The Future of Forecasting

MIT SCM Capstone Project

Evan Humphrey | Federico Laiño
Advisor | Inma Borrella
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Agenda
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1 2 3 4

Introduction Methodology Findings Conclusions

1. Company Background 1. Overview 1. Characterization of Demand 1. Takeaways

2. Motivation 2. Discovery 2. Current Forecasting Process 2. Future work

3. Objective and Scope 3. Diagnosis 3. Forecast Accuracy Analysis

4. Demand Sensing Approaches 4. Suggestions for Implementing

Demand Sensing
1 Introduction
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Company Background
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1960s 1970s 1980s 1990s 2000+

Company Founded Developed Etafilcon Acquired by J&J 1 Day Lenses Market Leader

Originally ‘Frontier
Contact Lenses’ from
Buffalo, New York.
Later moved to
Jacksonville, Florida
Chief Optometrist Division was renamed Created first low-cost, JJVC gains and
develops new to ‘Vistakon’. daily disposable lens. maintains leadership
material, Etafilcon, Developed automated Expanded globally to in the contact lens
that allowed production system, Brazil, Japan, Singapore market.
production of soft leading to the creation and UK. Changed name
lenses. of the Acuvue brand. to JJVC.
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Company Background
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Europe, Middle East and Africa
US and Canada 21% of revenue
22% volume
38% of revenue Limerick, Ireland
32% volume Production
EVC – London, UK
DC
HDC - Tokyo
DC

Jacksonville, FL Japan
Production + DC 21% of revenue
Key Insights 26% volume
$3Bn Business
4Bn Lenses Asia Pacific
22.000 SKUs
15% of revenue
LATAM 16% of volume
3% of revenue
1% of volume
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

“ We must constantly strive to reduce our cost in order to

maintain reasonable prices. Customers' orders must be
serviced promptly and accurately.
- Lines 3 and 4 of the J&J Credo

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MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Motivation
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Market Context
Contact lens global leader by market share but faces
competition from other large companies and disruptive
entrants.

Production Capacity Cost Efficiency

Owns high-end manufacturing lines Driven to continuously improve
that are at near-maximum utilization forecast accuracy and capitalize
with expansion requiring considerable on lower inventory costs and
CAPEX and time. higher service levels.

Forecast Accuracy
Wants to explore the potential of
demand sensing as a means to
improve forecast accuracy
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Objective and Scope

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Objective Scope
Analyze the current J&J Vision Care forecasting process and propose suggestions for Region
improvement, paying special attention to Demand Sensing approaches. Continental United States

Production Facility
Jacksonville, FL

Brand
Acuvue

Jacksonville, FL
Production + DC Brand Family
1-Day Moist (1DM)
1-Day Moist for Astigmatism (1DM-A)
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

2 Methodology
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Overview
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Tasks Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Phase I

Objective and Scope

Discovery

Phase II

Diagnosis

Demand Sensing Approaches

Capstone Write-up
 MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Discovery
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Literature Review Interviews

SCM History 01 02 Forecasting
Forecasting Techniques Demand Planning
Forecasting Measures
Demand Sensing Case Studies 01 02 S&OP

Discovery

Site Visit
03 Jacksonville, FL
03 Production Facility
Distribution Center
S&OP Interviews
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Diagnosis
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1 2 3
Demand Forecasting Forecast
Characterization Process Mapping Accuracy Analysis
Pareto Analysis Cycle Time Pareto Breakdown
Time Series Framework Comparison with
Distribution Data Inputs Alternative
Statistics Forecasts Forecasts
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Demand Sensing Approaches

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Latency Reduction
Reduce cycle time between 01
forecasts to take advantage of
latest demand information updates.
Measuring the Impact of
03 Demand Shaping Actions
Record and measure the impact of
demand shaping events such as
promotions, price changes, product
Downstream Data launches and forward-buy
Integration 02 arrangements.
Include downstream supply
chain data, such as POS data,
in the demand forecasting
model.
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

3 Findings
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Characterization of Demand
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MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Characterization of Demand
Shipments Time Series by Quarters

1 Day Moist 90-Pack 1 Day Moist for Astigmatism 90-Pack

1 Day Moist 30-Pack 1 Day Moist for Astigmatism 30-Pack

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MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Characterization of Demand
Pareto Curves

1 Day Moist 90-Pack 1 Day Moist for Astigmatism 90-Pack

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of Total SKUs % of Total SKUs

116 SKUs 1528 SKUs

1 Day Moist 30-Pack 1 Day Moist for Astigmatism 30-Pack

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of Total SKUs % of Total SKUs

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MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Characterization of Demand
Mean Shipments vs Coefficient of Variation for each Pareto segment

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 MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Forecast Accuracy Analysis

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1 Aggregation Levels 2 Forecasts Compared 3 Accuracy Metrics

— Brand — J&J Vision Care - Statistical — 3-Month Average — Bias

— Pack Size — J&J Vision Care - Lag 03 — 4-Month Average — MAPE
— Pareto — J&J Vision Care - Lag 02 — 5-Month Average — MAPV
— SKU — J&J Vision Care - Lag 01 — 6-Month Average — PVE
— Month — Naïve — Simple Exp. Smoothing — RMSE
— Quarters — 2-Month Average — Double Exp. Smoothing
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Forecast Accuracy Analysis

Naïve vs Lag 01 Forecast Comparison Results

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MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Forecast Accuracy Analysis

2-Month Average vs Lag 01 Forecast Comparison Results

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MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Current Forecasting Process

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1-Month Cycle

2 weeks

3
Input Shipments Data Executive S&OP

1 2
2.2
1.1 JDA 1.2 Regional 2.1 SKU
Process Production
Software S&OP Breakdown
Planning

Statistical Consensus SKU Level

Output
Forecast Forecast Forecast

Lag 03 Lag 02 Lag 01

MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Suggestions for Implementing Demand Sensing

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Latency Reduction
Reduce cycle time between 01
forecasts to take advantage of
latest demand information updates.
Measuring the Impact of
03 Demand Shaping Actions
Record and measure the impact of
demand shaping events such as
promotions, price changes, product
Downstream Data launches and forward-buy
Integration 02 arrangements.
Include downstream supply
chain data, such as POS data,
in the demand forecasting
model.
 MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Suggestions for Implementing Demand Sensing

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01 Latency Reduction

1-Month Cycle

1 week 1 week

3
Shipments Shipments
Input Data Data
Executive S&OP

1 2 1 2
1.2 2.2 1.2
1.1 JDA 2.1 SKU 1.1 JDA 2.1 SKU 2.2 Product
Process Software
Regional
Breakdown
Production
Software
Regional
Breakdown Planning
S&OP Planning S&OP

Statistical Consensus SKU Level Statistical Consensus SKU Level

Output Forecast Forecast Forecast Forecast Forecast Forecast
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Suggestions for Implementing Demand Sensing

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02 Downstream Data Integration

1-Month Cycle

2 weeks

3
Input Shipments Data Downstream Data Executive S&OP

1 2
2.2
1.2 Regional 2.1 SKU
Process 1.1 DS Model Production
S&OP Breakdown
Planning

Statistical Consensus SKU Level

Output
Forecast Forecast Forecast
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Suggestions for Implementing Demand Sensing

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03 Measuring the Impact of Demand Shaping Actions

1-Month Cycle

2 weeks

3
Demand Shaping
Input Shipments Data Executive S&OP
Data

1 2
2.2
1.2 Regional 2.1 SKU
Process 1.1 DS Model Production
S&OP Breakdown
Planning

Statistical Consensus SKU Level

Output
Forecast Forecast Forecast
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Suggestions for Implementing Demand Sensing

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Latency Reduction Downstream Data Integration Demand Shaping Actions

— Cost-benefit tradeoff
— Cost-benefit tradeoff
— Cost-benefit tradeoff — Systems integration
— Data structuring
Challenges — Cross-functional — Data access
coordination — No guaranteed benefit in
— No guaranteed benefit in accuracy
accuracy

— Simplest solution
— Greater accuracy potential
— Fastest to Implement
Opportunities — Real time updates
— Guaranteed improvement in
— More responsive to change
accuracy
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

4 Conclusions
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Takeaways
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Forecast Accuracy Demand Sensing

01
Improvements
We recommend J&J Vision Care
consider the use of simpler forecasting
techniques for the 30-Pack pack size
category and, more specifically, for the
1-Day Moist 30-Pack product segment.
02
Initiatives
We recommend J&J Vision Care
consider the Demand Sensing
initiatives we provided. Latency
Reduction should be implemented first.
MIT Supply Chain Management Program Evan Humphrey | Federico Laiño

Future Work
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Measuring the Impact of

Downstream Data Integration
Demand Shaping Actions
— Collect data at different echelons in — Propose a system to capture demand
the Supply Chain. shaping events in a structured manner.
— Develop predictive system to forecast — Measure the impact of past initiatives.
demand based on variations in — Develop predictive system to forecast
downstream supply chain data. future events.
Thank You
Questions?

Evan Humphrey

Bachelor of Science
Biotechnology
Indiana University

Federico Laiño

Bachelor of Science
Industrial Engineering
Buenos Aires Institute of Technology

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