Philips Consumer Lifestyle streamlines the planning and forecasting process

Philips Consumer Lifestyle is a worldwide manufacturer of electronic lifestyle products for consumers. The company’s product groups include health and wellbeing, domestic appliances, shaving and body care, television, audio and multimedia, plus peripherals and accessories. Philips Consumer Lifestyle employs a staff of approximately 17,000 in 50 countries. The organisation’s head office is located in Amsterdam in the Netherlands. Philips Consumer Lifestyle is a division of Koninklijke Philips Electronics N.V.

Challenges faced
The 2008 merger of Philips Domestic Appliances and Philips Consumer Electronics into Philips Consumer Lifestyle created one of the world’s biggest providers of electronic consumer lifestyle products. Each year, hundreds of millions of Philips Consumer Lifestyle products are sold over the counter. Planning worldwide sales is a complex process.

“We make more than eight thousand products that are sold in hundreds of countries. Our fifty local sales and marketing organisations produce forecasts that then have to be brought into line with one another worldwide. In total, more than a thousand people are involved in the overall planning and forecasting process.” That’s how Eelco van den Akker, Director Planning processes Global Logistics of Philips Consumer Lifestyle, explains the situation.

The market dynamics in which the company operates are also on a grand scale. “On the demand side, we have to deal with powerful store chains,” explains Van den Akker. “It’s a strongly promotion-driven business where products have a short lifecycle and price erosion is the order of the day. Then, on the supply side, we are under pressure to bring our products to market as quickly as possible and in the right volumes. And being able to adjust our capacity in good time to take advantage of market developments requires a great deal of flexibility in terms of purchasing and production, both regionally and worldwide.”

Strategy followed
To achieve the best possible balance between supply and demand, Philips Consumer Lifestyle decided to streamline the planning and forecasting process.

“At Philips Domestic Appliances we had for a number of years been working with an integrated financial and operational planning process based on IBM Cognos Planning. So we took the concept and within a few months implemented it for the whole of Philips Consumer Lifestyle,” says Van den Akker.

The company operates based on a core concept that local sales plans lead the way. Every month the sales organisations use their knowledge of the local market to produce forecasts based on business targets. These forecasts include the expected sales volumes and selling prices, supplemented once a quarter by promotional spending. They then enter their plans into the central planning application via a web portal. The forecasts are used as the basis for purchasing and production planning. If the required volumes can’t be met, feedback is generated from the logistics chain. A direct link between the planning application and the logistics system facilitates this interaction. Each quarter, a snapshot of the sales plans is taken at head office. These snapshots are enhanced with a range of financial details and processed into rolling forecasts. After the forecasts have been discussed with the business units in question and any adjustments made, all of the data is consolidated. The whole process, from snapshot to consolidation, is completed within two weeks. The Board of Directors can then deliberate over the information, determine whether it is in line with targets and implement corrective measures, if required.

Benefits realised
Philips Consumer Lifestyle has derived a large number of benefits from streamlining and integrating their worldwide planning and forecasting process.

“We now have a far better insight into the financial effects of changes to the sales plans. We are able to optimise our margins, sales volume and turnover because we know what product and market combinations we need to focus on. That creates improvements to our level of service, because we can plan our stock situation accurately,” says Van den Akker.

Another vitally important feature is that Philips Consumer Lifestyle can now adjust its course in good time if market conditions change. This benefit came to light immediately after the new application was implemented.

“When it came to dealing with the effects of the global financial crisis, the planning solution enabled us to take the appropriate measures quickly. We started seeing results within two months, such as reducing our storage costs by double digits,” says Van den Akker. And because the financial planning is based on the operational planning, there is still only one version of the truth throughout the worldwide organisation. “The snapshots of the sales volumes and market prices form the basis for all our financial calculations and projections. That prevents too much discussion. Now we can talk about assumptions instead of just figures.”