| Best Practices |
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The
Impact of Forecasting Improvement on Return on Shareholder Value
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Seven Keys to Better Forecasting - Webinar with Dr. Mentzer, |
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How we dramatically streamlined our Demand Planning Process: An Interview with Jeff Gates, Demand Manager at Tellabs |
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Editor's Note:
On November 30, 2004 Tellabs (NASDAQ: TLAB) closed a $1.5 billion merger with AFC (NASDAQ: AFCI), creating a leading global supplier of access, transport and data solutions for telecom service providers worldwide. Steelwedge Software has been an Enterprise Planning & Performance Management solution provider for both companies. Jeff Gates is the Demand Manager for Tellabs’ Access Division which represents about 25% of Tellabs’ total revenues. Besides managing the product forecast for the Access Division, Jeff is also involved with managing system and process changes to combine AFC and Tellabs systems.
SW:
Let’s begin with an overview of Tellabs, your industry and your product structures.
JG:
We design and market telecommunications equipment, and we sell our products to service providers world-wide. Our products are next generation optical networking, managed access which is my business area, carrier class data voice quality cable telephony, selling to the RBOCs, inter-exchange carriers to cable operators as well as Internet exchange service providers.
SW:
We know that you sell bundled products so tell us if you are manufacturing in-house, or are you outsourcing, or both?
JG:
Like many technology companies today, we use a semi-outsourcing model. We do not build anything here. Our contract manufacturers and supply chain do all the building. We do some integration in house for system-builds, bringing materials in from our contract manufacturers and shipping from here, but for the most part it is an outsourcing model.
SW:
With this business model, forecasting and planning product sales must be difficult. What are the key issues?
JG:
There are several factors. First, we have hundreds of forecastable items, and hundreds of customers across the globe. Secondly, our products are configurable and customized, ever-changing with constant updates. Thirdly, many of these configurations have a very short lifecycle—all creating forecasting complexity.
SW:
You installed Steelwedge’s Enterprise Planning and Performance Management software in 2003. Can you describe your planning process prior to Steelwedge?
JG:
Essentially, we had independent processes through the various departments. We had the sales department doing their bookings forecasting, finance doing revenue targets and the operations department doing product forecasts--all different processes that did not tie together. They were manual processes with no timelines, all kept on disparate Excel spreadsheets. It was difficult to maintain any consistency and integrity of data. Relying on a manual process we were only able to update quarterly with minimal feedback between the groups so we always had differences in the numbers. We knew we needed to bring it all together and have an automated system so we started a search for an ERP forecasting tool.
SW:
How did the planning process change with the implementation of Steelwedge Software for Enterprise Planning & Performance Management?
JG:
With Steelwedge’s assistance in project management we first created a standard forecasting process with fixed time schedules and managed all the workflow activities to keep all groups on schedule. There were automated transfers of data and assumptions going back and forth between the departments so we were engaging each other in an automated fashion which was a huge incentive for all departments—sales, finance and operations. Because the process was automated and inclusive we were able to move to a monthly process. It allowed us to manage forecast by exception as opposed to each line item. And, we implemented the Steelwedge Statistical Bill of Materials (sBOM)--instead of treating some of the smaller items independently we were tying them to our configured systems which go up and down as our customers orders change—increasing the accuracy of the forecast.
SW:
How difficult was it to change from the old manual process to the new, automated system?
JG:
Two things: First, we already had a pretty good database structure—a data warehouse—so we had most of the information we needed, but with Steelwedge we were able to leverage our existing data warehouse architecture much better using Steelwedge Software to extract the available data which saved a lot of time and money. The transformation was seamless from my perspective. Second, we spent a lot of time upfront on processes making sure that we included key stakeholders in the decision-making process which took a lot of the pain out of the conversion process. It took a lot of communication including a presentation at the annual sales meeting. By engaging all stake-holders early we were able to get buy-in to the new process right away. In the first month we had 95% sales participation showing they embraced it right away, a key to the whole process.
SW:
What were other results?
JG:
Basically, a consensus forecast, everything all in one place, a cohesive plan, as opposed to spreadsheets floating around all over the place.
SW:
Do you have a consensus planning meeting?
JG:
We do. Every month after the forecast is done—first the sales input is made, then the revenue targets are set, and then the product forecast is done—we get together to review any discrepancies—maybe the product forecast is a little higher than the revenue targets—so we’ll get together to discuss the reasons to be sure we’re all in sync. And agree. Generally, it’s a fairly quick meeting because we’re all on the same page.
SW:
With 95% participation in the first month the sales team moved quickly. Did the other stakeholders buy in early too?
JG:
Sales input was a huge plus because we used to get dollars and now we were getting high-level forecasting of products. After the first month of working with the intricacies of the system we found material results, including better configuration accuracy which resulted in tighter revenue targets. The Finance plan was previously an independent and manual process. There were also material benefits from the automation of the “C” items (low value components or individual products)—about 500 that previously we had to go through one-by-one.
SW:
From your perspective, what were the biggest improvements with the new system and process?
JG:
The biggest thing is the Statistical Bills of Materials (sBOMs) which allowed us to tie items with their systems as opposed to treating them independently. For example, if a system was being discontinued, we wouldn’t necessarily pick that up separately forecasting independent items. The new process picks this up and shows the decrease for those items related to that system—a huge plus that mitigates our exposure to the supply chain. Also, the Steelwedge statistical forecast engine allows us more time to analyze forecasts rather than collect data.
SW:
Looking forward, what are upcoming continuous improvement efforts at Tellabs?
JG:
There are a couple of big projects going on. One, we’re moving towards a full Sales & Operations Planning (S&OP) process working with Steelwedge on the latest system upgrade. Over the next two quarters we’ll have a full implementation of the S&OP process. We’re combining Tellabs and AFC systems to the latest version of Steelwedge Software also during the next two quarters. And, there are a few other projects. For example, we’re tying the margin forecast by customer based on price list and revenue targets taking into account market conditions and price elasticity, etc...
SW:
Any final thoughts?
JG:
The biggest thing is that while systems are great, they need a tightly integrated business process. At the recommendation of Steelwedge, we spent a lot of time up front getting our processes set before trying to implement a new system. That helped a lot. Once we had our processes in place we found that moving to a forecasting system was much easier because we could configure it around our process. The Steelwedge system had an integrated workflow engine which lent itself well to this approach - to build a system around our process. That was a key factor in making this project successful.
SW:
Thank you for sharing these insights with us.
About Steelwedge
Steelwedge Software is the leading innovator in the emerging field of Enterprise Planning and Performance Management (EPPM), helping manufacturing companies to create, validate and synchronize functional plans, align them with business and financial targets, and gain executive visibility and control over enterprise performance. |
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Copyright 2005 STEELWEDGE, Inc. All rights reserved.