How to plan activity of the enterprise in the conditions of changeable economy using IT? TADetails

What is IBP and for what purposes these solutions are used?

Different classes of business management systems – ERP CRM BI and others, in this or that type are used in all large companies. Among them stand the systems of the integrated planning alone (Integration Business Planning, IBP). IBP are the flexible modeling tool, what-if of simulations and the predictive analysis allowing to plan activity of the enterprise in the conditions of modern changeable economy. Similar solutions only gain popularity, but customers even more often think of transfer of the optimization algorithms from the separate and self-written systems in the centralized solutions of this type.

IBP systems allow to plan activity of the enterprise in the conditions of changeable economy

An IBP system includes two principal components: Demand Planning (demand planning) and Supply Chain Planning (supply chain planning). In practice solutions which use only one of components meet, but usually they supplement each other.

What role of the Demand Planning component?

The approach to demand planning extended earlier called by Supply-driven at which the sales forecast was considered as stable made sense at a small amount of key players and lack of global channels of Internet sales.

With globalization of business also volatility of demand increased, and old approach was inefficient. In new conditions crucially quickly and precisely to predict demand, considering different casual-factors and dynamics of the market. The strategy of a type of Demand-driven stepped on the stage.

But demand depends on a huge number of factors, and its forecasting manually — very difficult task therefore today for creation of forecasts the systems of the class Demand Planning (DP) are used.

The production company can have thousands of SKU, a set of the markets and sales channels, clients and sales points. The good DP product allows to work with data at the different detail levels, to make fast aggregation and disaggregation of data, at the same time it should have good scalability.

The Demand Planning system uses not only "rough" forecasting methods, such as moving average and exponential smoothing, but also more perfect: ARIMA, ARIMAX and dynamic regression.

The modern DP solution has the built-in mechanisms of interpretation of data: diagrams, the what-if tools of the analysis and comparison and also it is capable to unload data in the tables Excel.

What features of implementation of Demand Planning?

Implementation of a DP system begins with the choice of an optimal data model. The model should be, on the one hand, suitable for shortchanging, i.e. not too large. With another — to have detailing, sufficient for the full analysis.

The second step − solution integration with the local systems for obtaining information: data from reference books of positions, regions, etc. and also sales histories are loaded into IBP. At this stage often there are problems as initial data can often be bad quality - not structured or not giving in to processing.

For example, for creation of the exact forecast of sale optimal history are data on the actual sales, but not always the company has a technical infrastructure for collecting of such information. Often the companies as a sales history use alternative sources, for example, data on sales orders that reduces quality of the forecast. Eliminate imperfection of initial data — an uncommon task and one of obstacles in a way of implementation of the DP solution.

Having provided data collection, train in work in a system the staff of the interested departments and departments — sales, marketing, etc. Their task — using these systems, to develop and approve the sales plan.

Actually, consensus - the sales plan is and there is a result of work of a DP system. The plan shows how many the goods and in what sales points it is possible to implement, i.e. reflect the belief of the company in possibilities of demand supported with calculations.

For what the Supply Chain Planning (SCP) component is necessary?

Usually planned sales volume obviously exceeds production capabilities of the company, and there is a natural question: "How to meet this demand?"

The solution of the class Supply Chain Planning (SCP) helps to answer it.

In 1996 the SCC non-profit organization submitted the SCOR standard (Supply-chain Operations Reference), having offered an operational model of optimum control of supply chains. However, though SCOR also contains recommendations about creation of business processes at the organizational level, it does not give clear algorithms of supply planning, logistics, production or sale from the economic point of view.

In practice, each directorate of the company aims to reduce the costs that is almost always contrary to activity of the adjacent direction. For example, the situation when it is profitable to sales office to sell a wide range of products with high value added is possible, but at the same time it is not profitable to production to waste time for readjustments of the equipment and to switch often from production of one product to another.

To observe balance, it is necessary to estimate advantage of one solution over another using transparent economic evaluation of this or that plan. In other words, it is necessary to adopt the plan maximizing marginal income of the enterprise — this approach is known as "cost" or cost-based optimization.

How to plan deliveries using SCP?

For comprehensive planning of deliveries in the SCP solution the mathematical apparatus known as "Linear programming" is used (LP) or "Integer linear programming" (MILP). In the market exists several mathematical optimizers solving this problem: CPLEX, Gurobi, XPRESS and also a set of the SCP solutions working based on these libraries.

Having generalized, planning process can be described three steps:

      1. Collecting of restrictions: variable costs and "tough" restrictions.
      2. Creation and calculation of model for the optimizer.
      3. Interpretation of results of work of a SCP system and their export to the adjacent systems for execution of the plan.

Let's consider each stage in more detail.

Collecting of restrictions. At this stage it is necessary to collect and connect among themselves all significant business restrictions. ERP and the CRM system, budgeting systems, corporate data warehouses, an ACS of transport, a MES system and so forth are data sources. It is good if the SCP solution delivers the same vendor, as the local systems: for example, SAP APO of SNP provides seamless integration with SAP ERP. But even in this case not all restrictions will be integrated.

Creation and calculation of model for the optimizer. This stage — a planning process core, and on it the greatest project risks are concentrated. Capacity of computers grows, but it is still not enough for shortchanging of model entirely. The most labor-consuming from this point of view is shortchanging of nonlinear restrictions, in particular, of multiplicity of batches of the supplier, readjustments on production and restrictions for a tselochislennost of transport unit. Here decomposition of model, i.e. its separation into several compound tasks comes to the rescue.

Main types of decomposition are included below:

• Decomposition on a nomenclature component: groups of positions are planned in parallel or consistently from more priority to less priority.
• Decomposition on the periods: planning happens the enlarged periods, and the received results are entrance restrictions for the following more detailed plan. Also planning can be conducted by the periods of variable calendar length, and the next period is detailed as much as possible.
• Decomposition on topological separation: not crossed parts of model are planned independently. For example, it is possible to optimize separately activity of several plants of group of the enterprise.

In practice these approaches usually combine. The development of the correct assumptions and assumptions allowing to perform decomposition of model is, perhaps, the most creative and difficult task at implementation of an IBP system.

Interpretation of results of calculation. At this stage data of calculation turn into objects, clear for the user: purchasing requests, orders for movements, works orders and so forth. Within this step parsing, i.e. analysis of results of planning before detailing necessary to the customer, and if it is necessary, a pegging (pegging) during which material flows on a transport network are enriched with analytics of the final sales order is made. Then export of data from transaction OLTP storage to OLAP of structure is made for the subsequent analysis of the constructed plan using BI of the reporting. The stage final − unloading of results of planning in the adjacent systems for their further execution.

In addition to technical difficulties there are also organizational tasks which need to be solved during the project. For carrying out the planning integrated, i.e. covering all fields of activity of the company, it is the best of all to create separate division. The staff of such department should place responsibility for results of planning in one area for an exception of conflicts of interest between services of the company — logistics, supply, sale, etc. Also the department should be engaged in operational work with restrictions: maintain relevance and integrity, to adjust within analysis what-if and so forth. At last, the division will support an IBP system in a functional part and to timely add new business restrictions to model, - Fyodor Egorov, the expert of Philosophy.IT explains.

What results are yielded by implementation of IBP?

Implementation of the IBP solution is worth of the spent efforts as creates the realistic consensus forecast of demand based on powerful tools of mathematical statistics, a sales history and casual-factors.

The IBP solution gives the chance at any time to select the most marginal demand and to satisfy it, minimizing the accompanying variable costs. What is important, results of work of an IBP system allow to prove economically before company management and shareholders financial advantages of proposed solutions.

Implementation of an IBP product — an uncommon task in the course of which solution both organizational, and technical risks can be implemented. Really, for formation of the complete and internally approved pool of restrictions team work and the established horizontal relations between departments of the enterprise is necessary.

Experts of our command locate rich experience of implementation of IBP solutions based on products of world leading manufacturers of software — SAP and Oracle. Our command successfully implemented a number of projects on implementation both Demand Planning, and Supply Chain Planning a component, having acquired examination on key aspects of implementation. Our experience includes modeling of restrictions for business processes, the organization of business processes for the most complete use of an IBP system, decomposition of difficult models on components, integration with the adjacent systems and planning visualization, including using BI tools, - Mikhail Nelkin, the CEO of Philosophy.IT tells.