Advanced Forecasting & Procurement for Microsoft Dynamics NAV Presented to ABC Annual Conference 2011 May 12, 2011

 Return On Investment  Forecasting Concepts  Replenishment Concepts  Putting It All Together  Software Demonstration Agenda

The Squeeze Play  Domestic Vendors –Vendor Pricing Models Carry More Inventory to Earn Reduced Price Point  International Vendors –Long Lead Times –Container Level Purchasing Drive Up Inventory  Economy –Line of Credit –Reduced Sales –Customers are Carrying Less Inventory

Return On Investment  Reduce Inventory –$10M Inventory * 20% Reduction = $2M –$2M Inventory Reduction * 15% Carrying Cost = $300K –Reduce Demand on Line of Credit by $2M  Reduce Stock Outs/Lost Sales –Increase Sales –Increase Customer Service  Manage Stocking Levels

Typical Pain Points  Forecast Accuracy  Customer Collaboration (Large Customers)  Promotions  Items You Can‘t Forecast –Stock? –Stocking Level?  New Items  Kit or Production Items –Component Demand  Managing Long Lead Times  Safety Stock Values  Branch Replenishment

Forecasting & Replenishment Forecasting

Forecasting & Replenishment Historical Usage Forecasting

Forecasting & Replenishment Historical Usage ADJ Forecasting

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Forecasting

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Forecasting Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Forecasting Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Forecasting Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Forecasting Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ Suggested Order Suggested Order Expected Inventory TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ Suggested Order Suggested Order Expected Inventory Lead Time Vendor Targets Vendor Targets TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ Suggested Order Suggested Order Expected Inventory Lead Time Vendor Targets Vendor Targets TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level Surplus Inventory

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ Suggested Order Suggested Order Transfer Order Transfer Order Expected Inventory Lead Time Vendor Targets Vendor Targets TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level Surplus Inventory

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ Suggested Order Suggested Order Purchase Order Purchase Order Transfer Order Transfer Order Expected Inventory Lead Time Vendor Targets Vendor Targets TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level Surplus Inventory

Forecasting Concepts Applied  Filtered Usage  Formula Based Forecasting (Best Fit Formula)  Customer Collaborative Forecasting  Combined Forecast

Filtered Usage (Recurring Usage)  Sales to Customers or Consumption (Not Both)  Excluded from Usage (Marked on Sales Order)  Transfers to Warehouses (In Replenishment Path)  Adjustments –Automated Smoothing –Manual  Drop Shipment Usage (Optional via Setup)

Best Fit Formula Last Closed Period LCP – 1 LCP – 2 LCP – 3 LCP – 4 LCP – 5 LCP – 6 LCP – 7 LCP – 8 LCP – 9 LCP – 10 Median Error % Median Error % Reforecast x Periods Establish Error % Establish Median Error % Choose Formula With Lowest Median Error % Choose Best Formula Formula A Formula B

Forecast Adjust  Single SKU  Groups of SKUs  Promotions  Forecast Summary

Promotions  Define Promotion –Items –Start and End Dates –Sales Quantity Projected for Promotion  After Promotion –Use Promotion Adjust Remove Results of Promotion From History

Forecast Summary  Roll Up Forecast at User Defined Levels  View Forecast –Cost –Price –Quantity  Make Change at Any Level  Distribute Changes to Lower Levels

Collaborative Forecasting Historical Usage Statistical Forecast Adjustments Promotions TOTALFORECASTTOTALFORECAST

Collaborative Forecasting Historical Usage Customer 123 Statistical Forecast Adjustments Promotions TOTALFORECASTTOTALFORECAST

Collaborative Forecasting FORECASTFORECAST Formulas Historical Usage Customer 123 Statistical Forecast Adjustments Promotions TOTALFORECASTTOTALFORECAST

Collaborative Forecasting FORECASTFORECAST Formulas Historical Usage Customer 123 Collaborative Forecast Statistical Forecast Adjustments Promotions TOTALFORECASTTOTALFORECAST

Collaborative Forecasting FORECASTFORECAST Formulas Historical Usage Customer 123 Collaborative Forecast Excel Customer 123 Sales Representative Statistical Forecast Adjustments Promotions TOTALFORECASTTOTALFORECAST

Collaborative Forecasting FORECASTFORECAST Formulas Historical Usage Customer 123 Customer Forecast Collaborative Forecast Excel Customer 123 Sales Representative Statistical Forecast Adjustments Promotions TOTALFORECASTTOTALFORECAST

Distribution Requirements Planning (DRP)  DRP Looks at the Entire Company and Optimizes Inventory Across All Warehouses –Rolls Historical Usage Up Based on Replenishment Path –Forecast At Each Warehouse/Item –Compares Time Phased Inventory to Rolled Up Forecast Manages –Vendor Replenishment –Hub and Spoke »Branch Replenishment –Inventory Balancing

Replenishment Path – Hub and Spoke WH 2 WH 4 WH 6 WH 9 WH 7 WH 8 WH 1 WH 3 WH 5 Vendor 1 Vendor 2 Vendor Replenishment – Based on Lead Time Horizon Warehouse Replenishment – Based on Days Supply Example: WH 1, WH2 = Lead Time Horizon 90 Days WH 3 = Lead Time Horizon 30 Days WH 4, WH 5, WH6 = Min Days 14 Max Days 21 WH 9 – Min Days 10 Max Days 14 WH 7, WH 8 – Min Days 10 Max Days 14

Inventory Balancing – Hub and Spoke WH 2 WH 4 WH 6 WH 9 WH 8 WH 1 WH 3 WH 5 Vendor 1 Vendor 2 Example: WH 1 has Need of 250 WH 2 has Surplus of 100 WH 3 has Surplus of 100 WH 7 has Surplus of 75 WH 7 Transfer 100 Transfer 50

Simulated Production Orders Incr. Days Jan 1Jan 8Jan 15 Jan 22 Jan 29 Feb 5 Feb 12 Feb 19 Exp. Inv Need Prod. Order Time Phased Expected Inventory for Each Increment Calculate Need for Each Increment Consolidate Need to Create Simulated Production Orders

Replenishment Tools  Vendor Lead Time Calculation  Net Time Phased Expected Inventory  Vendor Buying Calendar –Vendor Review  Suggested Order –Purchasing Decision  Warehouse Transfer –Surplus Inventory  Purchase Order –Release Purchase Request  Posted Suggested Order –Save Criteria from Purchasing Decision  Branch Replenishment

Vendor Lead Time  Vendor Lead Time by Item, Vendor, and Warehouse  User Defined Average Lead Time Calculation –Use Receipts from X Periods –Use X Receipts –Exclude Receipts Greater than X Percent of Average Less than X Percent of Average Receipts that are Marked for Exclusion from Purchase Order  Frozen Lead Time –User Specified Frozen Lead Time by Item –Expire Date to Revert Back to Average Lead Time

Net Time Phased Expected Inventory Additions to Inventory Inventory On Hand Quantity on Purchase Orders Quantity on Transfers In Quantity on Customer Returns Quantity on Planned Production Orders (Finished Goods) Subtractions from inventory Quantity on Sales Order Quantity on Transfers Out Quantity on Vendor Returns Quantity on Service Orders Quantity on Component Lines

Replenishment  Decision 1 –Should I Replenish?  Decision 2 –How Much to Replenish?  Decision 3 –Do I have Surplus Inventory?  Decision 4 –Are there Vendor Targets?

Replenishment  Decision 1 –Should I Replenish? Min/Max (Fixed) Min/Max Days Supply (Dynamic) Target Stock Level (Dynamic) Lead Time Horizon (Lead Time + Review Cycle + Safety Stock Days) (Dynamic) Dynamic Order Point –Order Point (Dynamic) »(Ave. Daily Usage * Lead Time Days) + Safety Stock –Line Point (Dynamic) »Order Point + (Average Daily Usage * Review Cycle Days)

Replenishment  Decision 2 (Used with Order Point & Line Point) –How Much to Replenish? Economic Order Quantity Modified Economic Order Quantity –Increase EOQ to Cover Forecast Usage

Replenishment  Decision 3 –Do I have Surplus Inventory? Decision to Buy from Vendor or Transfer Surplus Inventory

Replenishment  Decision 4 –Are there Vendor Targets at the Order Level? Amount Net Weight Gross Weight Volume

Result - The Suggested Order  Recommended Replenishment Quantities  Drill Down to all Information from Suggested Order Line –Detailed Forecast –Historical Usage Patterns –Formulas and Data that caused Recommended Replenishment –Surplus Inventory and Where –Time Phased Expected Inventory –Order Statistics Comparison to Vendor Targets

Branch Replenishment  Clearly Defined Replenishment Path –When I Need Inventory Where Do I Get It?  Top Level Buy is for Lead Time + Safety Stock  Branch Replenishment is Based on Replenishment Cycle to Branch –Set Branch to Maintain X Day’s Supply  Benefits –Reduction of Safety Stock in Supply Chain –Inventory is Distributed to Where it is Needed

Forecasting & Replenishment Historical Usage FORECASTFORECAST FORECASTFORECAST Formulas Collaborative Forecast Collaborative Forecast ADJ Suggested Order Suggested Order Purchase Order Purchase Order Transfer Order Transfer Order Expected Inventory Lead Time Vendor Targets Vendor Targets TOTALFORECASTTOTALFORECAST TOTALFORECASTTOTALFORECAST Production & Kits Forecasting 52 Period Forecast Replenishment Sales Promotions Forecast Summary Adjustment at SKU level Adjustment at SKU level Surplus Inventory

Summary  Clean Historical Usage  Best Fit Formula Selection  Collaborative Forecast for Large Customers  Flexible Forecast Adjustment  Promotions –Look Ahead to Purchase for Promotion –Keep History Without Promotion Influence  Good Replenishment Tools –Time Phased Expected Inventory –Good Vendor Lead Time Management –Dynamic Replenishment Calculations –Surplus and Excess Inventory Calculations –Consider Transfer Instead of Buying