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FAR001

It All Starts With a


Forecast: An Overview
of JDA Demand
Paula Natoli

Demand Management
The Problem

The Solution

The expansion of product


assortments, the
shortening of product
lifecycles, the proliferation
of promotional offerings,
and the need for dynamic
pricing strategies leads to
an increased complexity of
being able to accurately
predict customer demand.

Understand and predict


customer demand by
product, location, and time
in order to maximize sales
effectiveness while
minimizing inventory
expense.

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Management
Solution Suite
Components

Business Objectives

Demand

Demand Manager

Demand Decomposition

Demand Planner

Demand Classification

Profiler

Dynamic Demand Response Seasonal Profiling

Market Manager

Consolidated view of customer demand

Accurate, efficient time phased forecasting

KPI Driven Planning

Key Capabilities

Automated history classification, algorithm


selection and parameter setting

Comprehensive set of statistical & configurable


business rules for forecasting

Hierarchical, multi channel forecasting

Robust, Flexible Demand Analysis

Differentiate between seasonal and promotional lift


in sales history

Identification of common seasonal profiles

Integrated Promotional planning & analysis

Sense & Respond Order Pattern Recognition


Support for consensus based planning

This document contains forwardlooking statements based on current expectations, forecasts and assumptions
of the Company that involve risks and uncertainties. Forward looking statements are subject to risks and
uncertainties associated with the Company's business that could cause actual results to vary materially from
those stated or implied by such forward-looking statements.
Copyright 2012 JDA Software Group,
Inc. - CONFIDENTIAL
2010
JDA Software

Group, Inc. CONFIDENTIAL

Demand Management:
One View of Synchronized Demand
S&OP

Historical
Sales
Information

Replenishment &
Allocation
Space & Category
Management

Sales History
Lost Sales

Demand
Management

Consensus
Forecast

Workforce
Management

Pricing / Promo
Effects

Trade Promotions
Management

Causal Factors
Trend

Merchandise
Planning

Pricing & Promotions


Management & Optimization

Seasonality
Internal / External
Collaboration

Copyright 2012 JDA Software 4


Group, Inc. - CONFIDENTIAL

Transportation
Management

Demand Key Features and


Highlights
Comprehensive Algorithm Library
Eight statistical algorithms to properly handle differing demand patterns
Demand Classification classifies historical patterns, assigns appropriate algorithm(s) and
tunes parameters.

Multi-Channel, Flexible Hierarchical Demand Management


Flexible hierarchy configuration extending product, channel, and location hierarchies
Supports bottoms-up, tops-down or middle-out aggregation & reconciliation
Attach Rate Forecasting: Independent + Dependent Demand Forecasting

Lifecycle Management & New Product Introduction


Comprehensive new product/store introduction functionality
Creation and management of lifecycle curves and launch profiles for re-use
Attribute based short lifecycle forecasting

Tight Integration with Complimentary Solutions


Shared data model and UI navigation with Fulfillment, Pricing/Promotions, Master Planning
Common foundation with extended suite: Collaborate, S&OP
Out-of-the-box integration with other solutions needing a demand signal
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Where do I start?
The way you replenish is not necessarily the
same way you should forecast.

Define what entity you will forecast.


SKU/Store
SKU/Warehouse
SKU/Region
Category/Region
SKU/Customer/Warehouse
Etc
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Forecasting Unit


(DFU)
At its simplest, a DFU represents an item
selling in a market

Product

Market

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Forecasting Unit


Markets are often further delineated
Product

Market

Channel

Region

creating the complete DFU:


Product

Channel

Region

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Forecasting Unit


DFU Examples

Product

Channel

Region

20 oz. Cola

Convenience
Stores

New York

Consumer Goods

12 oz. Cola

Superstores

South East

MassMerch Retail
Laundry
Detergent

Retail

Store 123
Power Drills

Internet

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

West Region

Demand Forecasting Unit + Model


Product

DFU Examples

Channel

Consumer Goods

12 oz. Cola

Superstores

South East

Convenience
Stores

20 oz. Cola

FourierOrder
LewandowskiShipments

New York

MassMerch Retail
Laundry
Detergent

Retail

Power Drills

Store 123

Internet

MLRPOS

West Region

MLRShipments

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Region

Model

Model
represents a
combination of
history and
statistical
algorithm

Multi-level Forecasting
Process
Organizes your DFUs into a manageable
structure
Synchronizes data among multiple levels
through aggregation and reconciliation models
Facilitates the inclusion of business knowledge
into the forecasting process

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Multi-level Forecasting

Channel
Product
Category
Class
Sub Class
SKU

Furniture
Storage

Chairs

High Back

10001

Filing

Low Back

10002

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Region

Multi-level Forecasting

Region

Product
Channel
All

All Channels
Market/Distribution Channels

Retail

Catalog

Internet

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Multi-level Forecasting

Product

Channel
Region
All

All Warehouses
Ship From Warehouse (e.g. North America)

DC1

Minor Region (e.g. SouthEast United States)

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

DC2

NY

DC3

Bos

Defining the DFU Structure


A DFU can be any connection across these three dimensions.
Product

Channel

Department

Channel

Region

Country

Category

Store Cluster

Class

Store

Item

Each defined DFU level can generate its own statistical forecast
based upon aggregated sales history.

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Aggregation Model

Multi Level Structure


Aggregation

JDA Demand

Most aggregate level

Granular level

Aggregate History through the nodes in a hierarchy


Generate independent forecast at each level in hierarchy
Hierarchies can be in other dimensions Channel & Location
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

16

Reconciliation Model Top Down

Multi Level Structure


Reconcile

JDA Demand

Most aggregate level

Granular level

Enables comparisons of statistically generated forecasts at multiple levels


Allocates time phased forecasts across defined hierarchy levels
Flexible definition of reconciliation models
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

17

Evaluate and Prepare

Demand Management Process

Determine which levels of the product and


business hierarchy will be forecasted

Determine the historical stream:

Consumer Demand (POS)


Store Orders
Retail DC to Store shipments
Retail orders
Adjusted orders
Shipments
Events

History Cleansing

History

Calculate
Model using
forecasting method

Evaluate and Fine


Tune the Model

Evaluate Forecast
Performance

Manage
Exceptions

Manage
Additional
Information

Close the Period

Base vs. Non-base


De-spiking
Lost Sales
Pricing/Promotional Effects

Draft Forecast

Amount of history

Unit of measure

Send to other
processes

Publish Forecast

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Consensus
Forecasting

Demand Decomposition
Separate Base from Promo History
Key Actions

Business Impacts

Separate base history from promotional business


and seasonal peaks/valleys

Estimate impacts of promotional history

Provide a cleansed historical data stream for which


to apply statistical models

Develop a solid baseline statistical forecast

Properly identify gaps in the future forecast and


plan future events accordingly

Understand the impact that promotions play on


your business

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Management
Process

Evaluate and Prepare


History

Calculate
Model using
forecasting method

Identify algorithm to use via


Demand Classification

Process to select algorithm is run


only 1-4 times a year

Evaluate and Fine


Tune the Model

Evaluate Forecast
Performance

Manage
Exceptions

Manage
Additional
Information

Close the Period

Process to tune parameters can be


run more frequently
Output is a baseline statistical
forecast
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Draft Forecast

Publish Forecast

Send to other
processes

Assigned to each forecasting


entity (i.e.: item/channel/loc)
Recommend appropriate
settings of the model
parameters

Forecasting Methods
Regression Based Algorithms
Fourier assumes that business is constant or that it changes at a constant
rate
Multiple Linear Regression first develops a profile assuming constant
business, then develops the model further through the use of multiple causal
variables.

Smoothing Based Algorithms


Lewandowski method assumes that not only is business inconstant, but also that it changes at
an inconstant rate.
Croston Used for slow, lumpy items; (i.e.: many zeroes)
Holt Winters Most useful when the seasonal component and the trend component are changing
at different paces over time.
Moving Average assumes near term forecast to be similar in nature to recent past
AVS-Graves handles varying intermittent demand patterns with ability to incorporate seasonality

Other
Short Lifecycle utilizes attribute based mapping to extract existing lifecycle
curves and apply them to new DFUS
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Sales Patterns Differ Across


Products Groups and/or Locations!
What type of products do you deal with?
continuous vs. intermittent
seasonal vs. non-seasonal

trend vs. constant


stable vs. highly variable

A mixture of all of the above?


When it comes to statistical algorithms,
one size does NOT fit all !
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Classification
Assignments by Class

Review Percent of
DFUs Per Class

Classify products in terms of their historical demand


pattern
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Classification
Assignments by Algorithm

Review
Recommended
Algorithms for DFUs

Automatically assign the recommended algorithm and


starting parameters based on history patterns
Reduce planner fine-tuning time
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Generate the Statistical


Forecast
Statistical forecast is generated based upon the sales history at each
defined DFU level

1. Map the historical sales data


2. Fit a model to the history (fitted history)
3. Project the model into the future (forecast)
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Management
Process

Evaluate and Prepare


History

Calculate
Model using
forecasting method

Review system suggestions for


parameter settings
Evaluate and Fine
Tune the Model

Fine-tune suggested
parameter settings where
appropriate
Evaluate Forecast
Performance

Manage
Exceptions

Each algorithm supports a


unique set of parameters
Manage
Additional
Information

Close the Period

Each DFU can have


parameters adjusted
independently

Draft Forecast

Send to other
processes

Publish Forecast

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Forecasting
Demand Workbench
Configurable Panels
Graphical Hierarchy
Navigation

Configurable Panels

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

New Product Introduction


& Lifecycle Management
Launch Manager: Allocate
forecasts for new launches following previous
similar product launch profiles

New Product
Introduction: create new

Lifecycle Manager: Create,


Manage, Extract and Assign Lifecycle profiles
to DFUs

DFUs & generate initial forecasts


based upon like DFUs.

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Short Lifecycle Forecasting


Automated forecast generation for products with short lifecycles
Bypass need to manually select lifecycles to attach to new
products
Works upon attribute matching and Bass curve modeling & fitting

Define &
Prioritize DFU
Attributes
Define the DFU
attributes that will most
likely represent similar
traits for new DFUS.

Build Short
lifecycle
curves
Builds and stores
curves for selected
DFU groupings.

Assign Short
Lifecycle
Curves
Adjust the forecast
based on the
history and tuning
parameters.

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Adapt Forecast

Matches new DFUS to


stored curves based
upon attributes.

Demand Management
Process

Evaluate and Prepare


History

Calculate
Model using
forecasting method

Review modeling
exceptions
Tune parameters

Evaluate Forecast
Performance

Manage
Exceptions

Manage
Additional
Information

Close the Period

Draft Forecast

Publish Forecast

Send to other
processes

Regenerate
forecasts

Evaluate and Fine


Tune the Model

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Forecasting
Exception Graphs

Plotting of DFUS graphically to understand and manage by


exception
Multiple graph types support various exceptions
Immediate Visibility
to Changes

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Demand Management
Process

Evaluate and Prepare


History

Calculate
Model using
forecasting method

Adjust baseline forecasts to


account for market insights
Promotional Information

Evaluate and Fine


Tune the Model

Competitive Information
Forecast Overrides
Cannibalization

Evaluate Forecast
Performance

Manage
Exceptions

Business Weather Intelligence

Supports integration with


Promotions & Pricing
Management suite

Manage
Additional
Information

Close the Period

Draft Forecast

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Publish Forecast

Send to other
processes

Incorporate changes from a


consensus forecasting
business process

Consensus
Forecasting

Incorporate Event Information:


A Building Block Approach
Utilize statistical forecast to establish a baseline of
current mean, trend, seasonality
Incorporate promotional lifts
Add marketing intelligence, cross-functional information
to align the organization to the game plan
Consensus Adjustment
Total Forecast

Promotional Lift
Baseline Statistical Forecast

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Forecast Overrides
Apply incremental overrides to individual forecasts or flexible groupings of
forecasts

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Incorporate Promo Lift:


Promotions Management

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Market Activities
One View of Demand
Promotion lift incorporated
directly into the forecast

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Forecast Reconciliation
Tops-Down / Bottoms Up

Reconcile forecasts via tops/down or bottoms/up


Supported in both a fixed hierarchy (multiple levels) and a flexible grouping

View Percentage
Contribution

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Total of selected
DFUS

Evaluate and Prepare


History

Demand Management Process


Calculate
Model using
forecasting method

Transfer forecasts to other


required business processes
& applications

Evaluate and Fine


Tune the Model

Fulfillment
Enterprise Planning

Evaluate Forecast
Performance

Manage
Exceptions

Space & Category Management


Workforce Management
Manage
Additional
Information

Close the Period

Draft Forecast

Publish Forecast

Send to other
processes

Enables all other processes


to work from one view of
demand

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Evaluate and Prepare


History

Demand Management Process

Calculate
Model using
forecasting method

Bring in history from posted


period

Evaluate and Fine


Tune the Model

Regenerate updated
forecast based upon added
history

Evaluate Forecast
Performance

Manage
Exceptions

Manage
Additional
Information

Close the Period

Draft Forecast

Publish Forecast

Send to other
processes

Review forecast accuracy


metrics from completed
period

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Forecast Performance
Average Forecast
Error

Plan
Production

Purchase
Materials

Schedule
Production

60%
50%
40%
30%
Item/
Location

20%
10%

Total Item
All Locations

0%
DFU
Item Family

Months Before Sales

Sale

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Benefits of Measuring
Forecast Performance
Provides a benchmark for continuous improvement of
the forecasting process.
Allows forecasters to manage by exceptions.
Measures the accuracy of both the base statistical
forecast and the adjustments. Are my adjustments
working?
What gets measured gets better!

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Forecasting
Forecast Performance Analysis
How is my accuracy tracking?
Is it improving over time?

Total History

Total Forecast

Total Error

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

Thank you.
Please remember to submit your survey.
FAR001

Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

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