"Baby Products Marketshare"
Forecasting Demand and Beyond Prepared by Inez Blackburn MTI Market Techniques & Innovations Inc firstname.lastname@example.org July 9, 2003 A Few Forecasting Techniques - Grocery Industry ❧Pile high and watch it fly ❧Random walk ❧Dart Board ❧Back in to Bonus ❧I’m the Market Leader ❧Last year plus 10% ❧Lock and Load MTI Market Techniques & 2 Innovations Inc Collaborative Demand Forecasting ... The process of collectively estimating future demand for an organization’s products or services Interesting Demand Influences and Relationships ❧Beer and bad weather ❧Spirits and really bad weather ❧Red wine and the Atkins diet ❧Ice wine and over 55 ❧Martinis and Baby Boomers ❧Crown Royal and under 25 ❧Growing importance of ethnic population and imported beer MTI Market Techniques & 4 Innovations Inc Demand Forecasting Customers ❧ Who is target customer ❧ Size of target market ❧ Buying power ❧ Buying behavior Competitors? ❧ Growth potential Market Position? Products Promotions? ❧ Unique or commodity ❧ Really New or Me Too ❧ Size of market ❧ Market potential ❧ Capacity for Profit MTI Market Techniques & 5 Innovations Inc Transition Cycles in Consumer Marketing Advertising (Awareness) Promotion (Preference) Merchandise Processing Shelf Product After-Sales Warehousing Use Support Delivery Stocking Satisfaction Manufacturing/ Retail Purchase/ of Consumer Distribution Cycle Consumption Demand Cycle Cycle Production Product Store/Category Demand Merchandise Inventory Selection Selection Scheduling Estimation Planning Reporting Distribution Point of Centre Sale Consumer Product/Program Feedback Evaluation/Modification Product to shelf Shelf to Consumer 6 Product to Consumer Forecasting Implications Internet Conventional Manufacturer Manufacturer Distributor Distributor Agent Agent LCBO LCBO Consumer Consumer Past Future MTI Market Techniques & 7 Innovations Inc Elements of Collaborative Demand Forecasting Consumer Predictability Effective Communication Levels of Influence & Responsibility Manage Process Demand Forecasting Inventory Policy Scheduling and Production MTI Market Techniques & 8 Innovations Inc Collaborative Demand Forecasting will require a strong commitment to effective communication and the continuous sharing of information between key stakeholders Demand Forecasting Historical Distribution Data Forecasters Finance Working Management Demand Forecasting Forecast Sales Sales Force Manufacturing Market Consumer Influences Influences MTI Market Techniques & 10 Innovations Inc Inventory Policy Total Cost Safety Stock Inventory levels Inventory Reorder Point Policy Number of Orders Order Quantity Customer Service Forecast Number of Turns MTI Market Techniques & 11 Innovations Inc Scheduling & Production Demand Allocation Demand Capacity Management Accurate Budgets Scheduling & Resource Dependable Plans Production Materials Balancing & Optimization Finite Capacity Inventory Replenishment Scheduling MTI Market Techniques & 12 Innovations Inc Demand Forecasting Challenges ❧Too much information ❧Not enough information ❧Wrong information ❧Can’t find information ❧Do not understand information ❧Cannot share information ❧Do not use information Garbage in Garbage out MTI Market Techniques & 13 Innovations Inc Information Sources Manufacturer Retailer ❧POS Data ❧Sale of data info ❧Consumer Data ❧Consumer Data ❧Primary Market Research ❧Primary Market Research ❧Secondary Market Research ❧Secondary Market Research ❧Promotion and Advertising ❧Promotion and Advertising ❧Market Trends ❧Market Trends ❧Consumer Dynamics at ❧Consumer Dynamics at Retail Retail ❧New Product Performance ❧New Product Performance MTI Market Techniques & 14 Innovations Inc Information Sources cont’d Manufacturer Retailer ❧Warehouse and ❧ Warehouse and shipment data shipment data ❧Consumer preference ❧ Consumer preference data data ❧Geo-demographic ❧ Geo-Demographic information Information ❧Space management data ❧ Space management data ❧Market level data ❧ Market level data (pricing, marketshare, (pricing, marketshare, shipments, etc.) shipments, etc) ❧Airmiles MTI Market Techniques & 15 Innovations Inc Collaborative Forecasting Opportunities ❧Collaborative forecasting significantly increases forecast accuracy ❧Most companies utilize 25-50% of available information to forecast demand ❧An opportunity for Marketing and sales to work together more often ❧More information will be shared and internalized ❧Most forecasting information requirements exist in your organization & MTI Market Techniques 16 Innovations Inc Collaborative Forecasting Benefits ❧ More accurate demand forecasts resulting in increased sales and profits ❧ Ability to more effectively capitalize on market opportunities ❧ Better understanding of the evolution of consumer needs ❧ More effective new product launches and promotions ❧ Faster adoption of current and emerging technologies and industry initiatives (ECR and Category Management) ❧ More effective communication between the LCBO and the Trade MTI Market Techniques & Innovations Inc 17 Collaborative Forecasting Benefits - Supply Chain ❧More effective production scheduling and lead times ❧More effective utilization of supplier production ❧ facility ❧Reduced out of stocks and higher fulfillment accuracy ❧More effective and efficient utilization of Supply Chain Resources (ABC impact) (i.e. scheduling and receiving) & MTI Market Techniques Innovations Inc 18 Something to think about ... What information will you require from the Trade and the LCBO to collaboratively forecast the following and how would you measure your success? ❧ Crown Royal Gift Set ❧ Crown Royal Limited Edition ❧ Absolut Mandrin MTI Market Techniques & 19 Innovations Inc Appendix 1 - Scorecards A Typical Scorecard Category - Canadian Whisky Manufacturer # Skus $ Sales Trend $ Profit Trend Vendor A Vendor B Vendor C Vendor D MTI Market Techniques & 21 Innovations Inc Consumer Behavior MEASUREMENT PURPOSE ❧ Item share of Cons. ❧ Brand Loyalty Requirements ❧ % HHLDS Purchasing ❧ Penetration ❧ Frequency Purchase ❧ Frequency ❧ % Shoppers Buying ❧ Basket Analysis ❧ Propensity Pantry Load ❧ Units/Transaction ❧ Value of Consumers ❧ Cherry Pickers/Loyals MTI Market Techniques & 22 Innovations Inc Do you Understand How your Products are Purchased? ❧Can you identify your most loyal consumer? ❧ you understand Do what they purchase most often? MTI Market Techniques & 23 Innovations Inc Consumer Behavior Scorecard Basket Case # 1 Average Shopping Basket Value % Consumers with Baskets > $60 % Consumers with Baskets > $35 % Consumers with Baskets < $20 Basket Case # 2 Category Penetration % Consumers with Baskets > $60 and buy cheese % Consumers with Baskets > $35 and buy cheese % Consumers with Baskets < $20 and buy cheese MTI Market Techniques & 24 Innovations Inc Performance Scorecard % sales % Shelf %Display Vendor A 25% 25% 15% Vendor B 40% 15% 5% Vendor C 10% 35% 20% MTI Market Techniques & 25 Innovations Inc Appendix 2 - Statistics 101 Forecasting Techniques ❧Time Series Analysis ❧Moving Averages ❧Exponential Smoothing ❧Regression Analysis MTI Market Techniques & 27 Innovations Inc Time Series Analysis Time Series Analysis identifies patterns in data ❧Trends ❧Seasonal ❧Cyclical ❧Random MTI Market Techniques & 28 Innovations Inc Time Series Analysis Trend Seasonal Cyclical Random MTI Market Techniques & 29 Innovations Inc Moving Averages Simple Moving Averages ❧ Average of past data over a specific time period and uses the result to forecast the future Weighted Moving Averages ❧ Assigns a predetermined weight to each data point and thereby puts more weight on recent time periods as a basis for forecasting Rule # 1 - A forecast is never 100% accurate Rule # 2 - If it is something is wrong MTI Market Techniques & 30 Innovations Inc Exponential Smoothing ❧Uses exponential weights to to accomplish weighted moving average ❧Exponential smoothing uses alpha α (a value greater than 0 and less than 1) ❧Requires two data points ❧ original forecast ❧ actual demand for for present time period F t+1= Ft + α ( Dt - Ft) α = 2/(n+1) n = number of periods in a moving averages MTI Market Techniques & 31 Innovations Inc Regression Analysis ❧Regression analysis used for long range forecasts because moving averages and exponential smoothing can average out important seasonal trends ❧Focus on dependent and independent variables Y= a + bX Y is the dependent variable X is the independent variable a,b are constants MTI Market Techniques & 32 Innovations Inc Basic Scheduling Activities Demand Forecast Ensure that the right things are done by the right people Aggregate at the right time to produce Scheduling the desired product through the most efficient use of Master resources Scheduling Capacity MRP Planning Project scheduling MTI Market Techniques & 33 Innovations Inc Economic Order Quantity Economic Order Quantity = the square root of (two times the actual demand for inventory use times ordering cost) divided by the carrying cost Tip - Too complicated for today’s exercise MTI Market Techniques & 34 Innovations Inc Appendix 3 - Supply Chain Trends and Initiatives Efficient Consumer Response - Background ECR began when retailers began searching for a way to compete in an environment where consumers have a lot of shopping choices and suppliers have a number of alternatives for distribution A timely, accurate, Smooth, continual paperless flow of products flow matched information consumption MTI Market Techniques & 36 Innovations Inc ECR Vision Timely, accurate, paperless, information flow Supplier Retail Consumer Distributor HHLD Store Smooth, continual, product flow matched to consumer MTI Market Techniques & 37 Innovations Inc Evolution Towards Future Supply Chain Progressive ECR Implementation Steps 1. UPC 2. POS Scanning 3. Category Mgmt Plannograms 4. EDI 5. Partnerships 6. Multi-Company Teams 7. POS Data Vendor Forecast by Warehouse 8. POS Data Vendor Forecast by Store 9. Warehouse Perpetual Inventory cont... MTI Market Techniques & 38 Innovations Inc Evolution Towards Future Supply Chain cont... Progressive ECR Implementation Steps 10. Cross-Docking via UCS 11. Store Perpetual Inventory 12. EFT Based on Vendor Owned Inventory 13. Full Replenishment 14. Collaborative Forecasting MTI Market Techniques & 39 Innovations Inc The Flows of Information Support Two Independent Replenishment Cycles Consumer Store Supplier Replenishment Replenishment Pull to Store Warehouse Push to DC MTI Market Techniques & 40 Innovations Inc ECR Industry Requirements ❧Managed E-Business Solutions ❧ Intranets ❧ Extranets ❧ VANS ❧Electronic Catalogues ❧Connectivity - Business to Business & Business to Consumer ❧Electronic Payment Solutions MTI Market Techniques & 41 Innovations Inc FORECASTING: Procter & Gamble/Wal-Mart Continuous Replenishment True Partnership Based That Eliminates Written on Achieving Long Term Orders and Invoices Benefits for Both Parties WAL-MART P&G JIT Purchasing Production Scheduling Store Database of Scanner Data Forecasting Marketing • Eliminates need for push sales INCREASED SALES DECREASED INVENTORIES - Concentrate on Consumption of Product rather than Just Getting it Out of the Warehouse 42 Must link ECR Strategies to Financials Functional Model Focus ECR Strategies Initiatives Strategy & Planning Efficient replenishment Order Management Product & Delivery Distributions Efficient Promotions Receiving Payment & EDI Strategic Program Planning Event Presentation & Selection CAO Efficient Store Operations ASN’s Processes Labor Scheduling Receiving Merchandising Strategy Relationships Category Management Business Processes ABC Consumer Efficient Assortment Measurement Org. Capabilities Information Tech Results Category Analysis Category Analysis 43 Efficient Product Intro. Opportunity Evaluation Virtual Value Chain ABM Introduce Forecast and Promote Replenish Merch. Products Plan Products Products Products Conduct Research Forecast and Plan Manage Sales Plan Execute Sales Execute Sales Continuos Develop New Production Replenishment Plan Products Manage Presentation Retail Pricing Manage Customer Order New Item Customers Orders management Store Merch. Introduction Procure Materials Advertising Customer Manage Trade Physical Produce Products Movement Service deals Sales admin Orders Waiting Unloading Receiving Cross Dock Load Product Unsaleable MTI Market Techniques & 44 Innovations Inc EC Growth - Email and EDI in the Next 5 years 200 180 160 140 Fax 120 Em ail 100 Structured m ail 80 File Transfer 60 VAN-EDI 40 Direct EDI 20 0 1996 2000 MTI Market Techniques & 45 Innovations Inc Relationship of E- Commerce to Industry Verticals Logistics Manufacturing Retail Hi-Tech Finance SME’s Web Hosting Outsourcing Electronic Catalogues High Bandwidth Freight Rating Systems E-Mail Services MTI Market Techniques & 46 Innovations Inc Components of Electronic Commerce P rocurem ent C ards CALS F ir e w a ll S y stem s Secu re B u lle tin S h a re d E le c tr o n ic M e s sa g in g Funds B oard D a ta b a se s S y s te m s T r a n sfe r In te r n e t EDI A p p lic a tio n s E -F o rm s In teg r a te d M e s sa g in g S ta n d a r d s O n -L in e E -c a ta lo g u es A p p lic a tio n E -M a il S e r v ic e s In te g r a tio n 1 M a il VANs E n a b le d F ile Im a g e A p p lic a tio n s D ir e c to r y 2 T r a n sfe r In ter c h a n g e S e r v ic e s F ax T e c h n ica l 3 C o n v e r sio n s to D a ta 1 . A lw a ys in E C E m a il/E D I In te r c h a n g e 2 . U s u a lly in E C 3 . S o m e tim es in E C MTI Market Techniques & 47 Innovations Inc Canadian Supply Chain Initiatives Efficient Consumer Response Grocery Efficient Consumer Response Drug Efficient Foodservice Response Canadian VICS Council EHCR Efficient Healthcare Response MTI Market Techniques & 48 Innovations Inc