Collaboration and Information Sharing toward forecasting A case study at L’Oréal Sverige AB Louis Duflot June 2014 KTH Industriell teknik och management Industriell produktion SE-100 44 STOCKHOLM Abstract This paper tackles the need for information sharing between retailer and supplier in the fast moving consumer goods industry. Satisfying the end customer demand strains both the supplier and the retailer’s supply chain. Uncertainty and randomness of orders at every level requires every player to forecast future demand. Inaccuracy of these forecasts increases costs in the supply chain, when every player tries to minimize its own costs independently. In order to decrease overall cost, collaboration is required. Collaboration can only be achieved through an exchange of information between the considered players. This investigation focuses on how to use information sharing to increase forecast accuracy at the supplier. Using end customer demand allows the supplier to use new indicators to measure its performance; up to taking control of its brand inventory at the retailer’s. The goal is to decrease overall costs by decreasing the demand amplification effect and increasing service levels along the supply chain. 1 Aknowledgement I would like to hereby thank everybody involved in carrying out this master thesis project. First, Mr. Tomas Hruska, General Manager, and Mr. Carl Lundberg, Supply Chain manager at L’Oréal Sverige AB, who made the implementation of this project possible. Mr. Lundberg’s interest, guidance and support were key to grasp and investigate the tackled topics. Secondly, Mr. Ove Bayard, supervisor at KTH, for its necessary guidance and approval of the conducted research. Last but not least, I would like to thank the CPD demand planning team, Mrs. Maria Ouvarova and Mrs. Veronica Ganning for their warm welcome and the tremendous help in involving me with the different forecasting processes on top of their workload; as well as the whole Alvik office for their support. 2 Contents Abstract ................................................................................................................................................................... 1 Aknowledgement .................................................................................................................................................... 2 List of Figures .......................................................................................................................................................... 5 List of Tables ........................................................................................................................................................... 5 Abbreviations .......................................................................................................................................................... 6 I. Introduction.................................................................................................................................................... 7 1.1 Problem Area ......................................................................................................................................... 7 a) FMCG & Cosmetics ................................................................................................................................ 7 b) Supply Chain .......................................................................................................................................... 7 1.2 Background and location ....................................................................................................................... 8 a) L’Oréal ................................................................................................................................................... 8 b) CPD ........................................................................................................................................................ 8 c) CPD Sweden. .......................................................................................................................................... 9 1.3 Purpose ................................................................................................................................................ 10 1.4 Limitations ........................................................................................................................................... 10 II. Theoretical Framework ................................................................................................................................ 11 1. Bullwhip effect ......................................................................................................................................... 11 1.1 Forrester effect ............................................................................................................................... 12 1.2 Burbidge effect ................................................................................................................................ 12 1.3 Houlihan effect ................................................................................................................................ 12 1.4 Promotional effect .......................................................................................................................... 12 2. Collaboration and Information sharing .................................................................................................... 13 2.1 Demand information ....................................................................................................................... 14 2.2 Other type of information : ............................................................................................................. 15 2.3 Advance demand information ........................................................................................................ 16 2.4 VMI .................................................................................................................................................. 17 2.5 Limitations ....................................................................................................................................... 18 3. Supply Chain Management ...................................................................................................................... 18 4. Forecasting ............................................................................................................................................... 19 4.1 Qualitative / Quantitative ............................................................................................................... 19 4.2 Classical time serie analysis. ............................................................................................................ 20 4.3 Errors and forecast accuracy ........................................................................................................... 23 III. Research ................................................................................................................................................... 24 1. Methodology ............................................................................................................................................ 24 2. Mapping of the demand .......................................................................................................................... 25 2.1 Demand scenario ............................................................................................................................ 25 3 2.2 Customer Service ............................................................................................................................ 26 2.3 EDI: .................................................................................................................................................. 26 2.4 Sales Force. ...................................................................................................................................... 26 3. Demand information availability ............................................................................................................. 27 3.1 Historical data ................................................................................................................................. 27 3.2 Market data: Nielsen Databases ..................................................................................................... 27 3.3 Customer provided information ..................................................................................................... 28 4. Establishment of the current forecasting process ................................................................................... 29 4.1 Budget ............................................................................................................................................. 29 4.2 Baseline ........................................................................................................................................... 29 4.3 Promotions ...................................................................................................................................... 29 4.4 Launch ............................................................................................................................................. 30 4.5 Spectra ...........................................................................................................................................