A ROADMAP TO WORLD CLASS FORECASTING ACCURACY Six Keys to Improving Forecast Accuracy

Stephen P. Crane, CSCP, Director Strategic Supply Chain Management Institute of Business Forecasting & Planning Conference Phoenix, AZ February 22-24, 2009
CREATING TOMORROW'S SOLUTIONS

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 1

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 2

OVER 90 YEARS OF SUCCESS

Wacker Chemie AG Founded in 1914 by Dr. Alexander Wacker Headquartered in Munich WACKER Group (2007) Sales: 3.78 billion EBITDA: Net income: 1.00 billion 422 million

Net cash flow:

R&D: Employees:

644 million
153 million

Capital expenditures: 699 million 15,044

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 3

WE ARE COMMITTED TO BENCHMARK-QUALITY PRODUCTS DESIGNED FOR OUR FOCUS INDUSTRIES

Industries Adhesives Automotive and transport Basic chemicals Construction chemicals Gumbase Industrial coatings and printing inks Paper and ceramics Products: Polymer powders and dispersions for the construction industry Polyvinyl acetate solid resins, polyvinyl alcohol solutions, polyvinyl butyral and vinyl chloride coand terpolymers
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 4

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 5

FORECAST TYPES
Most companies use three types of forecasts Sales or channel forecast Corporate planning forecasts Supplier forecasts These forecasts are very different in their
use, frequency, and definition

Need consistent demand signal across these

three forecasting processes, but most companies dont know how to align them

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 6

WHY FORECAST?
The forecast drives supply planning, production planning,
inventory planning, raw material planning, and financial forecasting

Companies that are best at demand forecasting average; 15% less inventory 17% higher perfect order fulfillment

35% shorter cash-to-cash cycle times

1/10 the stockouts of their peers 1% improvement in forecast accuracy can yield
2% improvement in perfect order fulfillment

3% increase in forecast accuracy increases profit margin 2%

Source: AMR Research 2008 Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 7

INVENTORY LEVEL VS. FORECAST ACCURACY

120

Inventory Days of Sale

100 80 60 40 20 0 20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Aberdeen Group 2008

Forecast Accuracy at SKU Location

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 8

WHAT IS A GOOD FORECAST?

World class forecasting accuracy performance

95% currency by product line 90% by product line 85% product mix level Goal

Source: Buker Management Consulting

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 9

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 10

Presentation Title First Name Last Name, Organizational Unit, Date of Presentation, Slide 11

FORECASTING BACKGROUND & CHALLENGES

Typical forecasting process involves historical demand data loaded
into a database using software to generate statistical forecasts

Statistical software is rarely allowed to operate on its own

Management usually overrides the statistical
forecast before agreeing to final forecast

Forecasting is often difficult and thankless

endeavor with high inaccuracies

Companies react to inaccuracies with

investments in technology

Forecasting Process

New investments do not guarantee any better forecasts There are often fundamental issues that need to be addressed before
improvements can be achieved
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 12

FORECASTING BACKGROUND & CHALLENGES

When businesses know their sales for next week, next month,
and next year, they only invest in the facilities, equipment, materials, and staffing they need

There are huge opportunities to minimize costs and maximize

profits if we know what tomorrow will bring but we dont.

Therefore we forecast!

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 13

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 14

WORLD CLASS FORECASTING ACCURACY REQUIRES MAKING THE RIGHT DECISIONS

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 15

SIX KEYS TO IMPROVING FORECAST ACCURACY

Step 1: Defining the Process, People, & Tools

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 16

STEP 1: DEFINING THE PROCESS, PEOPLE & TOOLS

Process

Forecast accuracy improvement occurs with the proper

blending of process, people, and IT tools

Overemphasis on any one leads to an imbalance that can

defeat the desired result

The process should be defined first, then followed by roles

and responsibilities, and then IT applications

The more people that touch a forecast, the greater the bias
and the greater the forecast error
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 17

SALES & OPERATIONS PLANNING PROCESS

Forecasting & Demand Planning
Demand Planning Data Preparation Phase Add New Business Entries in R3 Upload New Sales History & Business Combos Review Historical Sales Data Review Demand Metrics

WD 0 -16
[WD 0-7] Update Demand Change Summary

Supply Networking Planning WD 1- 6

Sequential Business Unit Planning [WD 1-5] Finalize & Approve Supply Plan [WD 6]

Approve Supply Chain Plans WD 7-8

Partnership Meeting [WD 7] Executive S&OP [WD 8]

Create Unconstrained Demand Plan [WD 8-16] Apply Historical Sales Data Adjustments Apply Planning Type Assignments Create Statistical Forecast APO Data Passed to BW Review FC Adjustments with Sales Managers Upload WD 1 Inventory Review Supply Shortage & Capacity Overload Alerts

Review Action Items from Last Month Review Unconstrained Demand Plan Exceptions Review Supply Options & Cost Projections

Review Action Items from Last Month Review Performance Metrics

Apply Future Demand Changes

Review Final Sales Manager Figures

BT/BU Review & Approve Unconstrained Demand Plan

DP Passed to CO for Financial Forecast

Publish Unconstrained Demand Plan

Enter Adjusted Demand

Resolve Supply Alerts

Review Supply Chain Plans

Supply Planning
Supply Network Planning Preparation Phase Submit Off System Demand Figures Review Supply Planning Metrics Update Supply Change Summary Update Loc Shift Table For Future Source Changes

WD 13 -End

Adjust Target Stock Levels

Submit Supply Plan with Documented Options

Review Financial Plan Review Revenue Projections Agree & Communicate Approved Plans Communicate Implications to Financial & Sales Plans

Preferred Sources Assigned to Demand

Review Performance Metrics Fix SNP Planned orders Approve Supply Plan Key Business Issues & Resolution Summarize Supply Chain Plans

Release FC to R3 For MRP

Update Master Data & Upload Inventory

Refresh Inactive Version / Release DP to SNP

Adjust Supply Planning Constraints

Analyze Draft Supply / Capacity Plan

Develop Updated Supply Plan Proposal

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 18

Automated Jobs

STEP 1: DEFINING THE PROCESS, PEOPLE & TOOLS

People

People make organizations and are critical to the forecasting

process and how its used within the organization

They need to understand how their role fits with the work
process and how to make improvements

Position descriptions need to be defined with clear

responsibilities that are accepted by the organization

Full time positions are essential Limit number of people making decisions about final forecast
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 19

STEP 1: DEFINING THE PROCESS, PEOPLE & TOOLS

IT Tools

Forecasting software is sometimes sold

as the answer to forecasting issues

Software does not solve forecasting problems.

Processes and people solve problems

Implementing forecasting software should not be considered

an IT project, but a business process improvement project

Forecasting applications can eliminate much of the manual

work associated with forecasting if configured properly

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 20

SIX KEYS TO IMPROVING FORECAST ACCURACY

Step 2: Establish Statistical Forecasting Capability

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 21

STEP 2: STATISTICAL FORECASTING CAPABILITY

Many supply chains are too complex to manually generate forecasts
for all products and customers

Forecasting engines are widely used to improve forecast accuracy

by generating statistical forecasts

Statistical forecasting uses sales history to predict the future by

identifying trends and patterns with the data to develop a forecast

Need to decide at what level the forecasting should be done Product family Individual product Product/customer Product/customer ship-to Plant/product/customer ship-to
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 22

STEP 2: STATISTICAL FORECASTING CAPABILITY

Need to decide how often to forecast

Quarterly Monthly Weekly Daily

Determine how much sales history is required for meaningful

statistical forecast (minimum 2 years)

Sales history master data must be correct especially when

migrating from legacy systems. Very difficult to do correctly

Analyze the forecast error associated with using available

forecasting algorithms to optimize accuracy of forecast
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 23

STEP 2: STATISTICAL FORECASTING CAPABILITY

Typical statistical forecasting methods include

Multiple regression analysis Trend analysis Seasonal Simple moving average

Weighted moving average

Exponential smoothing Automatic selection
Recommended

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 24

STEP 2: STATISTICAL FORECASTING CAPABILITY

It is critical to make appropriate sales history adjustments
to generate an accurate statistical forecast Adjustments Necessary to History

Data errors

Lost product volume

Lost customers One time customer outages Discontinued products Non-optimal sourcing

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 25

SIX KEYS TO IMPROVING FORECAST ACCURACY

Step 3: Forecasting Segmentation 80/20 Analysis

Data Aggregation Business Intelligence

Exceptions

Collaboration

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 26

STEP 3: FORECASTING SEGMENTATION - 80/20 ANALYSIS

It is crucial to distinguish the high-value items for special attention while automating the not-as-valuable items
High
Statistical Forecastability (measured by 1/COV)

Non-High Impact Items

Use Data Aggregation in Statistical Model for all Non-HI Items

High Impact Items

Gather Business Intelligence for all HI items
Collaborate with Customer (if possible)

Manage by Exception using Exception Reports

~ 80% Total Volume

Low
Notes COV (Coefficient of Variation) = STD Deviation/Ave. Demand

Low

Sales Volume/Impact

High

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 27

STEP 3: FORECASTING SEGMENTATION EXAMPLE

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 28

SIX KEYS TO IMPROVING FORECAST ACCURACY

Step 4: Data Aggregation

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 29

STEP 4: DATA AGGREGATION

SAP APO 4.1 used for forecasting and demand planning Forecasting done at product/customer ship-to level

Thousands of unique customer / product combinations

exist to manage

Too much data for Planners to review monthly Sales history for many combinations (~80%) was sporadic
and difficult to forecast, i.e., high forecasting errors

So how do you get a good forecast for

sporadic combinations?

Forecast at a more aggregate level

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 30

STEP 4: DATA AGGREGATION

Getting a good forecast for sporadic combinations.

Compile non-high impact items from segmentation analysis

Program forecast model to aggregate non-high impact items

to logical planning source (plant, warehouse, prod. unit, etc.)

Generate statistical forecast at aggregate planning source

Disaggregate statistical forecast to lowest forecast level in

model based on past history (plant/product/customer ship-to)

Aggregation to the plant/product level reduced number of

combinations to review by 80%
Aggregation produces a more accurate forecast for sporadic items allowing more time to focus on high impact items
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 31

SIX KEYS TO IMPROVING FORECAST ACCURACY

Step 5: Sales Adjustments to Statistical Forecast

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 32

STEP 5: SALES ADJUSTMENTS TO STATISTICAL FORECAST

Accurate forecasting is not just getting a forecast from the customer. The customer isnt always right!

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 33

STEP 5:
SALES ADJUSTMENTS TO STATISTICAL FORECAST

Since statistical forecasting is based on previous sales, it is necessary to take into account elements that can affect sales

Seasonality of the business State of the economy Competition and market position Product trends

Its also important to ask customers the right sales questions to validate forecast assumptions

Where does this project rank today? When are you looking to make a purchasing decision? When will you be implementing? What would you like to see happen as a next step?
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 34

STEP 5:
SALES ADJUSTMENTS TO STATISTICAL FORECAST
Adjustments Made to Forecast Pre-buying Promotional impacts Upside and downside volumes Customer plants expected to be down New business Decide where adjustments New customers should be made Adjustments Made to History Data errors Lost product volume One time customer outages Packaging changes Discontinued products
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 35

SIX KEYS TO IMPROVING FORECAST ACCURACY

Step 6: Measurement & Exception Reporting

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 36

STEP 6: MEASUREMENT & EXCEPTION REPORTING

If you can not effectively measure forecasting performance,
you can not identify whether changes to the process are improving forecast accuracy

Effective measures should evaluate accuracy at different levels

of aggregation (plant, warehouse, sales region, etc.)

Measuring and reporting forecast accuracy helps to build

confidence in the forecasting process

Once people realize that sources of error are being eliminated,

the organization will begin to use the forecast to drive business operations

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 37

STEP 6: MEASUREMENT & EXCEPTION REPORTING

A variety of analyses and exception-based measurements
are needed to understand where the biggest sources of forecast error are

Identifying High Impact exceptions for Sales review Accuracy of adjustments made to statistical forecast Identifying non-High Impact exceptions Current month variances (Forecast Actual) Forecast but no sales Sales but no forecast No sales in last 12 months

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 38

HIGH IMPACT EXCEPTIONS FOR SALES REVIEW

Identify High Impact Exceptions to focus forecast

review

Sold To Customer A Customer B Customer C Customer D Customer E Customer F Customer G Customer H Customer I Customer J

Decreasing or increasing sales rates Aggressive statistical forecast based on historical run rates
History
Loc MO GA TX AZ TN TX NY FL GA NJ Product Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 7 Product 8 Product 9 Product 10

S&OP Forecast

MAY 2006 JUN 2006 JUL 2006 JUL 2006 AUG 2006 SEP 2006 142,800 80,948 101,251 88,863 80,000 80,000 20,276 10,000 10,000 101,577 101,378 81,284 82,009 86,990 87,060 60,899 81,166 39,208 60,000 60,000 60,000 60,954 20,348 81,247 53,012 60,520 60,582 141,131 121,971 141,321 120,000 140,000 120,000 101,496 81,438 82,019 81,210 87,681 87,738 100,761 120,302 100,788 103,993 104,148 104,239 121,753 142,392 121,817 116,505 117,554 117,554 163,003 142,709 61,217 155,800 155,800 155,800

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 39

ACCURACY OF FORECAST ADJUSTMENTS

(Units in KGS)
Ship-to Customer Customer A Customer B Customer C Customer D Customer E Customer F Customer G Customer H Customer I Customer J Customer K Customer L Customer M Customer N Customer O Customer P Customer Q Jun06 Act 2,167,904 286,650 316,315 743,619 20,266 244,023 332,211 20,312 50,000 301,221 40,479 142,709 163,592 0 40,615 0 152,434 Jun06 Stat Fcst 1,465,968 494,531 454,387 906,002 0 370,466 252,729 40,547 130,416 111,502 56,471 84,879 237,196 1,603 0 52,893 194,153 Stat Fcst Jun06 S&OP Final Abs Error 701,936 1,691,155 207,881 281,859 138,072 313,809 162,383 680,000 20,266 50,000 126,443 205,698 79,482 330,000 20,236 113,400 80,416 80,000 189,719 159,757 15,992 102,000 57,830 155,800 73,604 193,000 1,603 40,000 40,615 37,800 52,893 16,000 41,719 140,000 S&OP Abs Error 476,749 4,791 2,506 63,619 29,734 38,325 2,211 93,088 30,000 141,464 61,521 13,091 29,408 40,000 2,815 16,000 12,434 Impact +/225,187 203,090 135,566 98,764 (9,467) 88,117 77,271 (72,853) 50,416 48,255 (45,529) 44,739 44,196 (38,397) 37,800 36,893 29,285

Statistical Forecast Final S&OP Forecast (Includes Forecast Adjustments) Impact +/Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 40

ACCURACY OF FORECAST ADJUSTMENTS

If adjustments to the statistical forecast do not improve forecast accuracy, why make them
(Units in KGS) Stat Actual Stat Forecast Demand Forecast Error Month Jan06 6,091,955 7,593,962 5,196,370 Feb06 9,147,987 8,661,173 4,497,213 Mar06 11,570,962 11,932,441 3,992,114 Apr06 10,625,650 12,512,901 5,348,524 May06 10,815,034 9,840,902 3,791,501 Jun06 8,817,693 9,041,067 3,697,356 Last 6 Month Ave. 57,069,281 59,582,446 26,523,078 S&OP Forecast 5,918,751 9,061,139 12,448,817 13,477,086 11,297,905 9,311,634 61,515,332 S&OP Forecast Error 1,886,262 3,013,993 2,885,691 4,550,418 3,059,782 2,569,887 17,966,033

Impact 54.3% 16.2% 9.6% 7.5% 6.8% 12.8% 15.0%

Accurate customer intelligence provided by Sales can significantly improve forecast accuracy
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 41

CURRENT MONTH VARIANCE ANALYSIS

These items have the biggest overall impact to

forecast accuracy results

Determine the source of the variances

Forecast Variances -- By Ship-to Customer JULY 2006 Product Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 7 Product 8 Product 9 Product 10 Product 11 Product 12 Product 13 Product 14 Customer Customer A Customer B Customer C Customer D Customer E Customer F Customer G Customer H Customer I Customer J Customer K Customer L Customer M Customer N JULY Actual 2,134,314 KG 1,230,867 KG 433,674 KG 0 KG 61,117 KG 165,799 KG 431,901 KG 424,536 KG 334,660 KG 20,040 KG 490,342 KG 40,642 KG 264,235 KG 181,589 KG JULY Forecast 1,611,990 KG 900,000 KG 147,542 KG 240,000 KG 300,000 KG 330,000 KG 268,665 KG 262,575 KG 174,096 KG 175,167 KG 355,456 KG 171,132 KG 143,679 KG 77,946 KG JULY Variance 522,324 KG 330,867 KG 286,132 KG 240,000 KG 238,883 KG 164,201 KG 163,236 KG 161,961 KG 160,565 KG 155,127 KG 134,886 KG 130,490 KG 120,557 KG 103,644 KG JULY Fcst Accuracy 67.6% 63.2% -93.9% 0.0% 0.0% 50.2% 39.2% 38.3% 7.8% 11.4% 62.1% 23.7% 16.1% -33.0%

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 42

FORECAST BUT NO SALES

Zero out the history for these customers in the

forecast model

Last 3 Mo.
Average Monthly Demand 0 0 0 0 0 0 0 0 0 0 0

Stat Fcst
Ave Fcst Next 3 Mo. 0 15,694 0 0 34,619 0 18,047 17,293 10,654 9,763 8,223

Final Fcst
09/2006 125,000 80,000 87,000 72,000 34,485 1 18,047 17,282 10,624 9,744 8,223

Final Fcst
10/2006 125,000 123,000 87,000 72,000 34,676 20,000 18,047 17,298 10,667 9,772 8,223

Final Fcst
Ave Fcst Next 3 Mo. 125,000 101,333 87,000 72,000 34,619 20,000 18,047 17,293 10,654 9,763 8,223

Product Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 7 Product 8 Product 9 Product 10 Product 11
2 0

Customer Ship-to Customer A Customer B Customer C Customer D Customer E Customer F Customer G Customer H Customer I Customer J Customer K

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 43

SALES BUT NO FORECAST

Add forecasts for these customers

Act Sales

Act Sales

Act Sales

Last 3 Mo. Average Monthly Demand 28,183 20,372 16,577 15,407 13,587 13,529 13,300 13,212 13,203 11,717 11,679

Stat Fcst

Stat Fcst

Final Fcst

Final Fcst

05/2006 Product Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 7 Product 8 Product 9 Product 10 Product 11
2 0 1

06/2006 0 0 20,330 12,093 0 0 11,400 0 0 0 0

07/2006 84,550 61,117 0 20,339 40,760 40,587 22,800 39,635 39,608 35,150 34,382

09/2006 0 0 0 0 0 0 0 0 0 0 0

10/2006 0 0 0 0 0 0 0 0 0 0 0

09/2006 0 0 0 0 0 0 0 0 0 0 0

10/2006 0 0 0 0 0 0 0 0 0 0 0

Customer Ship-to Customer A Customer B Customer C Customer D Customer E Customer F Customer G Customer H Customer I Customer J Customer K

0 0 29,402 13,789 0 0 5,700 0 0 0 654

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 44

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 45

FORECAST ACCURACY IMPROVEMENT

(Product Mix Level)
100

% Forecast Accuracy

90 80 70 60

Process, People, Statistical Forecasting

Forecast Segmentation Data Aggregation

Exception Analysis Forecast Adjustments

World Class

+ 6%
50 40
4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05

+ 15%

+ 7%
1Q06 2Q06 3Q06

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 46

PRODUCTION PLAN ADHERENCE

SUPPLY PLANNING ACCURACY
100

Production Plan Adherence (%)

90

80

70

38% Improvement
60

50

2004
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 47

2007

FINANCIAL FORECAST ACCURACY

100 90

Direct Profit Accuracy (%)

80 70 60

21% Improvement
50 40 30

2004
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 48

2007

ACTUAL FORECAST DEVIATION TREND

Forecast deviation at product level
.5

APO Go-Live

AP
Forecast Deviation
.4

WACKER

.3

.2

Target
.1

Jul-07

Oct-07

Jul-08

Mar-08

Feb-08

Jun-08

Jan-08

Oct-08

May-08

Sep-07

Dec-07

Sep-08

Nov-07

Aug-07

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 49

Aug-08

Nov-08

Dec-08

Jan-09

Apr-08

.0

CONTENT

WACKER Company Overview Why Forecast?

Forecasting Background and Challenges

Six Keys to Improving Forecast Accuracy

Process, People, & Tools Statistical Forecasting Forecasting Segmentation Data Aggregation Sales Adjustments to Statistical Forecast Measurement & Exception Reporting

Forecasting Accuracy Results Conclusions

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 50

CONCLUSIONS
If you follow the Roadmap to improve your companies sales forecasting practices, you will experience reductions in costs and increases in customer and employee satisfaction. Costs will decline in inventory levels, raw materials, production, and logistics. But the first step a company must take

before realizing these kind of benefits, is to recognize the importance of sales forecasting as a
management function, and be willing to commit the necessary resources to becoming world class.
Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 51

The Wacker Group

CREATING TOMORROW'S SOLUTIONS

Stephen P. Crane Director Strategic Supply Chain Management [email protected]

THANK YOU FOR YOUR ATTENTION

Roadmap To World Class Forecasting Accuracy, Januray 25, 2009 Stephen Crane, Page 52