Shrink Forecast Errors with SAP SCM 5.0

  • by Serge Ratmiroff, Senior Manager, Deloitte
  • Sharad Pandey, Sr. Consultant, Deloitte Consulting
  • November 15, 2007
Use these five steps in SCM 5.0 to help prevent common demand forecasting mistakes.
Key Concept
Statistical forecasting uses mathematical formulas to detect trends and patterns based on an event in history (such as seasonality) to predict changes in demand. Causal forecasting identifies the occurrence of an event based on a cause-and-effect relationship (such as the impact of a price promotion on sales) to predict changes in demand.
Forecast accuracy affects the working capital, earnings, and cash flow of manufacturing and distribution companies.

SAP SCM 5.0 provides functionality to improve forecast accuracy by using a combination of increased forecast model availability, safety stock computation, and system performance. Because of the sheer magnitude of planning run exceptions that result from poor forecast accuracy, I’ll provide several best practices and tips to help you achieve accuracy within acceptable parameters.

A planner experiences significant consequences when a bad forecast leads to inadequate replenishments. This scenario is compounded by a multitude of exceptions after running SAP materials resource planning (MRP) and distribution requirements planning (DRP). For example, a bad forecast triggers many backorders and some of them are cancelled, resulting in lost sales. Backorders are exceptions that force a planner to reevaluate the planning run and safety stock levels to meet unplanned demand.

Managing these exceptions is labor-intensive and typically requires resequencing or expediting replenishment objects (such as purchase orders, production orders, and transfers) to partially offset poor delivery compliance.

Serge Ratmiroff

Serge Ratmiroff is an experienced project manager with 12 years of SAP implementation experience. He serves manufacturing and distribution clients with complex global implementations of SAP. He assists his clients with chronic business issues by combining procedural process changes and advanced technology to achieve sustainable supply chain improvement.

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Sharad Pandey

Sharad Pandey is an experienced senior consultant with eight years of SAP APO implementation experience. He specializes in helping clients improve performance by combining business process improvement enabled by SCM’s APO.

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