Forecast Consumption in IBP Sales & Operations Planning

(IBP 1805)

Februar 16th, 2018

Authors: Dr. Volkmar Söhner, Christian Embacher

Change History:

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1. Introduction
In IBP Sales & Operations Planning (S&OP) customer demands are passed to the
time-series based planning algorithms (i.e. the supply planning heuristic, the supply
propagation heuristic and the optimizer) as input via key figures Customer Demand
and Independent Demand. For the planning algorithms it is of no relevance whether
these demands are forecasts or real customer orders or a mixture of both. In use cases
where the demand contains forecasts and not only real customer orders, the real
demand (i.e. “Total Demand” which is derived out of forecast and customer orders)
needs to be frequently adapted as soon as customer orders are confirmed or confirmed
customer orders are changed. If a new customer order is confirmed, the quantity of a
corresponding forecast needs to be reduced (“consumed”) by the quantity of the
customer order. Otherwise, the planning algorithms will see the same demand quantity
twice, i.e. as forecast and as customer order. This process is called forecast
consumption.

Forecasts need to be consumed each time the date or the quantity of a customer order
is changed, i.e. as soon as new customer orders are created or existing ones are
modified or deleted.

So, Forecast Consumption (FCC) is a process in which planned forecasts are

consumed or reduced by incoming customer requirements (or other requirements), in
order to avoid duplicated planning on both the planned independent requirements and
the customer requirements.

2. Definition of Important Terms

Important terms of FCC in S&OP are the following ones:

2.1 The FCC Key Figures

S&OP offers two key figures which are input to FCC and two output key figures
returning the results of the FCC algorithm:

A. Input Key Figures:

i. Forecast: This key figure represents the forecast to be consumed by incoming
sales orders.
ii. Sales Order: This key figure represents the sales order quantities (aggregated
by planning period) that consume the input forecast.

B. Output Key Figures

i. Open Forecast: Key figure to be filled by the forecast consumption algorithm
to represent the open forecast.
ii. Total Demand: Key figure to be filled by the forecast consumption algorithm to
represent the total demand.

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2.2 Storage Level or Planning Level
The Storage Level of a key figure defines the set of attributes (like Location ID,
Product ID, etc.) which are used to store the key figure data persistently. Usually, the
Storage Level is identical to the Planning Level.

The Storage Level of all four FCC key figures must be equivalent to (Product ID,
Location ID).

2.3 (Forecast Consumption) Execution Level

The Forecast Consumption Execution Level (or shorter, the Execution Level) defines
the set of attributes which form the key of the input data on which the FCC algorithm
is performed. The Execution Level must be equal to (product ID, location ID).

2.4 Forecast Consumption Modes

A Forecast Consumption Mode is a master data type which defines the basic
parameter of the FCC algorithm. The FCC algorithm iterates over all periods of the
planning horizon and applies the consumption logic. If the forecast of period t cannot
be fully consumed in t, the algorithm then continues to consume the remaining
unconsumed forecast successively along b (“backward”) previous and / or f (“forward”)
subsequent periods of t. A Forecast Consumption Mode defines whether in previous
and / or subsequent periods (“direction”) and along how many periods (parameter b
and f) the remaining unconsumed forecast then should be consumed.

Possible directions, each defined by a DirectionID (integer value between 0 and 3) in

a Forecast Consumption Mode are:

0: first forward, then backward

1: first backward, then forward
2: forward only
3: backward only

Each Forecast Consumption Mode also defines the number of Forward Periods and
the number of Backward Periods. Figure 1 shows an example of 5 Consumption
Modes. Each mode has a unique key.

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 Forecast Consumption Modes

FcstConsMode DirectionID Direction Description Forward Backward

Periods Periods
101 0 first forward then backward 3 3

102 1 first backward then forward 2 3

103 2 forward 2 -
104 3 backward - 6
105 1 first forward then backward 3 3

Figure 1: Example of a set of Consumption Modes

Chapter 5 will provide some number examples explaining how the FCC algorithms
computes its results.

2.6 Assignment Level

The FCC algorithm is applied to each record of the input key figures. Via a Forecast
Consumption Mode Assignment the algorithm assigns a certain Forecast Consumption
Mode to each input record. Figure 2 shows two different Forecast Consumption Mode
Assignments for the Forecast Consumption Modes defined by Figure 1. The first
Forecast Consumption Mode Assignment has the attribute (LOCID). This attribute
combination is called Assignment Level.

In the example of Figure 2, all input records with the value “Location 1” in the root
attribute Location ID are assigned to the Forecast Consumption Mode 104.

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 Forecast Consumption Mode Assignments

LOCID FcstConsmode

Location 1 104

Location 2 101

Figure 2: Forecast Consumption Mode Assignments and Assignment Level

3. Recommendations and Remarks

It is not recommended to configure both, FCC and Demand Categories in one planning
area. This means, if Demand Categories are used to differentiate Customer Demands
along different Demand Categories for instance to give them different priorities, it is not
recommended to additionally run FCC. The reasons are.

1. Both features together would complicate the planning process significantly

2. The output of FCC, i.e. the Total Demand is passed to the planning algorithms
(heuristics or optimizer). As this key figure does not support Demand Categories
it is doubtful whether it makes sense to configure key figures Sales Orders or
Forecast with the attribute Demand Category (CATID).

4. Data Flow of Forecast Consumption

4.1 Independent Calculation

You can calculate the forecast consumption independently of other operator profiles
by running the TS-Based Forecast Consumption operator from the S&OP Operator
Profiles app. After you have selected the planning area, you can select the forecast
consumption profile that is to be used by the algorithm.

Note: Only those planning areas to which you have assigned the “forecast
consumption mode” master data type are available from the dropdown.

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The result of the operator run is available in the IBP Excel add-in and in batch mode,
just like the result of any other operator run. The results of the Forecast Consumption
run are stored in the above mentioned output key figures and hence can be used as
input to a subsequent, independent run of the of the planning algorihms (heuristics or
optimizer).

4.2 Preliminary Calculation

You can calculate the forecast consumption results and use them directly as the input
for the optimizer or heuristics which are run right after the forecast consumption. When
you call an operator that is configured to first calculate forecast consumption and then
immediately a planning algorithm, the process runs as follows:

1. FCC input data (key figures Sales Orders and Forecast) is read on Storage
Level (Product ID, Location ID) from a database table
2. FCC is performed on Consumption Level (Product ID, Location ID) for each
input record.
3. Both heuristics or the optimizer read key figure Total Demand, which is output
of the FCC, and use it as the input for the planning algorithms.
4. Heuristics or optimizer compute a new supply plan and return their output key
figures as usual, i.e. in the same way as they do without FCC
5. The output key figures of FCC (Total Demand and Open Forecast) are returned
and saved to the corresponding database table.

5. Examples
5.1 Example 1

The example of Figure 3 was computed with the following Forecast Consumption
Mode data:

Direction: backward 2 periods

Key figure / Period 1 2 3 4 5 6 7

Forecast 100 100 100 100
Sales Order 220
Consumed Forecast 20 100 100
Open Forecast 100 80
Total Demand 100 80 220

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Figure 3: FCC example 1

The Sales Order quantity in period 5 of 220 pieces cannot be consumed completely in
this period. The corresponding Forecast is only 100 so that 120 pieces have to be
consumed in other periods. As the direction is backward and the number of backward
periods is 2, the FCC algorithms continues to consume the remaining, i.e. unconsumed
Sales Order quantity first in period 4 and then, if required in period 3. In period 4,
another 100 pieces can be assigned to forecast so that the remaining 20 pieces are to
be consumed in period 3. The (helper) key figure Consumed Forecast indicates in
which period how much Sales Order quantity is consumed in total. This key figure is
displayed here only to facilitate the explanation, it is no output key figure. Output key
figure Open Forecast shows (per period) how much Forecast is not yet consumed. The
output key figure Total Demand, which is the sum of Sales Order and Open Forecast,
defines the demand to be satisfied.

5.2 Example 2

The example of Figure 4 was computed with the following Forecast Consumption
Mode data:

Direction: forward 3 periods

Key figure / Period 1 2 3 4 5 6 7

Forecast 100 100 600 100 250
Sales Order 220 400 50 300
Consumed Forecast 100 100 470 100 200
Open Forecast 130 50
Total Demand 220 400 180 300 50

Figure 4: FCC example 2

5.3 Example 3

The example of Figure 4 was computed with the following Forecast Consumption
Mode data:

Direction: forward 0 periods, backward 0 periods

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Key figure / Period 1 2 3 4 5 6 7
Forecast 30 100 50 10 200 150 200
Sales Order 20 500 400 60
Consumed Forecast 20 200 150 60
Open Forecast 30 80 50 140
Total Demand 30 100 50 500 400 200

Figure 5: FCC example 3

5.4 Example 4

The example of Figure 4 was computed with the following Forecast Consumption
Mode data:

Direction: backward 2 periods, forward 1 period

Key figure / Period 1 2 3 4 5 6 7

Forecast 750 50
Sales Order 400 400
Consumed Forecast 750 50
Open Forecast
Total Demand 400 400

Figure 6: FCC example 4

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