forecasting with sap®apo dp – the state of the art?

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Forecasting with SAP® APO DP? The State of the Art? 30 October 2013, The Work Foundation, London, UK Dr. Sven F. Crone Assistant Professor - Director The Gap between Theory and Practice?

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Page 1: Forecasting with SAP®APO DP – the state of the art?

Forecasting with SAP® APO DP? The State of the Art?

30 October 2013, The Work Foundation, London, UK

Dr. Sven F. Crone Assistant Professor - Director

The Gap between Theory and Practice?

Page 2: Forecasting with SAP®APO DP – the state of the art?
Page 3: Forecasting with SAP®APO DP – the state of the art?
Page 4: Forecasting with SAP®APO DP – the state of the art?
Page 5: Forecasting with SAP®APO DP – the state of the art?

Slagging of IT is always in fashion

… but its too simple!

But

Different releases

Missing Bugfxes

Particular customisation (and

interactions9

Page 6: Forecasting with SAP®APO DP – the state of the art?

Functionality is only one of many aspects in ERP/APS implementation

Disclaimer Objectives of ERP Systems

Data Integration

New ways of

doing Business

Global capacities

Flexibility / Agility

IT purchasing

benefits

IT architecture

cost reduction

Relative importance

to support activities

Relative importance

to value chain activities

Overa

ll importa

nce

[Martin et al. (2002) p.182]

Corporate

benefits

IT

benefits

External buy

in of knowledge

& processes

Page 7: Forecasting with SAP®APO DP – the state of the art?

100% (or more) functionality is NOT the aim of standard ERP/APS systems!

Standard ERP system

Unwanted functions Lacking functions

System Design Objectives

• ERP / APS systems offer >3000% functionality

• Functionality is accessible in 1000+ “best practice” processes customise

normal implementation aims at 80%-85% coverage!

Current functionality

Target functionality

Disclaimer Objectives of ERP Systems

Page 8: Forecasting with SAP®APO DP – the state of the art?

need to evaluate overall SAP®APO based on total functionality

SAP APO is more than just a forecasting tool

• Holistic integrated planning suite

• Communication with legacy systems

Disclaimer Objectives of SAP APO

Page 9: Forecasting with SAP®APO DP – the state of the art?

http://i.telegraph.co.uk/multimedia/archive/

01561/1810car6891_reuter_1561128i.jpg

are displayed at the pavilion of custom car

accessory company Garson/D.A.D at

Tokyo Auto Salon 2010 at Makuhari Messe

in China

… you can always

Customise!

Customised Mercedes-Benz SL600s, studded with 300,000 Swarovski crystal glass,

Page 10: Forecasting with SAP®APO DP – the state of the art?

A forecasting system is only a tool in the hands of a forecaster!

Yields very different results by Crafstman vs. Novice (DP/IT)

“Buying the most expensive

Hammer …

…does not make you

the best Carpenter!”

Disclaimer Cases of misuse of SAP APO

Page 11: Forecasting with SAP®APO DP – the state of the art?

Not today!

Page 12: Forecasting with SAP®APO DP – the state of the art?

Agenda

1. Disclaimer

2. How do companies use APO DP? Evidence from a survey System(s), Orga, Setup, Methods …!

3. “Best Practices” in APO DP? Forecasting Science as benchmark Data Exploration, Model Selection … Promo Forecasting, New Products …

Forecasting with SAP®APO DP

Page 13: Forecasting with SAP®APO DP – the state of the art?

263 complete surveys with usable forecasting systems information

200 surveys from forecasters in Manufacturing representative!

• Questionaire Design – Pilot study in 2011 (to ensure validity) – Final version pre-tested with 18 FMCG forecasters – Questionnaire implemented online – Conducted January 2012-August 2012

• Survey Sample Design – Specified target group: demand planning &

forecasting professionals (in manufacturing) – LCF Mailing list, forecasting lists / blogs (ISF, SAS) – 100s of LinkedIn Groups – 2000+ personalised LinkedIn invites – Multiple reminders sent

• Response – 540 responses

• 260 incomplete (reminders send, to only speculative interest, unwilling to give email address (although not mandatory), Atrophy (number of repeated questions), unsuitable respondent (industry sector & position)

• 15 complete responses discarded (Consultants/academics, rushed surveys (10-15 mins), highly inconsistent answers, middle-clicking { same answer for every question in groups)

Study Methodology Survey of Practitioners

Page 14: Forecasting with SAP®APO DP – the state of the art?

APO and APO+ (incl. specialists FSS add-ons) dominate today’s market!

Study Results Systems use of Respondents

Group responses by a forecasting software – plus average response!

Page 15: Forecasting with SAP®APO DP – the state of the art?

mostly large manufacturers active in the FMCG / CPG industry

Allows insight into different forecasting practices by systems APO DP!?

Study Results Systems use of Respondents

Group responses by a forecasting software – plus average response!

Clothing & Apparel

Logistics/3PL

Pharmaceuticals

Wholesaler/Distributor

Consumer healthcare & beauty

Electronics & computing

Retail

Other consumer goods

Industrial/other

Food & Beverage

0 5 10 15 20 25

Responses

Industr

y S

ecto

r

Classification:

APO

APO+

ERP/APS

Excel

SAP

Specialist

Breakdown of responses by sector

Interpret general forecasting practices and use of systems?

Interpret whether forecasting practices are influenced by SAP APO DP system?

Page 16: Forecasting with SAP®APO DP – the state of the art?

Which Systems?

Page 17: Forecasting with SAP®APO DP – the state of the art?

Heterogeneous market of ERP/APS vs. stand-alone FSS & combination

Study Results Systems use of Respondents

SAP APO only 21%

SAP APO + Other FSS 12%

SAP (non APO) 5%

ERP/APS 34%

FSS Specialist Only 11%

Excel only 17%

48 users apply only SAP APO DP

23 respondents use APO DP plus an extra FSS Specialist system

Majority (72%) of respondents use an ERP/APS system (incl. SAP APO etc.)

14 respondents still use SAP with no APO modues (e.g. R/3 MM …)

SAP based solutions dominate all of ERP usage (100 v. 89 users or 38% v. 34% in %)

Page 18: Forecasting with SAP®APO DP – the state of the art?

Additional tool indicate shortcomings of SAP APO DP

No clear market leader / equal share of additional FSS tools used

Study Results Systems use of APO+ Respondents

JDA 16%

Forecast X 16%

SAS 16%

Forecast Pro 16%

Mercia 7%

Arkieva/Zemeter, Demand

Solutions, Oliver Wight eSOP tool,

Servigistics, SO99+, SPSS, Steelwedge, TOOLBELT, Vanguard

29%

SAP APO+ FSS SAP APO

only 21%

SAP APO + Other FSS

12%

SAP (non APO) 5%

ERP/APS 34%

FSS Specialist

Only 11%

Excel only 17%

Finmatica

INFOR (2005)

23 users apply SAP APO DP plus an additional Specialist FSS

Page 19: Forecasting with SAP®APO DP – the state of the art?

Large variety of ERP/APS systems led by JDA & Demand Solutions

Study Results Systems use of Respondents

JDA 23%

Demand Solutions 14%

Demantra 10%

Logility 9%

MfgPro/QAD 7%

Arkieva/Zemeter 5%

Oracle 3%

Infor 3%

Microsoft Dynamics AX 3%

Futurmaster 2%

Steelwedge 2%

Baan 2%

add*one, ASW, COMPASS, Epicor

iScala, GPAO/Oracle, Kinaxis, M3

(Lawson), MXB PRMS, NeoGrid,

Reflex, Rockysoft, Ross/scp,

Servigistics, Syspro, TecCMI

17%

ERP/APS SYSTEMS (NON-SAP) SAP APO only 21%

SAP APO + Other FSS

12%

SAP (non APO) 5%

ERP/APS 34%

FSS Specialist

Only 11%

Excel only 17%

ERP/APS+ Demantra Forecast Pro (blank) 1

Infor Forecast Pro Infor DP 1

JDA TXT JDA 1

Logility Steelwedge Logility 1

BUT: 4 non SAP users of ERP/APS also use extra FSS specialist software (ForecastPro, eTXT,

Steelwedge etc.)

Page 20: Forecasting with SAP®APO DP – the state of the art?

Large variety of software packages, led by ForecastPro

Study Results Systems use of FSS Specialist Respondents

Forecast Pro 21%

SAS 10%

Forecast X 7%

R 7%

Apollo Data Technologies, Applix Tm1,

Avercast, Demand Solutions, Eviews,

GMT, Infor, Predicast/Aperia, Project i, Remira LogoMate, Retail Express AMP2,

SAF, SPSS, Stata, TORA, TXT …

SPECIALIST FSS SYSTEMS SAP APO only 21%

SAP APO + Other FSS

12%

SAP (non APO) 5%

ERP/APS 34%

FSS Specialist

Only 11%

Excel only 17%

Page 21: Forecasting with SAP®APO DP – the state of the art?

Companies use multiple software together lack of functionality!

Adoption of standard packages (ERP/APS/FSS) individual dies out

Study Results (all industries) Use of Softare Packages

APO DP users use MS Excel as well

to make forecasts!

Excel & FSS users don’t use ERP/

APS systems

APO DP users use APO DP most frequently to

make forecasts Demand Sensing & CPFR systems

are rarely used by anyone!

Few companies today still use a

custom made (in-house) solution

Page 22: Forecasting with SAP®APO DP – the state of the art?

Planners use SAP APO and Excel and FSS … … all in parallel! (requires additional data exchange, process coordination, extra time & effort …)

… indicates some lack of functioality!

Page 23: Forecasting with SAP®APO DP – the state of the art?

What systems do you use?

Page 24: Forecasting with SAP®APO DP – the state of the art?

Which Organisation?

Page 25: Forecasting with SAP®APO DP – the state of the art?

# of items & company turnover drives APO DP adoption

# of Forecasters seems independent of #SKUs and # of revenue?

Study Results (all industries) Organisational Setup

Large companies more likely to

use SAP APO DP

Small companies more likely to use MS Excel

Smaller number of items likely to

drive use of MS Excel

Most companies predict 1000 items across

systems

Number of forecasters is

independent of use of system(!?) Large companies

more likely to use SAP APO DP

APO+ users with more #items

than APO users drives system?

Page 26: Forecasting with SAP®APO DP – the state of the art?

Similar setup: companies forecast on multiple levels & time buckets

How is this (best) supported by SAP APO DP?

Study Results (all industries) Forecasting Setup

APO DP normally forecast at item or account level, never store / DC

Users forecast at multiple time buckets at the

same time!

Daily forecasts are still rare (!)

APO DP+ FSS forecast also at

DC level (VMI functions?)

Page 27: Forecasting with SAP®APO DP – the state of the art?

Market complexities impact all business equally, regardless of system

Study Results (all industries) Drivers of Forecasting

Most companies & system users face the same relative impact

Users of SAP R/3 (MM etc.) face

the least impacts (lucky them!)

Page 28: Forecasting with SAP®APO DP – the state of the art?

What organisation do you use?

Page 29: Forecasting with SAP®APO DP – the state of the art?

Which Tools?

Page 30: Forecasting with SAP®APO DP – the state of the art?

Typical SAP APO usage employs 25% only stats, 25% only judgment

… and 50% a combination of Statistics & Judgment

Study Results (all industries) Use of Forecasting Methods

APO DP users forecast with

Stats + Judgment (S&OP process?)

Excel users apply mainly judgment with any Stats!

Excel users apply mainly judgment (without Stats!)

Excel users apply mainly judgment with any Stats!

Specialist FSS users apply mainly Stats

(without Judg.!)

Page 31: Forecasting with SAP®APO DP – the state of the art?

APO DP: 78% (45% ETS + 22% Av+ 11% Naïve) use simple methods!

APO drives use of simpler methods than average software packages

Study Results (all industries) Use of Forecasting Methods

Exp.Smoothing is the single most used method

family in APO DP

Only marginal use of Linear Regression in SAP APO DP

Only limited use of advanced

methods across any systems!

43% use simplest methods only for level time series

(28% MA+15% Naive)

72% use simplest methods only for level time series

(28% MA+15% Naive) Only 10% of the methods used can integrate causal

drivers (Promos, DC stock …)

Page 32: Forecasting with SAP®APO DP – the state of the art?

What algorithms do you use?

Page 33: Forecasting with SAP®APO DP – the state of the art?
Page 34: Forecasting with SAP®APO DP – the state of the art?

All users are only moderately happy with their forecast accuracy

APO DP not worse off than SAP R/3, ERP or Specialist software

Study Results (all industries) Satisfaction with Forecast Accuracy

SAP APO users are (moderately) satisfied - as are most other users

SAP R/3 users are the least

satisfied (but still only moderate)

using Specialist Software slightly

increases user satisfaction

Page 35: Forecasting with SAP®APO DP – the state of the art?

Users seem satisfied that better systems will not improve accuracy!

BUT: will more customer data not require new system (fucntions)?

Study Results (all industries) Satisfaction with Forecast Accuracy

Excel & SAP users consider better systems more important, not SAP APO users!

More resources & Training are

considered least important

Page 36: Forecasting with SAP®APO DP – the state of the art?

Users seem generally satisfied with their systems

Tricky interpretation, as ERP/APS/Excel can be customised!

Study Results (all industries) Satisfaction with Forecast Software

APO & APO+ users are generally

satisfied with their forecast software

Page 37: Forecasting with SAP®APO DP – the state of the art?

Agenda

1. Disclaimer

2. How do companies use APO DP? Evidence from a survey System(s), Orga, Setup, Methods …!

3. “Best Practices” in APO DP? Forecasting Science as benchmark Data Exploration, Model Selection … Promo Forecasting, New Products …

Forecasting with SAP®APO DP

Page 38: Forecasting with SAP®APO DP – the state of the art?

NON-

Page 39: Forecasting with SAP®APO DP – the state of the art?

Forecasting &

it‘s technology

are well established!

Page 40: Forecasting with SAP®APO DP – the state of the art?

Forecasting has developed as a scientific discipline of its own right

State of the art know-how from 25 years of R&D plus practice !!!

Advances in Forecasting 25 years of Scientific Insights!

• Founding of the International Institute of Forecasters “unify the field and bridge the gap between theory & practice”

• Publication of 2 core interdisciplinary journals – Peer Reviewed! – International Journal of Forecasting 1985, Journal of Forecasting 1982 – Various publications in Operational Research, Management Science,

Finance, Econometrics, Economics, Marketing, Retailing journals

• Publication of Practitioner oriented journals – Peer Reviewed! – Foresight – The Journal of Practical Forecasting (JBF to a lesser extent)

• Annual conferences – The International Symposium on Forecasting (ISF) Peer Review – Professional conferences (Forecasting Summit, commercial

IBF, iE, SAS, Terra etc.) are typically non-peer review

• 4 Nobel Prices for research in forecasting & related areas – Clive Granger & Robert Engle – Daniel Kahneman

Page 41: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Statistical Modelling: Model Application

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Monthly

statistical

forecasting

Initialization via overall analysis

Finalization

of forecast

Page 42: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Statistical Modelling: Model Application

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Monthly

statistical

forecasting

Initialization via overall analysis

Finalization

of forecast

Page 43: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Statistical Modelling: Model Application

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Monthly

statistical

forecasting

Initialization via overall analysis

Finalization

of forecast

Page 44: Forecasting with SAP®APO DP – the state of the art?

Now also available in SAP APO DP in master data (VARCOEFF)

Analysing Assortments ABC-XYZ … Analysis

41.4% of profit comes

from 20% of

products

59.8% of forecasting

error comes

from 20% of

products

Page 45: Forecasting with SAP®APO DP – the state of the art?

No provision of process know-how on how to use & apply it …

Analysing Assortments ABC-XYZ … Analysis

Automatic Exponential Smoothing & SLR incl. Neural

Networks

Interactive MoSel for decision support Exponential Smoothing & SLR

Automatic Exponential

Smoothing & SLR

A-Narts

• Important for the business

• Fewer NARTs (20%)

• Cannot use Neural Nets as

it can‘t be explained in e.g.

ISF

BY, BZ, CY, & CZ -Narts

• Less important

• Many time series (50%)

• Neural Nets can be used

X-Narts

• Simple to forecast

NARTs

• Avoid Neural Nets

similar high

accuracy use the

simplest method

Page 46: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Data Analysis & Exploration

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Page 47: Forecasting with SAP®APO DP – the state of the art?

Data analysis and exploration in SAP®APO DP is …

Data Analysis & Exploration Data Exploration in SAP APO DP

Baseline

Very flexible customization of key-figures to be

displayed on screen

Page 48: Forecasting with SAP®APO DP – the state of the art?

Visualisation is needed for Model Selection & Outlier Detection

Data Analysis & Exploration Graphics in Interactive Forecasting

Baseline

Level time series

Seasonal time series

Trend time series

What is this? No distinction between “Null”

and “0” distorts

Standard colours are poor & often not changeable

due to setup

Page 49: Forecasting with SAP®APO DP – the state of the art?

Together with data transformations (detrend / deseasonalise, log transforms etc.)

0 0.1 0.2 0.3 0.4 0.50

20

40

60Amplitude

frequency (Hz)

seasonal

4.6

4.8

5

1 2 3 4 5 6 7 8 9 10 11 122 4 6 8 10 124.5

4.6

4.7

4.8

4.9

5

5.1

Seasonal Diagram

4.6

4.8

5

1 2 3 4 5 6 7 8 9 10 11 12

4.5

4.6

4.7

4.8

4.9

5

Compare distributions using F-test (parametric) or Freidman’s (nonparametric)

ACF Plots Spectral Plots

Statistical tests, e.g. F-Test

Many others exist: • Trend (Kendall’s Test, Spearman's Rho, Cox-Stuart),

Linear Coefficient , Noether's Cyclical) • Seasonality (Kruskal Wallis Test, Chi-Squared-Mod-

Test, F-Test, ACF-Heuristic) • Noise (Cox-Stuart Dispersion, Runs (Mean), Runs

(Median), Runs (Up-Down) • Model form (Level Shifts, Outliers, nonlinearity …) • Series Characteristics (Zero Values Intermittent

Demand, Length New Products)

Baseline Data Analysis & Exploration Grahs Missing

Seasonal Plots

2 4 6 8 10 124.5

4.6

4.7

4.8

4.9

5

5.1

Seasonal Diagram

Page 50: Forecasting with SAP®APO DP – the state of the art?

Together with data transformations (detrend / deseasonalise, log transforms etc.)

Baseline Data Analysis & Exploration Data Exploration in SAP APO DP

Create simple seasonal diagram as

planning book

Program interactive “graphics container”

with multiple diagrams for APO

Page 51: Forecasting with SAP®APO DP – the state of the art?

Together with data transformations (detrend / deseasonalise, log transforms etc.)

Baseline Data Analysis Understanding Regular Patterns

1948 1958 1968 1978 1988 1998 2008 2018 0

500000

1000000

1500000

2000000UK Gross Domestic Product: chained volume measures

Year

GD

P

20 40 60 80350

400

450

500

550

600

650

Month

Units

1948 1958 1968 1978 1988 1998 2008 2018 0

500000

1000000

1500000

2000000UK Gross Domestic Product: chained volume measures

Year

GD

P

20 40 60 80350

400

450

500

550

600

650

Month

Units

10/26/0810/27/0810/28/0810/29/0810/30/0810/31/0810/26/08 40000

50000

60000

70000

80000

90000

100000

110000UK Hourly Electricity Demand

Day

Dem

and

10/26/0810/27/0810/28/0810/29/0810/30/0810/31/0810/26/08 40000

50000

60000

70000

80000

90000

100000

110000UK Hourly Electricity Demand

Day

Dem

and

10/26/08 10/27/08 10/28/08 10/29/08 10/30/08 10/31/08 40000

50000

60000

70000

80000

90000

100000

110000UK Hourly Electricity Demand

Day

Dem

and

10/26/08 10/27/08 10/28/08 10/29/08 10/30/08 10/31/08 40000

50000

60000

70000

80000

90000

100000

110000UK Hourly Electricity Demand

Day

Dem

and

Show prediction intervals

Show multiple step ahead forecasts

Page 52: Forecasting with SAP®APO DP – the state of the art?

Not every “fancy” visualisation is helpful!

Data Analysis & Exploration Graphics in other software packages

Baseline

Forecast Pro

Page 53: Forecasting with SAP®APO DP – the state of the art?

Underdeveloped

Graphics!

Page 54: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Model Selection & Parameterisation

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Page 55: Forecasting with SAP®APO DP – the state of the art?

Baseline Model Selection Why Model Selection?

Page 56: Forecasting with SAP®APO DP – the state of the art?

–Various selections required in SAP APO DP: • Methods: Exponential Smoothing: Single, Trend, Seasonal, Trend-Seasonal,

Linear regression, Seasonal Linear Reg., … Choice of “98” forecasting methods in SAP APO DP!

• Parameters: Alpha [0,…,1] , Beta [0,…,1], Gamma [0,…,1] Choice of 100x100x100 parameter combinations!

14 ETS models x 100 x 100 x 100 parameters

offer 14.000.000 choices per time series for each planner!

Supports mainly a manual Model

Selection by Forecaster 2 options for a fully automatic Model Selection

Baseline Model Selection Model Selection in APO DP

Page 57: Forecasting with SAP®APO DP – the state of the art?

2 Options for Automatic Model Selection in SAP APO DP (2 magic buttons?)

Option 1 NOR Option 2 always work ( after testing)

Mean Improvement average

Judgmental FC 0% for X

FC Pro -1% for X

Intelligent Forecaster -1% for X

AMSP2 – SAP APO -3% for X

Judgmental FC 3% for Y

FC Pro 1% for Y

Intelligent Forecaster -9% for Y

AMSP2 – SAP APO -81% for Y

Judgmental FC 33% for Z

Intelligent Forecaster 21% for Z

FC Pro 15% for Z

AMSP2 – SAP APO -65% for Z

Automatic Model Selection in SAP APO DP does NOT work robustly!

Works sometimes, but not always … cannot trust the system!

Cannot run automatically in the background!

Baseline Model Selection Model Selection in APO DP

Page 58: Forecasting with SAP®APO DP – the state of the art?

Baseline Model Selection Model Selection in APO DP

Solutions exist – Train demand planners in model selection – Use bolt-on systems for model selection APO-DP

Forecast Profile Model Type Mosel-specific Settings Forecast Profile Model Type

Can train demand planners (preferred!)

Can integrate systems to do model selection for you

Page 59: Forecasting with SAP®APO DP – the state of the art?

Poor Model Selection!

Page 60: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Model Application

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Monthly

statistical

forecasting

Initialization via overall analysis

Finalization

of forecast

SAP®APO DP includes some models which

don’t work

SAP®APO DP excludes some

important models

Page 61: Forecasting with SAP®APO DP – the state of the art?

Forecasting Methods

Statistical

Time Series

Naive Methods

Moving Average

Single ETS

Double ETS (2nd order ETS)

Linear Trend ETS

Seasonal ETS (multiplicative)

Linear Regression

Trend-Seasonal ETS (multip.)

Seasonal Linear Regression

Median Method

Causal

Causal Dynamic Regression (ARX)

Judgemental

Individual

Expert Opinion

Model Application Models in APO not functional

Baseline

Page 62: Forecasting with SAP®APO DP – the state of the art?

Initialisation problem for ETS trend models is significant better avoid them! Similarly: avoid 2nd order Exponential Smoothing

Exponential Smoothing require an “Initialisation” to forecast

poor “Naïve” Initialisation will impair forecast

3 years in-sample not enough to forget bad initialisation, requires higher smoothing

parameters Filter noise adequately?

5 10 15 20 25 30 35 40 4570

80

90

100

110

120

130

140Out-of-sample

Month

GD

P

Data

APO

External

5 10 15 20 25 30 35 40 4580

90

100

110

120

130

140

Out-of-sample

MonthG

DP

Data

APO

External

Model Application Models in APO not functional

Baseline

Page 63: Forecasting with SAP®APO DP – the state of the art?

Model Application Models in APO missing

This restricts the valid usage of the seasonal trend model in APO DP

Exponential Smoothing Models in APO DP

-Seasonal Models

In APO DP there is only multiplicative seasonal exponential smoothing. When there

is no trend or level shifts there is little difference between additive and multiplicative

models; however, this is not the case for trended time series.

0 10 20 30 40 50 600

200

400

600

800

1000

Out-of-sampleAdditive Seasonality

0 10 20 30 40 50 600

200

400

600

800

1000

Out-of-sampleMultiplicative Seasonality

Seasonality expands as level

increases

APO cannot run additive seasonal

model

Baseline

Page 64: Forecasting with SAP®APO DP – the state of the art?

Model Application Models in APO missing

Very small values break down multiplicative seasonal models use

additive

Exponential Smoothing Models in APO DP

-Seasonal Models

Because APO has only multiplicative seasonal EXSM, any time series that has

values close to zero becomes impossible to forecast.

0 10 20 30 40 50 600

500

1000

1500

2000 Out-of-sample

Multiplicative Seasonality

0 10 20 30 40 50 6050

100

150

200

250

300

350 Out-of-sampleMultiplicative Seasonality

Effect of zero

10 20 30 400

500

1000

1500Level Component

10 20 30 400

0.5

1

1.5

2Seasonal Component

1(1 )tt t

t s

AL L

S

1tt t s

t

AS S

L

Baseline

Page 65: Forecasting with SAP®APO DP – the state of the art?

available

in SAP

APO DP

available in

ForecastPro

available in

Autobox

Forecasting Methods

Statistical

Time Series

Naive Methods

Averages

Exponential Smoothing (IMA)

Dynamic Regression (AR)

ARIMA and SARIMA

Comp. Intelligence & Neural Networks

Causal

Causal Dynamic Regression (ARX)

Intervention Models (Smoothing IMAX)

ARIMAX and SARIMAX

Causal CI & Neural Networks

Judgemental

Individual

Expert Opinion

Structured Analogies

PERT

Market Surveys

Group

Jury of Exec. Opinion

Delphi

Prediction Markets

Choose method according to

forecasting problem & data

Simple methods often

perform equally well

Problem dependent

Baseline Model Application Models in APO missing

Page 66: Forecasting with SAP®APO DP – the state of the art?

Causal Modelling

10 20 30 40 50 60 70 80 90 1000

50

100

150

200

250

Period

Units

Sales

Forecast

Promotion 1

Promotion 2

)2(Pr98.46)1(Pr23.9824.042.040.036.25ˆ321 omoomoyyyy ttt

10 20 30 40 50 60 70 80 90 1000

0.5

1

10 20 30 40 50 60 70 80 90 1000

0.5

1

32%

68%

That can get more complicated...

Page 67: Forecasting with SAP®APO DP – the state of the art?

kjtlkrt

rj

ep

pQ

K

k

Zk

kj

T

t

Xt

jt

n

r l

D

lrj

krt

krtkjt

111

3

1

The ScanPRO model

Cross-effects between products Interactions & cannibalism

Cross-effects between promotions Interactions, support & cannibalism

Cross-effects between stores Spatial cannibalisation & competition

5 10 15 20 25 30 35 40 45 50 55 600

1000

2000

3000

4000

5000

6000

Period

Sale

s

5 10 15 20 25 30 35 40 45 50 55 60-2000

-1000

0

1000

2000

Period

+ Effect

- Effect

+ Effect

- Effect

Page 68: Forecasting with SAP®APO DP – the state of the art?

APO DP Best Practices and Limitations Croston – Intermittent Demand

Advanced Intrmittent methods are missing, e.g. neural nets,

Bootstrapping, Zero-inflated demand

Croston method is designed to deal with these type of products.

Intermittent Time Series

0

5

10

15

20

Jan

-05

Mar

-05

May

-05

Jul-

05

Sep

-05

No

v-0

5

Jan

-06

Mar

-06

May

-06

Jul-

06

Sep

-06

No

v-0

60

5

10

15

20

1 2 3 4 5

Demand

0

2

4

6

8

1 2 3 4 5

Time Interval

Count every how many months there is demand

0

2

4

6

8

1 2 3 4 5 6

0

5

10

15

20

1 2 3 4 5 6

Forecast them with the same single exponential smoothing model

12 months of data

Only 5 months of data!

Page 69: Forecasting with SAP®APO DP – the state of the art?

Limited Model

Functionality!

Page 70: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Statistical Modelling: Model Application

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Monthly

statistical

forecasting

Initialization via overall analysis

Finalization

of forecast

Page 71: Forecasting with SAP®APO DP – the state of the art?

No explicit systems support of judgmental decision making in system!

Data Analysis & Exploration Data Exploration in SAP APO DP

Baseline

Allows various overrides for

promo planning, history correction,

Can add notes

Page 72: Forecasting with SAP®APO DP – the state of the art?

Support Judgement with Analogous Information

Improve Forecasting Support Systems (FSS)

Rational

Human

Causes

– e.g. biases

from company

policy

Irrational

Human Causes

– limited

information

processing

capacity

HUMAN CAUSES

• How to avoid sys-tematic errors in final forecast?

Sub-optimal

sales forecast

accuracy from

Human

Judgment

THE PROBLEM THE REMEDIES

Training Decompose Judgment Don’t adjust Use Analogies Develop systems FSS features to support judgment FSS features to constrain judgement

Side effects:

Lower user

acceptance

Page 73: Forecasting with SAP®APO DP – the state of the art?

Test what type of support works best using ANOVA

Interactively select & store similar promotional cases

Memory

support

Similarity

judgment

support

Adaptation

judgment

support

Page 74: Forecasting with SAP®APO DP – the state of the art?

Limited Support of Judgment!

Page 75: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Statistical Modelling: Model Application

Identify

suitable models &

Analyse &

understand

assortment

(ABC / XYZ)

Decision on

automated

forecasting

Maintain

master data

& link with

predecessors

Evaluate

statistical

/ manual

Apply

Adjust & release

forecast

Analyze

time series

& clean data

parameters

forecasting

forecast

quality

Monthly

statistical

forecasting

Initialization via overall analysis

Finalization

of forecast

Page 76: Forecasting with SAP®APO DP – the state of the art?

Model Evaluation Misleading Error Measures

Assess accuracy correctly: out of sample, rolling, good measures!

10 20 30 40 50 60 70 80350

400

450

500

550

600

650

Month

Uni

ts

10 20 30 40 50 60 70 80350

400

450

500

550

600

650

10 20 30 40 50 60 70 80350

400

450

500

550

600

650

Out-of-sample

data 1 forecast origin only 1 measurement low confidence in the measurement accuracy BUT: more data (24) is available Forecast origin

In-sample data

Page 77: Forecasting with SAP®APO DP – the state of the art?

Model Evaluation Model Wrappers

Assess accuracy correctly: out of sample, rolling, good measures!

)ln(22 LkAIC

)ln()ln(2 nkLBIC

1

1

( ) 2

ni i

i i i

A FsMAPE

n A F

n

i i

ii

A

FA

nMAPE

1

1

n

i

ii FAn

MSE1

21

… use Information Criteria

for model selection?

n

i

ii FAn

MAE1

1

Fit all possible models and measure the errors:

Robust versions of MAPE exist

Naivet

ttt

FA

FARE

nn

i Naivei

ii

FA

FAGMRAE

1

1

Relative Errors missing

n

i Naiveaheadstepsamplein

tt

MAE

FA

nMASE

1 1

1

Page 78: Forecasting with SAP®APO DP – the state of the art?

Model Evaluation Model Wrappers

Assess accuracy correctly: out of sample, rolling, good measures!

Visualisation of error distributions to check for

errors and bias for relevant lead time!

Page 79: Forecasting with SAP®APO DP – the state of the art?

The Forecasting Process Triage of Baseline | Promo | New

Baseline Planning

Promotions Planning

New Product Planning

Page 80: Forecasting with SAP®APO DP – the state of the art?

Take aways

• Companies are uisng SAP APO withmultiple other systems and still use simple methods & little data does not reflect Marketing hype & S.o.t.A.!

• Data exploration can be enhanced poor graphics & visualisation – customisable?

• Model Selection can be enhanced enough model selection & models for you?

• Judgmental Adjustments are not supported well smart notes to support & costrain judgment!

• Review your SAP APO DP setup possibly new releases / customisation flawed?

… making SAP APO DP work for you!

Page 81: Forecasting with SAP®APO DP – the state of the art?

… Discussion?

Page 82: Forecasting with SAP®APO DP – the state of the art?

Dr. Sven F. Crone Assistant Professor, Director

Lancaster University Management School Research Centre for Forecasting

Lancaster, LA1 4YX

Tel. +44 1524 5-92991 [email protected]

Questions?

Page 83: Forecasting with SAP®APO DP – the state of the art?

Dr. Sven F. Crone

Assistant Professor, Director Lancaster University Management School

Research Centre for Forecasting

Lancaster, LA1 4YX Tel. +44 1524 5-92991

[email protected]

Copyright

These slides are from a workshop on forecasting.

You may use these slides for internal purpose, so long as they are

clearly identified as being created and copyrighted © by Sven F.

Crone, Lancaster Centre for Forecasting.

You may not use the text and images in a paper, tutorial or external

training without explicit prior permission from the centre.