SAP Integrated Business Planning (IBP) Forecasting Algorithms
Every organization knew that Demand planning is critical in supply chain management. Before and after the COVID-19 pandemic there are a lot of differences to predict the future forecast. Old forecast models are no more helpful to organizations to plan effectively to meet customer needs. I am exploring the demand planning process changes to compare before and after the pandemic. Most demand planners strongly believe that disruptions are common in supply chain planning like Pandemic, Natural disasters, War, and Geographical differences. There is no solution at this movement to handle every situation when disruptions happen.
Organizations implemented supply chain management strategies. planning tools and processes to plan for the future to meet customer needs. Many organizations are still using the same forecast algorithms when they implemented the demand process. Every planning cycle uses the same methods and manual inputs are becoming stronger and better to predict future demands, which means individuals or planners are playing a very key role to understand the market conditions and arrive at the best figures. Sometimes this approach is not the best way to handle the process and changes because resources change frequently.
Recently I had a demo with one of the customer planning tools APO was implemented a decade ago, still, demand planners are using the same methods and process. You can not believe that the ask from customers is that they do not want to change the methods they use or process they follow however, need to address the demand volatility and improve the overall demand planning process.
I said that’s fine there are multiple ways to use the same methods and process but anyone can help me with the mathematical explanation of the model they use currently very few planners know how that method work and no one has any idea about how the method calculates the forecast for future.
One of the planners raised his hand and asked what model SAP IBP supports and how I know which pattern to consider when it predicts future horizons/buckets, periods, and time horizons? after 20 seconds of silence, everyone started asking the same questions they are interested to understand each model and its importance.
It is very difficult to explain the answer in words because SAP IBP supports many algorithms and each one has its own pros and cons. I started sharing one simple slide as below and started explaining the importance of each model.
SAP IBP supports the following forecast algorithms.
Many of them responded OMG it’s a big list how can we use these many algorithms? I agree list seems to be big let me pull another slide.
I started to categorize algorithms into trend, seasonality, constant and Intermittent and explained each method in business terminology. One of the planners raised his hand it is simple now but needs to play with each model and understand better, the other agree to his comments.
I asked again do you want to explain the mathematical explanation for each of the models all of them said no no we do not need to understand the maths.
Millions of planners are struggling to find ways to produce better forecasts using systems, many of them are failed due to a lack of understanding of multiple methods or simply following the process which is outdated now. The demand planning process is constantly changing in order to respond to dynamic changes planners need to understand better and play with the available tools.
I also agree that understanding each model will not solve the demand planner’s issues, but strongly believe that following are the starting points.
- Accurate Sales History
- Cleansing of Sales History
- Forecast Model Selection – mainly focused on this topic.
- Forecast Autmation
There are many features bundled with the SAP IBP Demand module to support or solve the demand planning process and its improvements.
By the way, I asked another question what is the forecast model used by demand planners?
Simple Average or Moving Average
It is one of example many planners don’t know how to use the application in an efficient way to address business challenges. It is the Planning Team and SCM Consultant’s responsibility to understand the challenges and implement an appropriate solution.
Sometimes we may not know everything but we have the opportunity to learn and support businesses to plan better.
I thank you for reading this blog and soon will catch up with another interesting topic.