Session 2: Forecasting and the
S&OP
Demand Forecasting and
Planning in Crisis
30-31 July, Shanghai
Joseph Ogrodowczyk, Ph.D.
Forecasting and the S&OP
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Session agenda
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The S&OP process: What is it and how does it relate to
forecasting?
Ingredients to a successful forecasting process in the
S&OP
A diagnostic model for potential issues in the S&OP
process
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
2
Forecasting and the S&OP
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The S&OP Process
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What is it?
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The Sales and Operations Plan (S&OP) is a business process
implemented by a company to match anticipated demand with
anticipated supply
A means for all departments involved in the planning and
execution process to discuss, debate, and agree to a common
set of goals and objectives
A series of periodic meetings with cross-functional teams set
with an objective of creating synchronized demand and supply
plans
When implemented correctly, the S&OP process can give the
company a holistic view of demand, capacity, product volume
and mix, and financial goals
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
3
Forecasting and the S&OP
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The S&OP process
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Steps to the process
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Data gathering
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Demand management
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Deciding what historical data to use, how to incorporate new
demand/products, understanding the impact of promotional
activities, choosing the appropriate external factors
Using statistical models, inventory, backlog, and actual demand to
produce a realistic approximation for unconstrained demand
Supply planning
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Using resource requirements and capacity constraints to
determine the feasibility of maximizing the profit associated with
the estimated unconstrained demand
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
4
Forecasting and the S&OP
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The S&OP process
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Steps to the process
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Pre-meeting
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Meeting for discussion of demand and supply plans for the
purpose of finalizing a consensus production plan with associated
recommendations for the executive meeting
Executive meeting
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Final approval from executive committee with a discussion of
alternative scenarios
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
5
Finance
Financial plan
Supply Chain
Rough-cut supply plans
Capacity planning reports
Operations Plan
Unconstrained baseline forecasts
Initial demand plans
Marketing and Sales
Sales forecasts
S&OP Process
Supply side adjustment elements
Purchasing
Inventory
Transportation
Warehouse
Demand side adjustment elements
Product marketing
Consumer marketing
Pricing
Outputs
Constrained demand forecast
Adjusted supply plan
Adjusted financial plan
Adjusted demand plan
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
6
Forecasting and the S&OP

S&OP and knowledge creation
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Knowledge creation: “transformation of information from
customer, exchange partners, and competitors into
actionable knowledge” (Mello and Esper 2007, 23)
During the S&OP, information is collected, distributed, and
analyzed among all forecasting and planning groups within
a company
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Each group brings potentially unique information to the
process
Knowledge creation is accomplished by sharing this
information to develop business strategies, new products, and
desirable services
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
7
Forecasting and the S&OP
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S&OP and knowledge creation
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Three levels of learning
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Individual
Group
Organizational
Four attributes of learning
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Intuition: Recognizing patterns
Interpretation: Refinement of ideas to make them understandable
Integration: Transforming information into action
 Changes in consumer tastes are collected by Sales, and a group
consensus is achieved on actions to address those changes
Institutionalization: Establishment of routine actions to allow new
information to be embedded within the organization
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
8
Forecasting and the S&OP
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S&OP and knowledge creation
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Learning within the S&OP cycle
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The purpose of the S&OP process is to match potential demand with
known supply constraints
By focusing on the four attributes of learning, an organization can
elevate the S&OP from a coordinating business process to a
knowledge creating process
Incorporating learning into the S&OP
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Intuiting: Recognizing patterns
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First stage in S&OP is gathering data
Individuals can begin to recognize patterns to external data
Interpreting: Refining ideas
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Second stage in S&OP is the demand management
Individuals and the groups bring ideas into a forum for discussion
and interpretation of useful data
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
9
Forecasting and the S&OP
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S&OP and knowledge creation
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Incorporating learning into the S&OP
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Integration: Transforming information into action
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Third step in the S&OP is supply planning
Knowledge integration can be utilized during supply planning
when forecasts are translated into operational plans
Can result in changes to marketing plans and other operational
activities
Institutionalizing: Establishing new business processes to
incorporate updated information
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Final steps in S&OP are the pre- and executive meetings
Formal methods for sharing information and ideas can be created
to support the meetings
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
10
Forecasting and the S&OP

S&OP and knowledge creation
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Incorporating learning into the S&OP
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Key to knowledge learning is to incorporate the stages of
learning into the S&OP process
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Training of employees to identify trends and listen to external data
sources (customers)
Encourage employees to share insights
Ensure that all ideas are given full consideration in the S&OP
process
Publicly recognize employees for ideas that resulted in
measurable process improvement
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
11
Forecasting and the S&OP
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S&OP process
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Recommended factors for successful S&OP
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Regularly scheduled meetings with supporting agendas
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Cross-functional managerial support
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All pre-meeting work completed
All work is NOT “event driven”
Team members have authority for decision making
Avoid “silo” forecasting
Unbiased baseline forecast
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Supply chain can provide a statistical forecast for guidance
Acceptance of statistical methods may require change in
management methodology
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
12
Forecasting and the S&OP
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S&OP process
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Recommended factors for successful S&OP
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Metrics for tracking progress
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Supporting technology
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Ensure that the S&OP process is achieving the objectives
Used to collect and manage the input forecasts and the output
consensus
Software will support a business process addressing “backforecasting” (determining revenue/financial goals and calculating
the corresponding quantities)
External inputs
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VMI, POS, Collaborative Planning Forecasting and
Replenishment (CPFR)
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
13
Forecasting and the S&OP
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Demand management
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How does S&OP relate to forecasting?
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The common goal is a single number forecast that all
departments will use in their processes
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Sales and marketing will use to focus on sales channels
Operations will plan production
Finance will set revenue and profit goals
Demand management: Business processes designed to
produce an unconstrained, information-based, consensus
forecast from historical demand and assumptions about future
market conditions
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
14
Forecasting and the S&OP
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Demand management
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Steps to effective demand management
1.
Forecast review, production, and aggregation
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Reviewing previous forecasts for patterns of large errors
Produce forecasts and incorporate lessons from previous error
patterns
Calculate the total forecasts as well as the individual member
forecasts
Aggregation with respect to time, product, and customer
dimensions
Collecting the forecasts by volume and by mix
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
15
Forecasting and the S&OP
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Demand management
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Steps to effective demand management
2.
Addition or updating new product forecasts
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Input from key players – product developers, marketing
promotions
May be a “range” forecast with lower and upper bounds
Possibility of losing demand for older products
Additional resources to support company goals
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
16
Forecasting and the S&OP

Demand management
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Steps to effective demand management
3.
Application of external factors
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Macroeconomic conditions, economic crises, etc.
Sales promotions
Anticipated price changes
Changes in quantity or quality of customers
Inventory levels or POS data
Customer or supplier forecasts
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
17
Forecasting and the S&OP

Demand management
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Steps to effective demand management
4.
Financial conversion and reconciliation
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5.
Convert unit forecast into dollar forecasts
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Sales uses average selling price
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Production and inventory use standard cost
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Gross profit calculations use average margins
Compare financial forecast to business forecast and clearly
document the differences
Compare the mix forecast (lower level forecast for planning
purposes) to the volume forecast (higher level forecast for
strategic purposes)
Submission to supply planning
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
18
Forecasting and the S&OP
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Demand management
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Recommendations for success
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Upper-level management support
Accountability to forecasters
Consensus on unit of forecast
Translation key for forecast interpretation
Combine statistical forecasts with expert knowledge
(marketing, sales)
Measurement of forecast accuracy
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
19
Forecasting and the S&OP
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Forecasting as a diagnostic model
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Failure to produce satisfactory forecasts can be a signal
that the S&OP process needs improvement
Results of poor forecasting indicate a breakdown in the
S&OP process
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Consistent inaccuracy
Inability to respond or slow response to changes in
product/customer mix
Ineffective use of measurement tools
Omitted forecasts
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
20
Forecasting and the S&OP
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Forecasting as a diagnostic model
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Is it better to have a questionable forecast or no forecast?
Forecasting audits provide insights into barriers to forecast
process improvement
These barriers can indicate where the S&OP process can
improve
Managerial intervention may be necessary if the
forecasting process requires major changes
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
21
Forecasting and the S&OP
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Forecasting as a diagnostic model
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Common problems and potential issues
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Absence of vital information (pricing, new customer forecasts)
can be a sign of miscommunication
Inability to obtain information may indicate a need for new
systems to collect and distribute relevant information
Low accuracy or little improvement in accuracy can indicate
lack of accountability or lack of education among forecasters
Lack of functional forms for models may indicate a lack of
understanding of the data, or larger issues revolving around
the business forecasting process
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
22
Forecasting and the S&OP
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References
 Jain, Chaman L. and Jack Malehorn. 2005. Practical Guide
to Business Forecasting (2nd Ed.). Flushing, New York:
Graceway Publishing Inc.
 Mello, John and Terry Esper. 2007. S&OP, Forecasting,
and the Knowledge-Creating company. Foresight. Summer:
23-27.
 Moon, Mark. 2006. Breaking Down Barriers to Forecast
Process Improvement. Foresight. June: 26-30.
Session 2
Joseph Ogrodowczyk, Ph.D.
Demand Forecasting and Planning in Crisis
30-31 July, Shanghai
23
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