/supply chain risk mitigation set against the lower piece price, then it is going to need sophisticated capabilities provided in a semi-customised solution that draws on multiple Best of Breed systems based on new optimisation engines from a vendor, or existing/legacy systems that already fulfil a part of that solution requirement and therefore need to be brought together in a specialist SCM workflow. Akella adds that another example might be where a producer is evaluating whether to outsource some/ more/all of its production to third-party vendors, but needs to be able to control Design-to-Target Cost whilst involving a number of supply chain partners. A further example would be event-based planning with real-time data availability, monitoring signals from the execution system and allowing the planner to react immediately.

The way forward
As for the future, Batey believes globalisation will continue to play a part here. Connecting data from wherever it happens to be globally, and connecting it in whatever form is easiest to collect it in, is all important, he said. All this ties in with good global communication, reactive networks either internet, intranet or extranet and therefore a multi-dimensional way of collecting information. Then, observes Batey, there is the issue of how to collaborate across all this technology. Its all very well saying I want 100,000 widgets by next week, but at the planning level companies will almost certainly need to have the debate about possibly supplying 80,000, with another 20,000 to follow the week after. So its all about this kind of collaborative Forecasting & Planning and order management, because some of the APS vendors are moving into this very short-term space. Then there are all the communications and connections that go with this, including mobile communications. But its more about the wider connection issues. Its about the web, about the linking in of 3G-type technology, and voice-directed technology thats currently being used in the warehouse will move more in the direction and forecasting and scheduling in the near future.

In terms of future direction, the key thought so far as Akella is concerned is APS technology to address Green issues such as carbon footprints and supply chain sustainability. Returning to the theme of globalisation, another feature observed by Akella is the steady trend towards regional and even global planning domains, where companies are trying to gain advantages of scale in Supply Chain Management decision-making by reaping the rewards of visibility across a broader scope of the business. In some ways, this is similar to the pattern established by the early adopters of APS systems, in that the first area of benefit is obtained by gaining visibility of supply chain issues across the broader domain, followed by optimisation of certain parameters or variables at this level, he said. Examples of this could be Inventory Optimisation across a region, where inventory had previously been planned only at country level, or being able to generate visibility of aggregated Supply Chain Management performance across the operating units.

Akella added that the business units could continue to manage their S&OP processes, but senior executives at region level, for example, could be able to see a high-level Sales & Operations Management view of the supply chain in a way that would enable them to see the burning issues, and to spot the areas where the individual S&OP processes were not creating a harmonious or optimal whole. Indeed, Akella believes that the level of business change involved is going further than this, and establishing truly global planning processes with closed-loop workflows that span the globe.

Critical areas of change
Payne believes there are going to be three key areas that will become critical over the next few years. First is Integrated Business Planning the next level up or the big brother of S&OP. One of the trends thats really driving this is the increasing convergence of Business Intelligence and business applications; and this is really key for the supply chain, said Payne. Supply chain groups are huge users of Business Intelligence, so you have things such as data warehouse dumps or Access databases, Excel spreadsheets, data they can get from the data warehouse, Business Objects and Cognos and so on, because theyre trying to make decisions. Once theyve made that decision they then go into the business applications to take the decision; to change the safety stock level or change a lead time or a sourcing rule or whatever it might be. And the integration between these two is basically the users. They go to one application to do one thing and then go to the other to do something else. Encouragingly, some of the vendors on the business applications side have figured this out and are adding more analytics into their applications.

Payne points out that vendors such as Oracle and some of the Vendor Management Inventory (VMI) vendors are using analytics to drive some of the newer capabilities from a demand planning perspective. He also highlights the fact that a merging of analytics and performance-based capability into the business applications is also taking place. You can use this to analyse whats happening with the supply chain because the supply chains are more complex the more global they become, and that can then help users to take decisions about where they need to change the process, he said. Integrated business planning has a chunk of analytics that feeds into it, that drives insight and then companies can make changes within their business process. The business processes in the business applications have to be configurable and flexible to allow users to do this, but this is increasing as the technology develops.

Complex decision making
Then, feeding into Integrated Business Planning on the analytics side is something Gartner refers to as Product Performance Management. If you look at performance management today, it tends to be hierarchical; companies set out their overall financial objectives and then these are cascaded down to the different departments, business units and functions, explains Payne. Companies are trying to make quite complex decisions within their supply chain, and are asking themselves questions such as if I transported this product differently, what would that do to the total cost of delivery, or what would it do for my carbon footprint, or do I have to stock this product differently now that its in a different part of its lifecycle because the demand variability has changed?. These are quite complex decisions for companies to try and make.

Product Performance Management is about applying performance management concepts but approaching them from a process perspective, explains Payne. So, as the product flows through the supply chain, companies need to consider how its performance is relative to what it needs to be in that process how is it picking up costs, and how they can use that data and analytics to understand how to make a change in one part of the supply chain, he said. This change may push the cost up in one area but result in a significant cost reduction somewhere else. So companies can get more of a holistic view from one end of the supply chain to the other and build up that performance profile. This is where the convergence of BI and business applications all come together.

Another area thats linked to Integrated Business Planning and Product Performance Management is what Gartner refers to as Segmented Supply Chain Responses. Companies understand that they have more complex global supply chains today, but they also have different product ranges, different customer requirements and different demand profiles, said Payne. So, they can use Product Performance Management to help them understand that there are differences in the behaviour between clusters of products, but within each cluster the behaviour patter is very similar. Therefore, they have to look at the way in which they have different supply chain responses. Take Lean for example; Lean works very well when the demand profile is pretty stable, but it doesnt work so well when the demand profile lacks stability. So, companies might need to look at more postponement techniques and more agility in the way they manufacture and configure the products, and this requires manufacturers to plan in different ways. They can put a group of products in Lean if their characteristics suit that but if the products change through time because of the position in their lifecycle they may need to move to a different supply chain response model. So its all about being able to dynamically reassign products to the right supply chain with performance characteristics that match the characteristics of that product/customer cluster.

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