Dealing With Seasonality in Distribution Environments - Amir Schragenheim & Amir Weisenstern, Inherent Simplicity

TOCICO 2007 Conference
TOCICO CONFERENCE 2007
Dealing with seasonality in

distribution environments
Presented By: Amir Schragenheim & Amir Weisenstern,

Inherent Simplicity
Date: November 6th 2007 © 2007 Inherent Simplicity. All rights reserved. 1
Different Season Patterns
2
© 2007 Inherent Simplicity. All rights reserved.
Holiday/Promotion
3
New Product Introduction
4
“Reverse” seasonality
5
Our focus
6
Sharp Demand Changes
Sharp Demand Increase
Sharp Demand Decrease
7
How will DBM cope?
8
DBM
• Assumptions
− Demand is continuous
• Benefits
− Highly reactive
− Pushes for a short replenishment time
− Logic is simple to explain
− Stable (doesn’t change every day)
• Shortcomings
− Disregards knowledge of future
− Adjusts slowly to sudden changes
− Disregards long history
9
Traditional forecast
• Assumptions
− Everything can be predicted
− People will trust the output
• Benefits
− Can take into account knowledge about the future
− Takes into account long history
− Provides the best theoretical result if all data is accurate, and if
done frequently enough on all SKUs
• Shortcomings
− Usually predicts only the average sales and does not include
any estimation of the forecasting error
− Hard to understand for many people – causing overriding of
results
− Subjective and unstable – different user inputs would provide
different results
− Every recalculation of the forecast tends to be disruptive
10
Comparison for different
scenarios
Forecast DBM
Continuous Demand Would give different daily Would give the best
results – resulting in an results – a stable system
unstable system and that changes and adjusts
noise periodically only when
needed
Sharp Demand Changes Would give a fair Would provide good

estimation of the needed results only when the
stocks at each location replenishment time is
short relative to the
degree of change
11
When to use each
• Use DBM whenever expectations are for fairly

continuous demand
• When a sharp demand change is expected – plan
the CWH/RWH stocks according to forecast
• Revert back to DBM as quickly as possible to adjust
to reality
12
The Inherent Simplicity steps
1) Stock Buildup
− Order the needed stock at least a replenishment
time in advance – see whether you need to
order in small batches
2) Waiting for stock
− Waiting for stocks to arrive using the
forecasted buffer size – replenishing within the
period, but freezing DBM
3) Inside the high demand
− Act according to DBM
13
The Inherent Simplicity steps
4) Stock Builddown
− Plan to reduce the buffer size enough time in
advance to not stay with too much inventory
− Thus canceling the replenishment process from
the point this was activated until the stock in
the system is below the new lower level
5) Back to normal
− Return to normal behavior – replenishing and
acting according to DBM
14
Sharp Demand Changes
Waiting Inside The

Stock Stock Back to
For Stock Demand
Buildup Builddown normal
15
Example
• A short-sleeve shirt is sold throughout the year at a

rate of 10 shirts/day
• From May, it’s sold at a rate of 40 shirts/day
• During September it’s sold at a decreasing rate of 5
shirts less each week, until mid-October
• The replenishment time is 10 working days
16
Example
Waiting Inside The Stock

Stock Back to
For Stock Demand Builddown
Buildup normal
17
Alternative transportation
• Shortening replenishment time is important in

regular supply chain environments
• When seasonality is active, it’s absolutely a must if
it’s possible – enabling minimum forecasting and
using the power of DBM
• The cost of the upgraded method per unit should
be considered against the T of the unit
18
Alternative transportation
• In most cases there will be a clear cut between the

methods
− Keeping high inventories
− Using the upgraded transportation
− Losing the sales
• If not – some financial calculations can reveal the

direction of the solution
19
About [Presenter]
•Amir Schragenheim
•President of Inherent
Simplicity – a leading TOC
software company for
operations & distribution
•Previously developed several
computerized TOC
educational and simulation
tools for operations,
distribution and project
management
20
About [Presenter]
•Amir Weisenstern
•President of Inherent
Simplicity – a leading TOC
software company for
operations & distribution
•Previously founded Invoke
solutions - developed a
breakthrough solution for
research over the internet
21

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TOCICO 2007 Conference

TOCICO CONFERENCE 2007

Dealing with seasonality in

Presented By: Amir Schragenheim & Amir Weisenstern,

Sharp Demand Changes Would give a fair Would provide good

• Use DBM whenever expectations are for fairly

Waiting Inside The

• A short-sleeve shirt is sold throughout the year at a

Waiting Inside The Stock

• Shortening replenishment time is important in

• In most cases there will be a clear cut between the

• If not – some financial calculations can reveal the

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