Event Based Demand Planning: Hollister's Journey (2005)

Describes the Hollister's forecasting process ... separate forecasts are prepared for and event-based products ... senior management is most interested in forecasts of products that are impacted by events. Doesn't everyone (every company, every forecaster, every planner, and every forecast user) want: (1) a more accurate forecast, (2) to reduce the bias in a forecast, and (3) to communicate the significant happenings in the forecast to all of the end-users? Hollister Incorporated is no different. The goal is to forecast accurately with little or no bias, and communicate the performance of the new or major activities to all end users of the forecast. Hollister Incorporated is a global healthcare device manufacturer located in Libertyville, Illinois. Even though it is employee-owned, there is still great interest in achieving these goals - maybe even more so than in publicly held companies. FORECASTING PROCESS This article presents a new approach to accomplish all three of these forecast objectives. It involves a simple strategy, the separation of products from all the others. Another facet of this approach is that it facilitates the quantification of the impact of many activities that need to be included in a regular monthly forecast update. But the major benefit of this approach to forecasting is that it focuses forecast information on those activities that management is critically interested in. Therefore, all forecast communication becomes focused on those groups of materials that senior management really wants to follow. This approach is called Event Based Demand Planning, because it is centric. significant event, once identified, changes the entire forecasting process. It changes the way the forecast is generated, the frequency and depth of forecast reviews, and the format and substance of management forecast reports. The process implemented at Hollister Incorporated yielded many dramatic results quickly. The forecast error was reduced, the bias of the forecasts was brought under control, and the communication of the forecast performance became more focused, all of which now support the company's strategic objectives. Environment The forecast system at Hollister uses the SAP system and historical sales orders. As with any forecasting process, the first step is cleansing the historical demands of any anomalies. The intent of this step is to remove extraneous information that will cause the SAP forecasting engine to calculate an inappropriate time series projection. The historical demands that represent one-time spikes (either up or down) must be eliminated; an example would be a new customer's shelf stocking demand. This demand cleansing step is relatively easy for the large volume A type products in the product portfolio, but it becomes increasingly more difficult for the medium type B products, and is almost impossible for the small, typically volatile, C products. Baseline Vs. Event Products After cleansing is complete, the products are separated into two groups; materials are either baseline products or event products. Further discussion on the nature of these events will follow and will make this classification process straightforward. But simply stated, the products can be described as those products about which nothing is happening either inside the company or from external sources. The products should be readily forecasted using almost any standard forecasting software package. They should be reviewed individually to determine the appropriate forecast model. This ensures that the system generated forecast is of high quality and that the projected forecast units are an accurate depiction of anticipated future demands. Some of the products may have a forecast component, but all of them will also have an forecast component. The forecast component represents the incremental impact of an on the demand for a material. …