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#Demand Forecasting & Inventory Optimization# By SN Panigrahi
- 2. 2 SN Panigrahi is a Versatile Practitioner, Strategist, Energetic Coach, Learning Enabler & Public Speaker. He is an International-Corporate Trainer, Mentor & Author He has diverse experience and expertise in Project Management, Contract Management, Supply Chain Management, Procurement, Strategic Sourcing, Global Sourcing, Logistics, Exports & Imports, Indirect Taxes – GST etc. He had done more than 100 Workshops on above He is an Engineer + MBA +PGD ISO 9000 / TQM with around 29 Yrs of Experience He is a certified PMP® from PMI (USA) and become PMI India Champion Also a Certified Lean Six Sigma Green Belt from Exemplar Global Trained in COD for 31/2 Yrs. on Strategy & Leadership GST Certified – MSME – Tech. Dev. Centre (Govt of India Organization) ZED Consultant – Certified by QCI – MSME (Govt of India Organization) Member Board of Studies, IIMM Co-Chairman, Indirect Tax Committee, FTAPCCI Empanelled Faculty in NI MSME He has shared his domain expertise in various forums as a speaker & presented a number of papers in various national and international public forums and received a number of awards for his writings and contribution to business thoughts. SN Panigrahi 9652571117 snpanigrahi1963@gmail.com Hyderabad
- 4. 4 Demand Forecasting is the Scientific & Analytical Prediction & Estimation of Future Demand for Goods or Services for a Particular Period for the Purpose of Short Term or Long Term Decision & Planning. It is Necessary for Sound Planning It Lays the Foundation for Production, Operation & Sales Basis for Budgeting & Financial Projections Provides Guidelines for Forecasts of Related Industries SN Panigrahi
- 5. 5 It is Necessary for Sound Planning Lays Foundation for Production, Operation & Sales Basis for Budgeting & Financial Projections Provides Guidelines for Forecasts of Related Industries SN Panigrahi
- 6. 6 Too Many Planning Items (Large Amount of Items; SKUs; Locations etc & Numerous Constraints Complicated & Time Consuming Process Human Factor Errors Forecast Inaccuracy SN Panigrahi
- 7. 7 Demand Optimization Inventory Optimization Production & Supply Optimization Logistics /Transport Optimization Quality & Compliance Product Life Cycle Management Sourcing Management SN Panigrahi
- 8. 8 Reduce Future Un-Certainties Match Operation Levels to Demand Variations Better Resource Planning Attain Stability in Operations Better Budgeting & Financial Projections Reduced Operating & Inventory Costs Better Pricing & Promotional Policies SN Panigrahi
- 9. Accounting Cost/profit estimates Finance Cash flow and funding Human Resources Hiring/recruiting/training Marketing Pricing, promotion, strategy MIS IT/IS systems, services Operations Schedules, MRP, workloads Product/service design New products and services Inventory Stocking Levels Forecasts affect Decisions and Activities throughout an Organization SN Panigrahi
- 10. 10 Macro-level Forecasting: It deals with the general economic environment relating to the economy as measured by the Index of Industrial Production(IIP), national income and general level of employment, etc. Industry level Forecasting: Industry level forecasting deals with the demand for the industry’s products as a whole. For example demand for cement in India, demand for clothes in India, etc. Business-level Forecasting: It means forecasting the demand for a particular firm’s product. For example, demand for Birla cement, demand for Raymond clothes, etc. SN Panigrahi
- 11. 11 Short Term : 2-6 Months Operating Decisions : Production Planning; Current Order Fulfilment; Seasonal Pattern of Demand Medium Term : 6 Months – 2 Yrs Tactical Decision : Medium Term Opportunities; Sales Forecast; Capacity Planning Long-Term : Beyond 2 Yrs Strategy Planning : Sales and Marketing Planning, Financial Planning, Capacity Planning, Capital Expenditure, etc SN Panigrahi
- 12. 12 Average Trend Seasonality Cyclic Nature Elasticity Demand Tend to Cluster around a Specific Level Demand is Dynamic in Nature – Consistently Varies – Increases / Decreases over a Time Demand Shows Peaks & Valleys at Consistent intervals – Hrs, Days, Months, Yrs, Seasons Demand Gradually Increases and Decreases over an Extended Period of Time - Cycles Degree of Responsiveness of Demand to a Corresponding Proportionate Change in Factors Effecting It SN Panigrahi
- 13. 13 Clearly State Objectives of Forecasting Define the Scope & Establish a Time Horizon Select Appropriate Method of Forecasting Identify Variables; Gather Relevant Data Determine Most Probable Relationship Make the Forecast & Monitor SN Panigrahi
- 14. 14 Improved Forecast & Planning Accuracy Reduced Inventory- Inventory Carrying Costs & Frozen Working Capital Improved Customer Servicing Levels Reduced Stock out Situations SN Panigrahi
- 15. 15 Predictive Analytics Demand Forecasting & Planning Budget Planning Inventory Planning & Optimization Data Gathering & Managing Supporting Decision Making Replenishment & Order Planning Lead Time Management SN Panigrahi
- 16. 16 Elements of a Good Forecast should be timely should be accurate should be reliable should be expressed in meaningful units should be in writing should be simple to understand should be cost effective SN Panigrahi
- 18. 18 Cost Accuracy Availability of Historical Data Availability of forecasting software Time needed to gather and analyze data and prepare a forecast Forecast horizon Choosing a Forecasting Technique Factors to Consider While it may provide a basis for forecasting, demand can be unpredictable based on variable market conditions or product seasonality. Unexpected peaks in demand can result in stock outages and quiet periods may result in costly excess stock, which can build up carrying costs resulting in diminishing profits. SN Panigrahi
- 19. Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Introduction Growth Maturity Decline OMStrategy/Issues Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity SN Panigrahi
- 20. SN Panigrahi 20 Quantitative Forecasting Method Qualitative Forecasting Method ForecastingMethods This forecasting approach is a Mathematical Model based on historical data. It involves using past data to predict future demands. More Relevant & Accurate the data Accurate Forecast will be attained. Examples : Simple Moving Average (SMA); Exponential Smoothing (SES); Autoregressive; Integration Moving Average (ARIMA); Neural Network (NN); Croston Method These types of forecasting methods are based on Human factors : Judgments, Opinions, Hunches, Intuition, Emotions, or Personal Experiences and are subjective in Nature. They do not rely on any Rigorous Mathematical Computations. These factors are difficult, or impossible, to quantify. Examples: Personal Opinions, Market Research / Surveys, Delphi Method SN Panigrahi
- 21. 21 Machine Learning/Artificial Intelligence Machine learning models are a broad set of methodologies that use more complex mathematical techniques to select variables and optimize fit in instances where there may be complicated interactions between features. These can be powerful choices, but you’ll want to make sure these obey the integrated, transparent, and actionable properties You can achieve the following benefits : Greatly improve reliability in product forecasts and demand plans Allow full collaboration between all departments involved in demand planning Maintain the right inventory levels by product, customer, and location Accurately forecast revenue and perform cost/benefit analysis Strengthen new/untested marketing campaigns Analyze profitability by channel, product, and geography Minimize time-to-benefit by utilizing pre-packaged business templates SN Panigrahi
- 22. Inventory is Stock of items kept to meet future demand Inventory is a physical stock of goods kept for the future purposes.
- 23. 23 Suppliers Customers Manufacturer / Wholesaler / Retailer P2P Procurement to Pay O2C Order to Cash SN Panigrahi
- 24. 24 Identify Needs Write Specifications Raise Purch. Requisition Selection of a Procurement Method Verification & Study By Purch. Dept. Cost / Budget Check & Scrutiny PR Approval Vendors Selection & Bid Notification / RFQ Bid Receipt and Opening Award Contract/POProposal Approval Evaluation Review By Contracts Committee Negotiations CONTRACT ------- --------- ------- ------ ----- -- --- ------ ------- ------ ------- - -------- ------ ABCD ------ ------ ---- ---- ----------- -------- ------- ----- ------- ----- ------- -12345 --- ----- --- ---- ----- ------- ----- ---- ------ ----- ------ ------ ------ XYZ SIGNATURE VENDOR Material DeliveryMaterial Receipt & InspectionPayment PROCUREMENT PROCESS CYCLE Review By Contracts Committee SN Panigrahi
- 25. 25 S • Specific M • Measurable A • Attainable R • Relevant T • Time Bound SN Panigrahi
- 26. The Role of the Stores & Understanding Stores Functions •A professionally managed Stores has a process and a space within, to receive the incoming materials (Receiving Bay), keep them for as long as they are not required for use (Custody) and then to move them out of stores for use (Issue). That is Main Responsibilities are : Properly account for every item received in the stores Preserve the material till its issue from stores and Issue the material when demanded Incoming Receipts (Receiving Bay) Stocking (Safe Keeping) Issuing (Move Out of Stores) Inventory Management Stores Materials Handling Disposal of Unwanted Goods House Keeping Records Keeping SN Panigrahi
- 27. Materials Receipt and Accounting Different Modes of Receipt By Road / Rail / Sea / Air / Courier / Pipeline Verification of Consignments Verification for any Pilferage / Shortage / Damage Receipt, Accounting & Documentation Matching the Receipts against Documents & Accounting; Preparing MRN / GRN / SRV – Verifying Authenticity of Tax Documents Direct Delivery to User or Central Storage As per Requirement as per Contractual Agreement Lead Time From the Point of Receipt to Accounting (Preparation of GRN / SRV) Only after Proper Accounting Issues & Payments are made.SN Panigrahi
- 28. Material Handling in Stores Loading / Unloading Receipt Un-Loading & Issues Loading; Internal Movement Material Handling Equipment's Articular Trailers, Revolving Cranes, Fowlers, Fork Lifts Of Various Carrying / Lifting Capacities Issue Notes & Gate Pass Material issued from Stores to the actual users against Material Issue Note Materials sent Out Side the Factory / Warehouse against Gate Pass SN Panigrahi
- 29. Forms of Inventory Input Form Raw Materials; Consumables; Components; Packing Materials Semi-Finished Form Work in Process Finished Form Ready to Deliver to Customer In Transit Items being Transported Capital Goods Tools and Equipment SN Panigrahi
- 30. What are Inventories? Material sources Inbound transportation Production Outbound transportation Finished goods warehousing Customers Inventory locations Finished goods Shipping Inventories in-process Receiving Production materials SN Panigrahi
- 31. 31 Uncertainty in Supply and Demand Protect against uncertainties in demand and lead times Provides a measure of safety to keep operations running when demand levels and lead times cannot be known for sure Supply Disruptions Seasonal or Cyclical Demand Forecast Inaccuracy Lead Time, Capacity Limitations Economies of Scale Encourage production, purchase, and transportation economies Allows for long production runs Takes advantage of Price-Quantity discounts Allows for transport economies from larger shipment sizes SN Panigrahi
- 32. 32 Improve Customer Service Provides immediacy in product availability Inventory must be sufficient to provide high-quality Customer Service – Availability of Goods when Customers Wanted. Act as a Hedge Against Price Changes Allows purchasing to take place under most favorable price terms Act as a hedge against contingencies Buffers against such events as strikes, fires, and disruptions in supply Bullwhip Effect Demand information is distorted as it moves away from the end- use customer Higher Safety Stock inventories are stored to compensate Buffers against such events as strikes, fires, and disruptions in supply SN Panigrahi
- 33. Reasons for Inventories Avoids Work Stoppages - Inventory provides independence between stages and avoids work stoppages Independence from Vendor’s Maneuverability Inventory provides Independence from Vendor’s Maneuverability Provide Flexibility in Production Plan Take the advantage of Batches and Longer Production Run Provide flexibility to allow changes in production plans in view of changes in demands etc SN Panigrahi
- 34. Reasons Against Inventories They consume capital resources that might be put to better use elsewhere in the firm They too often mask quality problems that would more immediately be solved without their presence They divert management’s attention away from careful planning and control of the supply and distribution channels by promoting an insular attitude about channel management SN Panigrahi
- 35. Involves materials purchased for use in the manufacturing or distribution supply chain that are "directly" related to the production of finished goods. Ex : Raw Materials, Packing Materials, Consumables Involves any commodity or service that a company buys that does not result directly in finished goods. (Operations Resource Management) (Maintenance, Repair and Operations) Products and services used to facilitate daily business routines such as office supplies, stationaries, travel, furniture, computers consumables and printers etc. these are high volume – low value items. Overhaul or maintenance items : Spare Parts, Electrical, Mechanical & Electronic parts Lubricants, Fuels & Gases, Safety and Healthcare items Capital Goods : Equipment's, Plant & Machinery, SN Panigrahi
- 36. 36 Ordering Costs Cost of Replenishing Inventory Receiving & Inspections Costs Cost of Receiving, Issuing, Loading & Unloading & Inspection Holding or Carrying Costs Cost of Holding an Item in Inventory Shortage & Cost Temporary or Permanent Loss of Sales when Demand cannot be Met SN Panigrahi
- 37. SN Panigrahi
- 38. Manage Flow – Balancing Demand & Supply Continuous Supply Avoidance of Over- Stocking Avoidance of Stock out Situations Cost Control & Inventory Reporting Minimization of losses of Deterioration /Wastage /Pilferages Proper Forecasting& Preventive Analytics Proper Accounting Procedures SN Panigrahi
- 39. Determination of Stock Levels Determination of Safety Stocks Proper Ordering System Determination of Economic Order Quantity (EOQ) Just in Time (JIT) or Zero Inventory System ABC / FSN / HML Analysis VED-Vital, Essential, Desirable Inventory Turnover Ratios Aging Schedule of Inventories Preparation of Inventory Reports SN Panigrahi
- 40. 40 First in First Out (FIFO) Method Last in First Out (LIFO) Method Simple Average Price Method Weighted Average Price Method Base Stock Method Standard Price Method Market Price Method SN Panigrahi
- 41. Inflow & Out Flow of Stock SN Panigrahi
- 42. Vendor Managed Inventory The supplier usually owns the inventory at the customer’s location The supplier manages the inventory by any means appropriate and plans shipment sizes and delivery frequency The buyer provides point of sale information to the supplier The buyer pays for the merchandise at the time of sale The buyer dictates the level of stock availability required SN Panigrahi
- 43. GOODS RECEIVING PROCESS Match the Delivery to a Purchase Order Check Products are not Damaged Make GRN / MRN Allocate Storage Space for Goods Notify your Accounts Payable Department SN Panigrahi
- 44. Inventory Performance Measurement SN Panigrahi
- 45. Inventory Performance Measurement Holding Costs Service Level Lead Time Rate of Return Inventory Accuracy Perfect Order Rate SN Panigrahi
- 46. Inventory Performance Measurement If the turnover is low, the company either has too much stock or too few sales. SN Panigrahi
- 47. Gross Margin Return on Investment (GMROI) = Gross Margin / Average Inventory Cost Inventory Performance Measurement Shrinkage = Ending Inventory Value – Physically Counted Inventory Value Shrinkage % = Shrinkage / Sales x 100 Sell-through Rate = Number of Units Sold / Beginning Inventory x 100 SN Panigrahi
- 48. 48 Supplier Performance Delivery in-full Ave 93% Delivery on-time Ave 95% X - Less Rejects Ave 1% = Supplier DIFOT What’s yours? What is the flow on effect to you? More inventory? Low service delivered to your customers? Unnecessary costs? DIFOT : Delivery In-Full and On-Time OTIF : On Time In Full SN Panigrahi
- 49. Inventory Cost Reduction (Inventory Reduction is Recognized as a Cost Reduction) Lower Lead Times Negotiate to Reduce Supplier Lead Times; Develop Local Vendors; Select Right Mode of Transport Reduce Variety & Standardize Reduce Number of Items Carried / Variety; Substitute for Standard Parts; Consolidate Common Part Numbers Combined Inventory; Reduce Surplus and Obsolete Inventory Maintain Combined Inventory of Different Units; Use it elsewhere; Return it to the Supplier; Sell to other companies ; Sell at a Discounted Price or Scrap it Improve Supplier's Quality & Time Delivery Performance Reward Supplier’s Superior Performance for Quality & On-Time Delivery. It will Reduce Cost of Rejections, Rework, Warranty, Inspection and Excessive Expediting; Lead Time & Inventory Review EOQ Review EOQ with revised Lead Time; Reduce Qty Lifting & Increase Frequency; Re- negotiate Supplier Min. Order Qty (MOQ) Improve Consumption Turn Over Right Scheduling of Requirement; Supplier Managed Inventory Vendor Managed Inventory (VMI); Point of Sale (POS); Consignment Stocking Involve All Concerned Involve Suppliers, Buyer, Engineering, Manufacturing / User, Finance Inventory Cost Reduction SN Panigrahi
- 50. Inventory Reduction Strategies 1. Reduce Total Supply Chain Lead Times 2. Reduce Manufacturing Lead Time 3. ABC Analysis to Identify MTS/MTO Changes (Made to Stock (MTS), Assemble to Order (ATO) and Made to Order (MTO)) 4. Improve Supplier Rapport 5. Smaller Order Sizes 6. Reduce Obsolete Stock 7. Conduct Regular Safety Stock Review 8. Check Aging and Reach of Stock (ROS) for your inventory SN Panigrahi
- 51. 9. Measure Each Planner/Buyer Individually with Clear Ownership 10. Conduct Inventory Self Audit or Assessment 11. Pull Based Demand / Replenish Based on Demand 12. More Accurate Forecasting 13. Reduce SKU or Delayed Differentiation 14. Better Measuring System 15. More versatile components 16. Highest Spend Supplier should be on VMI or Consigned Inventory Programs 17. Focus on Top 50 high value inventory Items 18. Drive Standard Cost Reduction to Lower Gross Inventory Value Inventory Reduction Strategies SN Panigrahi
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