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S&OP Pareto Process

The Pareto is a method of focusing the demand planning process on the most significant customers, items, and categories. It is based on the pareto principle, which states that 80% of the demand comes from 20% of the customers.

A Pareto is run automatically during the demand plan generation when the following events occur:

  • At the beginning of each planning period. On a monthly basis at the beginning of each month when monthly forecast buckets are used and weekly when weekly buckets are used. This is necessary in order to save history in the waterfall and update the error measures.
  • If changes are made to the hierarchy or new items are added for sale to a customer
  • Linking old to new items.
  • Adding new items to one or more customers.
  • Any changes made to the hierarchy.

Set Pareto Percentage values in System Settings

The Pareto percentage sets the level at which customers/channels and items are forecasted discretely versus grouped into an "Other" grouping for aggregated forecasting. The other grouping sums up all the demand within the group and calculates a single forecast. This setting is typically only set once.

The Pareto percentages are set in the Sales & Operations Planning Settings in Utilities >> System Settings. There are two levels where the Pareto percentages are set:

  1. S&OP Customer Level Pareto Percentage: The user can adjust the Customer Pareto value from 100% to forecast every customer or lower.
  2. S&OP Item Level Pareto Percentage: The user can adjust the item Pareto value within the customer from 100% or lower.

If 100 is entered, all customers and items will be discretely forecasted.

Set Forecast Distribution Weighted Time Frame

The Recent Period Weight (in months) sets the amount of history to use to calculate the aggregate forecast distribution percentage in a top down forecast. The distribution of the aggregate forecast is weighted by the periods selected. We recommend 6 months because the distribution will be weighted in favor of items that have the most activity in the last 6 months.

Viewing Pareto Results

To view the Pareto results, you must drill down through each level of the hierarchy as shown below. The item level listing can only be viewed by drilling down each level of the hierarchy.

Customer Level Pareto Results

The Pareto analysis result of the customer level is shown below and has the following components.

  1. Detail: Click to drill down to detail
  2. Code: The customer code
  3. Name: The name of the item
  4. Parent name: If the Pareto level is tied to a user defined hierarchical level build in the Planning Hierarchy UI, you will see the name of the hierarchical level node.
  5. Forecast: Forecast Yes or Other. Yes, means the item is forecasted discretely. Other means it is forecasted as part of an "Other" aggregate group.
  6. Revenue: The last 52 weeks revenue that the Pareto is based on.
  7. Revenue Pareto: The percentage contribution of the revenue value.
  8. Cumm %: The cumulative percentage to determine at point the forecast flag is set to Yes or Other.
  9. Forecast Distribution: The percentage to be used in the disaggregation process. This is based on units. The values can be adjusted as required. The amount of history to be used for the calculation may also be adjusted in system settings.

User Defined Hierarchical Level Results

The Pareto analysis result of the customer level is shown below and has the following components.

  1. Detail: Click to drill down to detail
  2. Node Name: The name of the node
  3. Parent name: If the Pareto level is tied to a user defined hierarchical level build in the Planning Hierarchy UI, you will see the name of the hierarchical level node.
  4. Forecast: Forecast Flag Yes or Other. Yes, means the item is forecasted discretely. Other means it is forecasted as part of an "Other" aggregate group.
  5. Revenue: The last 52 weeks revenue that the Pareto is based on.
  6. Revenue Pareto: The percentage contribution of the revenue value.
  7. Cumm %: The cumulative percentage to determine at point the forecast flag is set to Yes or Other.
  8. Forecast Distribution: The percentage to be used in the disaggregation process. This is based on units. The values can be adjusted as required. The amount of history to be used for the calculation may also be adjusted in system settings.

Item Pareto Analysis Results

The Pareto analysis result of the item level is shown below and has the following components.

  1. Code: The item code
  2. Name: The name of the item
  3. Parent name: If the Pareto level is tied to a user defined hierarchical level build in the Planning Hierarchy UI, you will see the name of the hierarchical level node.
  4. Forecast: Forecast Flag Yes or Other. Yes, means the item is forecasted discretely. Other means it is forecasted as part of an "Other" aggregate group.
  5. Revenue: The last 52 weeks revenue that the Pareto is based on.
  6. Revenue Pareto: The percentage contribution of the revenue value.
  7. Cumm %: The cumulative percentage to determine at point the forecast flag is set to Yes or Other.
  8. Forecast Distribution: The percentage to be used in the disaggregation process. This is based on units. The values can be adjusted as required. The amount of history to be used for the calculation may also be adjusted in system settings.

Pareto Forecast Group Modification at Upper Hierarchical Levels

A user may enable or disable a node forecast by:

  1. Checking the box next to the item to be changed
  2. Clicking on Enable Grouping to move the item to the "other" forecast category
  3. Clicking on the Disable Grouping to move the item to the "Yes" forecast category to discretely forecast
  4. Clicking on Delete User Defined Grouping removes the change made
  5. Clicking on Revenue & Statistics run the revenue and statistics step in the planning process

Please note that if a customer is in the "other" forecast category, you will not be able to upload a forecast file for the customer-item relationship. You will need to change the forecast flag to yes to upload or edit the history. Thereafter, if you return the customer back to the other forecast category, all of its edits will be retained.

Item Level Pareto Modifications

At the item level there are a few more options available in addition to the previously described options. They are:

  1. Enable Forecast Generation: Default. An item is statistically forecasted within context.
  2. Disable Forecast Generation: Turn off statistical forecasting for an item within a context.
  3. Enable Supply Plan: Default. A forecasted item is supply planned.
  4. Disable Supply Plan: Turn off supply planning for an item within a context.

It is important to note that any active item within the "Other" group will receive a distributed aggregate forecast. If the item should not receive a forecast, you must set the item to a 0 Forecast Distribution percentage as defined below.

Forecast Distribution Percentage

  1. User may override the Forecast Distribution percentage by clicking on the edit icon in the header.
  2. Clicking on the edit icon next to the value being changes, will open the field to be edited. DemandCaster will auto-calculate the distribution percentages to compensate for an increase in the distribution percentage of a particular item.
  3. There is also an option to upload the values by clicking on the excel icon. This is covered here in the article How to Change Pareto Forecast Distribution Percentage by Uploading.
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