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Functions in Detail

SAP Advanced Planner & Optimizer

Demand Planning




Neurottstraße 16


69190 Walldorf




Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. Microsoft®. ABAP®. AIX®. R/3®. RIVA®. WINDOWS®. ALE/WEB®. SAP-EDI®. are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. USA. OSF/1®. INFORMIX®-OnLine for SAP is a registered trademark of Informix Software Incorporated. X/Open®. R/2®. and Motif® are registered trademarks of SCO Santa Cruz Operation. ADABAS® is a registered trademark of Software AG. EXCEL®. DB2®. SAP EarlyWatch®. SAP Business Workflow®. IBM®. S/390®. NT®. SAP® and SAP-Logo. No part of this brochure may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. BAPI®. California. SAP ArchiveLink®. SAPPHIRE®.© Copyright 1999 SAP AG. The information contained herein may be changed without prior notice. Parallel Sysplex®. Word® and SQL-Server® are registered trademarks of Microsoft Corporation. UNIX®. OS/390®. Management Cockpit®. ORACLE® is a registered trademark of ORACLE Corporation. SEM®. and OS/400® are registered trademarks of IBM Corporation. Design: SAP Communications Media Demand Planning q December 1999 iii . OS/2®. RS/6000®. AS/400®. DB2/6000®. MVS/ESA®. All rights reserved. OSF/Motif® is a registered trademark of Open Software Foundation.

Contents Demand Planning 1 1 2 3 4 4 5 5 6 6 6 9 9 11 11 11 12 13 Demand Planning: State-of-the-Art Forecasting Introduction Overview of SAP Advanced Planner & Optimizer The SAP Business Framework Benefits of SAP Advanced Planner & Optimizer Key Features of SAP Advanced Planner & Optimizer Demand Planning The SAP APO Demand Planning Architecture An Integrated Demand Planning Solution Demand Planning Features and Functions Data Storage and Representation Planning Environment Consensus-Based Forecasting Multiple Views Causal Analysis Multitier Forecasting Statistical Forecasting Toolbox Forecast Accuracy Analysis Conclusion iii .

sap.com iii .You can find this and other current literature on our home page in the media centers for each subject at: http://www.

To handle these challenges. they remain synchronized through a series of real-time triggers and messaging. in most instances. advanced planning and scheduling techniques that generate optimized executable plans in response to rapid changes in supply or demand. Failing to meet promised delivery dates can drive away customers. You can configure SAP APO to provide task-specific. SAP has combined the ERP execution power of the SAP R/3 System with advanced data analysis and supply chain management tools.Demand Planning Demand Planning: State-of-the-Art Forecasting Introduction Problems and Challenges of the Supply Chain The hallmarks of today’s business environment are volatile demand. Advanced Optimization Techniques and Technology In addition to highly specialized data objects. Data-Driven Process Huge amounts of data drive these planning and scheduling processes. and even customers. organizations need an information infrastructure that allows them to make accurate decisions in real time and to make customer satisfaction a top priority. SAP APO uses a library of advanced optimization algorithms and a high performance. manufacturers are turning to new. Until now. supply chain decision support systems require a new breed of memory resident data model that can handle vast amounts of complex data in real time. Unlike the data models used by existing Enterprise Resource Planning (ERP) systems. While the data objects contained within SAP APO are. decreased customer loyalty. With SAP APO. SAP APO can gain immediate and seamless access to Online Transaction Processing (OLTP) business data. This can work. Robust Integration Layer Because SAP has built a robust integration layer between SAP APO and the underlying execution system. SAP refers to this technique as ”semantic synchronization”. Miscalculations in forecasting that result in excess inventory can prove fatal. The stakes are high. a task that is seamlessly accomplished through the integration services of the Business Framework. if you wanted an end-to-end solution. but only at an enormously high cost. industry-specific. This brochure provides an introduction to SAP APO and discusses in depth Demand Planing. and tougher global competition. but other data comes from outside the organization – from suppliers. Much of it comes from the organization itself. while still remaining competitive and profitable. memory resident data processor to perform planning and optimization. and company-specific optimization. and real-time event notification to the underlying business processes. one of the SAP APO components. automated decision. shorter product life cycles. The SAP APO server also integrates with the SAP Business Information Warehouse using this same mechanism providing unprecedented access to vital business decision data. Figure 1: SAP APO Overview 1 . To survive. structurally optimized instances of OLTP data. The SAP Supply Chain Management Solution SAP has introduced the Supply Chain Management solution to meet the challenges of managing the entire supply chain from end to end. you had to integrate specialized software with your existing ERP system and built custom interfaces to handle outside data sources. partners. The SAP Advanced Planner and Optimizer (SAP APO) is an important part.

2 . such as multiple linear regression. product availability. Demand Planning gives you a sound understanding of all the Supply Network Planning and Deployment Model Your Entire Supply Chain Using the Supply Network Planning and Deployment component you can develop a model of your entire supply network and all of its constraints. It gives you a complete view of the entire length of the supply chain. and optimization into the SAP R/3 System. You can monitor the launch of a new product and the end of a product’s life using point-of-sale data. environmental variables. Demand Planning is tightly linked to the SAP Business Information Warehouse. demand histories. Demand Planning Accurate Forecasting The Demand Planning component is a toolkit of statistical forecasting techniques and demand planning features that helps you create accurate forecasts and plans. you can build an elaborate graphical representation of even the most complex supply chain.Demand Planning Overview of SAP Advanced Planner & Optimizer The SAP Advanced Planner and Optimizer builds on the SAP Business Framework to improve information flow by incorporating real-time collaborative decision support. and controlling all the links in the supply chain. Then. cost flow. substitution. like orders that exceed forecasts or orders that fall short of forecast and therefore may lead to excess inventory if production is not adjusted accordingly. You can model promotional demand based on profitability goals. n Plan promotions Supply Chain Cockpit Graphical Command Center The Supply Chain Cockpit component is a graphical instrument panel for modeling. It can also monitor material. and historical patterns. and other factors. the Alert Monitor can automatically identify problems in the supply chain. navigating. delivering context-based demand planning. and cannibalization. and social or political factors affect demand for your products. and incorporate causal factors such as price. and transportation and to closely match supply and demand. manufacturing. using this model. which raises forecasting to a new level of sophistication and accuracy. It’s the command center – the cockpit from which you manage your supply chain. logistics. Like the Supply Chain Cockpit. n Manage product life cycles You can manage the life cycles of your products according to such factors as product supersession. Using the Supply Chain Engineer. and business intelligence. so you can use advanced Online Analytical Processing techniques to drill down to detailed levels of data and analyze historical. Because it integrates such a wide set of data. you can: n Perform collaborative forecasting You can collect forecast data from multiple sources and store it in a common repository so planners from marketing. planning. you can select any part of it and zoom in to a detailed level. Using a series of event triggers and alarm conditions. you can synchronize activities and plan the flow of material along the entire length of the supply chain. and storage constraints. and it can handle such metrics as delivery performance. sales. n Perform causal analysis You can identify and predict how such factors as demographic changes. inventory. and even third-party vendors and suppliers can work together on a consensus forecast. and throughput. highly configurable data objects that offer major new components: n Supply Chain Cockpit n Demand Planning n Supply Network Planning and Deployment n Production Planning and Detailed Scheduling n Global Available-to-Promise factors that affect demand. Demand Planning uses the Alert Monitor to report exceptions. n Forecast new product demand You can develop accurate forecasts for new products based on models from similar products. advanced planning. SAP APO uses a powerful memory resident analytical engine and highly specialized. Once you have built a map of the supply chain. You can analyze actual demand using a variety of tools. This allows you to create feasible plans for purchasing. Using Demand Planning. capacity. You can even predict how price increases or decreases will affect future demand. transportation.

Demand Planning Drawing on data in liveCache. Global ATP can source materials from alternative locations. n Allocation You can allocate products or components that are in short supply to customers. including: n Product substitution product substitutions n Use vendor-managed inventory techniques n Determine the optimum distribution of supply to meet short-term demand Production Planning and Detailed Scheduling Generate Production Plans Rapidly The Production Planning and Detailed Scheduling component is an integrated set of tools that helps you respond rapidly to changing market conditions. such as Demand Planning. and using algorithms. the Business Components. and so on. planning simultaneously n Synchronize schedules and make scheduling changes at multiple levels of the bill of materials (BOM) n Use what-if scenarios to simulate actual conditions and consider the effect of various constraints n Perform interactive scheduling and plan optimization using a Gantt chart n Integrate sales and distribution backorder scheduling into the manufacturing process 3 . Global ATP draws on a number of criteria to arrive at a commitment. the system automatically selects a substitute using rules-based selection criteria. you can generate production plans and schedules that optimize resources. immediate access to product availability along the supply chain. Using the Supply Network Planning and Deployment component. can be implemented as a stand-alone product or as an integrated part of the Business Framework. memory-resident data for even better performance. You can also perform these ATP checks against aggregated. Using this component. n Selection of alternative locations As with product substitution. you can: n Model plans at aggregate and detailed levels n Perform what-if analysis n Dynamically match supply and demand using Global Available-to-Promise Match Supply and Demand with Global Available-to-Promise The Global Available-to-Promise (ATP) component uses a rules-based strategy to ensure you can deliver what you promise to your customers. You can also integrate this logic with the product substitution rules. The component offers optimization based on state-of-the-art methods. multiple levels n Perform detailed capacity planning and material The SAP Business Framework Integrate New Technology and Legacy Systems SAP APO is a separate SAP solution with its own release cycle. to operate through standardized Business Application Programming Interfaces (BAPIs). such as the theory of constraints and optimization libraries. markets. The ATP calculation and response take these allocations into consideration. The Business Framework provides an open architecture. Global ATP performs multilevel component and capacity checks in real time and in simulation mode to ensure that you can match supply and demand. allowing its basic elements. It also helps you dynamically determine how and when to distribute inventory. you can: n Perform forward and backward scheduling on If a finished product or component is not available. Global ATP maintains simultaneous. so you can be confident that you can meet your delivery commitments. It is a Business Component of the Business Framework. Each of the SAP APO components. orders. the Deployment component helps you dynamically rebalance and optimize your distribution network. which is designed to facilitate the seamless and rapid integration of new business functions and information technology into existing environments. user-developed rules. Using this component. a high-performance memory-resident technology. SAP’s strategic product architecture. and policies.

n Performance The SAP liveCache memory resident computing technology enables forecasting. Efficient Consumer Response (ECR). Internet Communications Using the SAP APO OpenForecast tool. and compare different planning versions. and optimization functions to be executed in real time. planning. Data can be automatically transferred between SAP BW and SAP APO Demand Planning. Forecasting and Replenishment (CPFR). Key Features of SAP Advanced Planner & Optimizer Demand Planning A Ready-to-Run Solution SAP APO Demand Planning is a state-of-the-art. n Independence SAP APO performs planning functions and processes outside of the OLTP system. including the following: n Completeness SAP APO Demand Planning is integrated with the R/3 System and the SAP Business Information Warehouse. It supports supply chain partnerships. thirdparty. ensuring greater flexibility and high availability of the SAP APO server. SAP APO Demand Planning uses multidimensional data structures that support many different levels and dimensions. n Integration SAP APO is seamlessly integrated with the R/3 System so you can integrate all the links in your supply chain. simply. It includes a data mart based on the star schema and an easy-to-use front end with powerful planning and analysis tools. It interoperates with SAP R/3. SAP APO Demand Planning’s decision-support tools allows you to perform what-if analysis and online simulation to create. 4 . n Openness Best-of-Breed Solution SAP APO Demand Planning embodies all of the advantages of a best-of-breed demand planning solution with the following features: n Multilevel planning n Life cycle management n Promotion planning n Causal analysis n Multitier forecasting n Phase-in and phase-out forecasting n The Statistical Forecasting Toolbox n Forecast accuracy reporting. such as promotions and store openings. SAP APO supports all of the key supply chain planning and optimization functions and processes traditionally found in stand-alone advanced planning and scheduling solutions. share event information. such as VendorManaged-Inventory (VMI).0 the Notes Management tool enables the documentation of planning activities by multiple users. and compare and resolve variances within forecasts. and Collaborative Planning. store. A robust and sophisticated integration layer facilitates the use of SAP APO with additional optimization and forecasting algorithms. In Release 2. and cost-effectively. you can navigate through these multidimensional structures. you can collaborate with your business partners using Internetbased interfaces and technology. and legacy OLTP systems. Using tree selection and drill-down capabilities. readyto-go demand planning solution. You can implement SAP APO Demand Planning quickly.Demand Planning Benefits of SAP Advanced Planner & Optimizer SAP APO provides a number of benefits. SAP built SAP APO to function in heterogeneous environments.

and the Statistical Forecasting Toolbox. Easy Data Transfer The APO Demand Planning data mart uses InfoCubes that have the same data structures as those that are used in the SAP Business Information Warehouse. the Business Planning Library. Its integration with Demand Planning means accurate decision-support information is always at your fingertips. The data mart stores different data types in different database structures using a relational database. such as price information. You then analyze this data in SAP APO Demand Planning and determine which of it should be used in causal analysis. you can upload the data back into Demand Planning to update the sales figures in the data mart. Ready Access to Data The SAP Business Information Warehouse is a product that combines state-of-the-art demand planning techniques and state-of-the-art data warehousing features in one consistent model. The planning and analysis engine contains the Online Analytical Processing processor. the time series catalog. you can store syndicated point-of-sale data. You can use the SAP Business Information Warehouse to pull data from multiple heterogeneous data sources into the data mart. For example. This integration provides many benefits. in the SAP Business Information Warehouse. When you’re finished. where users can work with them to create the reports and ad hoc analyses that drive the business. Integrate the Sales Force and Forecasting You can integrate the sales force into the forecasting process by using the SAP Mobile Sales solution on a laptop. You can download account data from the data mart into the laptop and then use SAP Mobile Sales on the laptop to enter sales figures for the accounts offline. and any legacy or external systems for a completely integrated system. Figure 2: SAP APO Demand Planning Architecture An Integrated Demand Planning Solution Seamless Integration You can directly link SAP APO Demand Planning to SAP R/3. the SAP Business Information Warehouse. Figure 3: SCM Cycle 5 . flows from profit-based promotional planning in SAP APO to SAP R/3.Demand Planning The SAP APO Demand Planning Architecture SAP APO Demand Planning is composed of three layers: n Graphical user interface n Planning and analysis engine n Data mart The graphical user interface contains the planning views. It is therefore extremely easy to transfer data between the two applications. flows from SAP R/3 to SAP APO Demand Planning. This integration provides a continuous planning cycle in which actual data. such as AC Nielsen data. such as orders and shipments. The data mart contains infocubes. and demand data. and notes. You create consensus forecasts in SAP APO Demand Planning and transfer them to the SAP Business Information Warehouse.

analysis. In SAP APO. you can define how information is displayed in a planning book. Demand Planning allows you to model a hierarchy over the value domain of one or more characteristics. and reporting. such as orders. To make this possible. you can reuse a past promotional pattern to estimate the impact of a future promotion of the same type. The notes discuss planning data. For example. you model hierarchies and networks as combinations of characteristic values. InfoCubes An InfoCube is a multidimensional data structure and the primary container of data used in planning. You can use these hierarchies as the basis for aggregation. Time Series Management Reusable Time Series Times Series Management is based on catalogs. which are stored in separate tables. which is especially helpful when multiple sources and people are involved. and related forecast components. SAP APO Demand Planning stores data in a multidimensional form in the SAP APO Demand Planning data mart. Key figures are quantifiable values. might be summed by product and time. as well as plans and causal factors. Key figures. The Online Analytical Processing processor guarantees that all business rules are met and that the computed views present valid results from a business point of view. disaggregation. Using slice-and-dice techniques. such as promotional patterns and life cycles. shipments. and drilling down. They provide the ability to plan and view data at varying levels of detail. For example. such as promotions and consensus forecasts. You can use the notes to create an audit trail of all demand planning activities. InfoCubes contain two types of data: key figures and characteristics. Demand Planning provides you with a uniform planning 6 . plan from many different perspectives. such as sales in units. In each catalog. The InfoCubes allow you to store multiple key figures. Typical characteristics for sales are products and customers. POS. SAP APO Demand Planning allows you to model these properties. products are generally grouped into product family hierarchies. Notes Management Maintain an Audit Trail Figure 4: Example of an InfoCube Incorporate Business Rules The aggregational behavior of key figures must follow business rules. such as in consensus forecasting. SAP APO Demand Planning allows you to reuse time series. Characteristics determine the organizational levels at which you do aggregation and reporting. Planning Environment Easy Data Access with Planning Books You access the information in InfoCubes and Time Series Management using planning books and reports. and drill down from one level of detail to the next. you can store time series data with related attributes.Demand Planning Demand Planning Features and Functions Data Storage and Representation Multidimensional Data Storage SAP APO Demand Planning allows you to view data. InfoCubes also share master data and descriptive text. Hierarchies and Networks Develop Aggregation Hierarchies The hierarchical relationships of characteristics play an important role in planning and reporting. such as sales. The Notes Management tool maintains all notes entered by planners. which saves time and ensures consistency.

Aggregate functions include SUM and AVERAGE. The planning book’s grid displays selected data. and these totals remain fixed as you scroll through the grid. Time-series functions work with planning techniques. 7 . and bottom-up reconciliation strategies. such as forecasts and promotions. If you edit data either in the grid. you can start with weeks. These functions include: n Aggregate functions Jump Between Data Views You can also jump to a data view for completely different planning issues. Demand Planning’s rich planning and forecasting functions are based on the Statistical Forecasting Toolbox and the Business Planning Library. n Time-series functions Graphical Data Display The grid is directly linked to a chart. Planning Books Easy-to-Use Planning Books A planning book is an easy-to-use tree control for selecting data and a frame with a grid and a chart. change to months. middle-out. using slice-and-dice functions. n Disaggregate functions Disaggregate functions include disaggregation based on quotas. You can make adjustments on the basis of absolutes and percentages. Within this planning environment. In many cases. time series averages. and then drill down to sales for individual countries within Europe. product sales are most useful when viewed on a regional or national level. proportional distribution. These functions are essential for determining the difference between forecasts and actual results so you know quickly how far forecasts deviate from your actual results. Tree control provides all data from the various dimensions and hierarchies that matches the given set of selection criteria. Business Planning Library Library of Powerful Planning Functions The Business Planning Library is a collection of powerful planning and analysis functions. n Comparison functions Comparison functions include difference. you can use a wide range of demand planning and forecasting techniques. Time-series functions include the time-phased merge of time series.Demand Planning environment that supports full multilevel planning with top-down. and so on. such as composite forecasting. The information content of many types of data is greater when viewed on an aggregate level. The tree control in the planning books allows you to explore data easily and to change the perspective of the view by simply clicking the mouse. For example. percent. The same is true of disaggregation changes. and time-series weighted averages. such as Europe. You can also adjust values directly in the chart. which displays information from the grid in user-specific graph modes. a sales manager examining sales forecasts can look at sales for a particular continental region. You can specify which unit of measure and calendar to display and used for planning. you can convert the data contained in the InfoCubes into relevant business information. and vice versa so you never need to worry about inconsistent data. and change again to quarters. you can initially select a general view. are output on an aggregate level and must be disaggregated to the detailed level. and business period conversion. n Financial functions Financial functions include conversion from units into revenue. but switch views by displaying sales according to product group. For example. For example. You can also fix the values of certain data elements during the reconciliation process. and calendars allows you to mix multiple periods of time. For example. the system automatically updates the data on other levels of aggregation. the system automatically updates the data in the chart. Using these functions. If you change data on one level of aggregation. planning results. jump to a view that is more detailed. The manager can stay at this level of detail. You can total row and column with a mouse click. such as forecast components and planning versions. and then jump again to a more aggregated view. currency conversion. ratio. and equal distribution.

causal analysis. You can easily change the properties of the grid and the chart. cell. and you can save different settings as profiles so the system works the way you do.Demand Planning Customizable Planning Books SAP APO Demand Planning Books are highly configurable. n Analyze forecasting or business data at a glance Advanced Macros Quick and Easy Macros You can use advanced macros to perform complex spreadsheet calculations quickly and easily. You can run online simulations from the time that data is uploaded into the planning book until the changes are saved. macro steps. You can also use these as guides for customized planning books. statistical forecasting. Using the macro tool. or variable. and so on. so you can use them to model your planning environment based on your using special icons n Create context-specific and user-specific planning views n Trigger an alert in the Alert Monitor to inform you of particular business situations Figure 5: Example of Planning Book Design with Advanced Macros 8 . This allows you to see the effects of different judgmental techniques on the forecast. and use them only in subsequent iterations. a column. or a cell n Write the results of one macro step to a row. so you can get started right away. or macros. you can: n Control how macro steps are processed using control instructions and conditions n Build a macro consisting of one or more steps n Control how macro results are calculated using control instructions and conditions n Use a wide range of functions and operators n Define offsets so that the result in one period is Preconfigured Planning Books for Quick Starts SAP APO Demand Planning comes with preconfigured planning books for promotional planning. The macros are extremely flexible. life cycle management. not the other way around. determined by a value in the previous period n Restrict the execution of a macro to a specific period or periods n Write macro results to a row. individual business tasks. column.

from the bottom up. n Should a product be relaunched and when? n Will introducing a new product cannibalize sales of existing products? Complete Life Cycle Management A product’s life cycle consists of different phases: n Launch n Growth n Maturity n Discontinuation 9 . You can also store the content of the grid in Excel on a laptop. the planning strategies for a product depend on the stage in its life cycle. The planning books and reports help you gain consensus in meetings because they allow you to see the effects of your decisions. Analysis capabilities help you make decisions. Demand Planning provides consistent planning capabilities that synchronize forecasting and promotional data on any level in real time. and the operative supply chain plan) and integrate them into one consensus plan that drives the business. Demand Planning helps you answer questions like: n Should a new product be introduced? n When should a new product be introduced? n How should a product be promoted during the Multiple Views View Data from Multiple Angles The multidimensional data structure of the InfoCubes allows you to view past sales and forecasts in many different dimensions. Life Cycle Management Life Cycle Management is a function of both the Demand Planning and the Supply Network Planning components. and an operational plan. Consensus-Based Forecasting Consensus Planning Drives the Business SAP APO Demand Planning supports consensus-based sales and operations planning. In the demand planning process. you can use Excel to edit data before transferring the results back to the grid. a sales plan. You can base disaggregation of data on user-defined timephased quotas. which reduces errors and training costs. when? n Should a follow-up product be introduced? Consensus Plan Create Multiple Versions of Plans The forecasting techniques in SAP APO Demand Planning allow you to create many planning versions on any level and in any dimension using the same or similar data. and from the middle out. such as a marketing plan.Demand Planning Integration with Microsoft Excel Use Familiar Tools If you are already familiar with Microsoft Excel. including: n Product levels for marketing n Sales areas and accounts or channels for sales n Distribution centers and plants for operations n Business units for finance different stages? n Should the product be eliminated. proportional distribution relative to user-specified data streams. and equal distribution. using varying units of measure and degrees of granularity. You can plan from the top down. tactical sales plans. For example. so you can tailor them to individual situations and needs. you can maintain multiple demand plans. This allows you to work in a familiar environment. Synchronize Multiple Plans Demand Planning can reconcile and combine different plans on the same level and it can synchronize plans created on different levels and different dimensions so you can always arrive at a consensus forecast. Its planning and forecasting features allow you to create plans for different business goals (such as a strategic business plan. and if so. Multilevel Planning Synchronize Forecasts and Promotions Multilevel planning capabilities allow you to forecast and plan on any level and in any dimension.

With like modeling. or any combination of these. Create Forecast with Minimal Data Some products do not have enough historical data to provide the basis for a forecast. Promotion-driven components are generated on top of a baseline forecast. a like profile. assess the efficiency of your company’s promotional campaigns. For any product. and discontinuation phases by using phasein and phase-out profiles. you can use a phase-in profile. You can plan promotions on any level. Demand Planning extends classical volume-based promotional planning so that you can take prices into account when doing profitability analysis for promotional calendars. The impact of promotions must be projected separately from standard forecast components that are based on historical sales data. and you can aggregate or disaggregate them using the Business Planning Library. you can represent the launch. therefore. growth. You can use like modeling for new products and products with short life cycles. thus mimicking the upward sales curve that you expect the product to display during its launch and growth phases.Demand Planning In Demand Planning. mimicking the downward sales curve that you expect the product to display during its discontinuation phase. A phaseout profile reduces the demand forecast of a product by ever decreasing percentages during a specified period or periods. Promotion Planning Factor Price into Promotional Projections Promotions of all kinds have a major impact on consumer sales behavior. you can create a forecast using the historical data on a product with similar demand behavior. A phase-in profile reduces demand history by ever increasing percentages during a specified period or periods. Reporting capabilities allow you to track promotional activities and related costs and. a phase-out profile. 10 . Figure 6: Example of Promotion Planning.

Composite forecasting extends the idea of picking the best method. Data Analysis Identify Missing Values With Demand Planning. the system can automatically detect a promotion pattern that occurred in the past. such as multiple linear regression with or without a trend or seasonality. You can use a causal model based on all significant causal factors to forecast POS. You can also consider other causal factors. This improves the quality of the statistical forecast. Breaking down sales to determine the impact of causal variables allows you to model the virtual consumer and simulate sales development according to the mix of causal factors. proven forecasting methods. allowing you to combine forecasting methods. slow-moving products. you can identify missing values and outliers in the data that drives the forecast and adjust the data or the applied forecasting method. 11 . number of stores. you can include all significant causal factors in your models and determine how they affect your customers’ behavior. Unfortunately. With Demand Planning. Figure 7: Example of Multi-Tier Forecasting Causal Analysis Include Causal Factors in Forecasts To predict consumer behavior. Using historical sales or estimates. You have to use different methods to get the right answers. You can choose the best method for a specific type of demand. Multitier Forecasting Multitier forecasting integrates sell-in data. You can even forecast the unknown future of causal factors using Demand Planning forecasting techniques. so you can reuse it if you repeat the promotion at a later date. The Statistical Forecasting Toolbox provides all the tools you need to efficiently create accurate forecasts. You can archive a promotion pattern in a promotion catalog. Statistical Forecasting Toolbox Multiple Tools for Multiple Forecasting Needs Your company’s product portfolio probably includes a variety of products that are in different stages of their life cycle and have different demand types. you must first understand all the factors that influence it. Demand Planning offers a toolbox of all practical. Approaches that attempt to cover most of such demand types are very complex and tend to be a black box for planners. like shipments. such as forward buys and trade promotions. and hot new products does not exist. and working days. including data analysis using time series models and multiple linear regression. Use Proven Methods Demand Planning provides the proven forecasting method of multiple linear regression to model the impact of causal factors. temperature. and so on. like pointof-sale data. You then use a second causal model to forecast shipments. ”like regions”. The shipment model uses past POS data and the POS forecast as the main causal factor while taking the time lag between POS and shipments into account. Demand Planning provides several techniques for estimating the effect of a promotion. Causal factors include price. The promotion catalog has a copy function that you can use to model ”like products”.Demand Planning Promotion Patterns Isolate Promotional Patterns You can define promotional uplifts in units or percentages with promotion patterns. into the process of forecasting sell-through data. a single forecasting method that creates accurate statistical forecasts for mature products. number of displays.

and changes from unstable to stable behavior. you can correct variables. Using correlation analysis. Brown’s exponential smoothing. The final forecast values are determined by distributing the size of demand according to the demand frequency. medium-term. You can then project the deviation into the future. The Statistical Forecasting Toolbox provides all of the most important models. life cycle patterns. and Holt-Winters so you always have the right tool for the job. Time Series Models Time series models are techniques that use past sales to identify level. The primary technique is to store a series of forecasts for a particular period and to compare each deviation of this series to the actual values for the same period. and cash flow. or long-term forecasting goals. the system either runs all of the available forecasting methods or uses the planner-specified forecasting methods and applies the best one.Demand Planning Intervene as Changes Occur Structural changes in established patterns. Multiple Linear Regression Causal techniques are based on relationships between past sales and other causal factors. sales revenue. Composite Forecasting Composite forecasting creates a weighted average of the forecasts of multiple forecasting methods to create one forecast. You can specify the horizon for the fit criteria based on short-term. simple linear regression. Multiple linear regression allows you to estimate these relationships by performing a least squares fit. must be identified. The real impact of forecast accuracy reporting is realized when you couple it with a simulation at the significant nodes of the supply chain. You can determine the weights as equal (simple average) or using multiple linear regression by taking the residuals of the multiple forecasts into account. You can also integrate life cycle patterns into the time series models using special profiles. dummy variables. Forecast Accuracy Analysis Track Forecast Accuracy Forecast accuracy reporting helps companies assess the accuracy of past forecasts and integrate this knowledge into projections for the future. You can either adjust the applied forecasting method. For time series models with a linear trend. amplitude changes. you can also measure the accuracy of the forecast using the following forecast errors: n Mean absolute deviation (MAD) n Error total (ET) n Mean percentage error (MPE) n Mean absolute percentage error (MAPE) n Mean square error (MSE) n Square root of the mean squared error (RMSE) Stochastic Models Accurate Forecast with Sporadic Demand When sporadic demands exist. the time series models always produce inappropriate stock levels as a result of the high mean absolute deviation from periods without demands. such as level changes. trend. You can intervene manually. this enables a business to evaluate future scenarios for maximum. This visualization of expected deviation not only places the forecast in context. For example. The system provides several statistics. You can choose from a variety of options to model linear and nonlinear trends. In Demand Planning. such as naive models. and time lags. you can time-phase the combination so that short-term and medium-term forecasts are combined with respect to their horizons. stock. moving average. trend changes. The Crosten method accounts for this inaccuracy by using exponential smoothing to estimate the size of demand during periods in which demands occur as well as the demand frequency. or the system can do it automatically. In addition. it also enables what-if planning. By automatically detecting structural changes using a tracking signal. and seasonal patterns as a basis for creating future projections. Pick-The-Best Option With the pick-the-best option. including seasonal patterns. including adjusted R-squared and Durbin-Watson. planned and minimum production volumes. you can apply a dampening of the trend. Demand Planning allows you to take corrective action. 12 . or you can replace it with a more suitable method.

outliers. Demand Planning architecture includes several features that ensure high performance: n Dedicated server SAP APO resides on its own dedicated server. Forecast accuracy reports show forecast errors at any level and dimension. Demand Planning is built to answer the specific demand planning and information requirements of planners and forecasters in all industries. share information. model consumer sales behavior and market dynamics. You can also add multiple application servers as the number of users increases. Demand Planning is: n A fast solution baseline forecast or consensus forecast n Actual versus budget Because Demand Planning is a component of the SAP Business Framework. minimizing query response time. SAP APO takes full advantage of the flexibility of SAP R/3’s three-tier client/server technology. 13 . specialized software packages. You can define exception conditions based on thresholds for special statistics. Demand Planning can improve forecast quality. you can implement it rapidly and at a low cost. there are a number of configuration options to provide highly scalable performance as the number of users increases. n An adaptable solution If your needs or your IT environment change – and they will – SAP APO Demand Planning can adapt to these changes. so that the system alerts you if bias. such as n Multidimensional data mart The data mart is based on the star schema. n A robust. They compare: n Actual versus forecast n Actual versus time-lagged forecast n Actual versus different planning versions. This allows you to take action quickly when it can do the most good. the SAP APO Alert Monitor informs you in real time via e-mail or an exception message in an exception window if an exception occurs in Demand Planning. and enable collaborative forecasting with business partners.Demand Planning Real-Time Alerts to Exceptions In addition. or trend changes occur or orders exceed the forecast. All SAP APO server components can reside on the same hardware system. business-driven solution Based on SAP’s proven expertise in SAP R/3 client/ server technology and in real-world business processes. n A function-rich solution Performance Performance is of vital importance in any demand planning solution if users are to benefit fully from available information. The star schema is a structure that supports efficient use of storage space and of CPU cycles. n Batch forecasting Conclusion Demand Planning provides multiple benefits that help you match supply and demand and manage the entire length of your supply chain. SAP APO Demand Planning does not limit you to using SAP R/3 or R/2. n An open solution You can sort reports by forecast error or restrict them to products with a forecast error greater than a userspecified threshold. SAP APO Demand Planning has the tools you need so you don’t need to assemble them from multiple. Like the SAP R/3 System. or you can place the database on a dedicated database server. integrate processes that drive the forecast. You can update long-running mass forecast updates as a batch process so you do not impede online performance. reliably and effectively. such as MAD and tracking signals. Using open interfaces. you can integrate SAP APO Demand Planning with nonSAP data sources and non-SAP tools to create the best solution for your business.

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