Academic journal article The Journal of Business Forecasting Methods & Systems

Integrating the Forecasting Process with the Supply Chain: Bayer Healthcare's Journey

Academic journal article The Journal of Business Forecasting Methods & Systems

Integrating the Forecasting Process with the Supply Chain: Bayer Healthcare's Journey

Article excerpt

Describes in detail the supply chain integration efforts of Bayer HealthCare Division, which are based on the Collaborative Planning, Forecasting and Replenishment process ... many products have a built in bias of over-and under-forecasting, which has to be removed to improve forecasts ... generating accurate forecasts is not at the top of agenda of salespeople.

Like other companies in Pharmaceuticals and across industries, the forecasting function is now getting more and more attention at Bayer Group, particularly within Bayer HealthCare (BHC) Division. This may be because our market for OTC (over the counter) products is becoming more volatile and competitive, and the products are highly seasonal. For a forecasting function to succeed, it needs the support of upper management. To gain their support, it is important to know how much forecast accuracy is worth to a company in terms of dollars and cents, which is at the moment missing, and that gives a great challenge to a forecaster. Even more challenging is to integrate the forecasting process with the supply chain management for inventory management and production planning. Without this integration, we would be acting as a firefighter in the supply chain, responding to problems whenever they occur such as back orders, which is very costly and time consuming.

The situation at BHC Consumer Care, described above, called for an integrated approach. The purpose of this approach called Supply Chain Integration- is to evaluate the impact of business forecasting on the total supply chain performance and then decide on the best way to synchronize the supply chain information with our trading partners.

SUPPLY CHAIN INTEGRATION AT BHC'S CONSUMER CARE

The supply chain integration at BHC Consumer Care division in EU is based on the Collaborative Planning, Forecasting and Replenishment (CPFR) process. Under this process, each customer country forecasts its future volume sales for next 18 months, which is communicated to us along with inventory information. BHC, based on this information determines production requirements, generates customer orders, and sets up the shipment schedule. However, in steady and low volume markets, where there are no launches, trends, seasons, and promotional activities, a different approach such as pull-approach or make to order could be more appropriate. In the pull approach, a certain inventory level triggers a new production requirement.

In an industry like pharmaceuticals, characterized by long lead-times for active ingredients and raw materials, CPFR is by far the most appropriate approach to the supply chain management. It enables the suppliers to plan ahead - considering all changes and irregularities in trends, seasons, and promotions. Also, it is very efficient because it minimizes the overlaps of processes and responsibilities with respect to the interface between customers and suppliers. But at no point the importance of forecasting accuracy can be undermined because it is the forecast that drives the entire supply chain from purchasing of raw materials to replenishment of distribution centers.

The complexity in managing the supply chain comes from managing manufacturing and sales/marketing units because of their competing goals and targets they traditionally pursue. Sales/Marketing units are by nature target oriented, and focus entirely on their customers. They don't understand the impact of forecast numbers they provide on the Supply Chain. As such they don't care how good their forecast numbers are. The only thing that matters to them is that products are available when they need them.

The "back-end" of the Supply Chain (SC), the production facility, is often driven by different objectives. Often production people give efficiency and the lowest cost the highest priority in their production planning. Frequent changes in their production plan increase their cost of producing goods. Integrated performance measures, e. …

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