One-Number Forecasting: Heinz's Experience and Learning
Park, Sara, The Journal of Business Forecasting
The longer the forecasting period gets extended into the future, the more uncertainties, volatility, and biases get introduced ... forecasting at the lowest level accounts much more effectively the growth or decline in a segment .... with a one-number forecast, it is easy to reconcile demand and supply.
Henry J. Heinz founded his company in 1869 when he was only 25 years old. His company's first product was horseradish in clear glass bottles; his competitors were filling their opaque bottles with fillers such as sticks and leaves. Our world-famous tomato ketchup was first introduced in 1875, quickly becoming a condiment of choice. Heinz's first venture overseas was in England in 1886, 17 years after the company's inception. Many British people believe that it is an English company known for its bean and soup products. In 1958, Heinz made its first acquisition and never looked back. Today, it is the most globalized U.S.-based food company with many recognizable brands sold in more than 50 countries as either number one or number two in their category. Some of those categories include: Ketchup, condiments, sauces, frozen entrée and snacks, baby food, soup, pasta, and beans.
Heinz North America (HNA) is based in the United States and Canada; the U.S. portion comprises two large business units: Consumer Products (CP) and Foodservice (FS). Consumer Products are further broken down into dry and frozen brands. Dry brands include Heinz Ketchup, condiments such as pickles, vinegar, and relish, WyIer's Bouillon, and sauces such as 57 Sauce, Home-style Gravy, and Classico Pasta Sauces. Frozen brands include Smart Ones Frozen Meals and Desserts, Boston Market Meals and Sides, Ore-Ida Potatoes, Bagel Bites, and TGIF Appetizers.
Each CP brand has a certain structure in its functions: For business development and growth it includes Brand Management (Marketing), Market Research, Research & Development, Category Development/ Field Sales, and Consumer Marketing/CoMarketing. For supply chain management and operations, it is Demand & Supply Planning, Transportation & Warehousing, Procurement, and Manufacturing; and for budgeting and financial planning and support, Finance.
FORECASTING: THE BEGINNING
The department of Forecasting & Demand Planning has greatly evolved since its inception in January 2002 with the hiring of a manager from KimberlyClark to head up the forecasting efforts and report to VP of Marketing. Until then, the responsibility of volume forecasting resided with Marketing/Brand Management, which posed both benefits and challenges.
Some of the benefits were that the owners of each brand (i.e., brand managers) led initiatives to grow and drive their businesses while keeping tuned to their consumers' behaviors and preferences, as well as their competitive activities in the marketplace. However, challenges included the presence of multiple motives behind calling the volume. Brand Management teams tended to be optimistic with their marketing programs and launch of new items in order to obtain more supportive funding, while Sales veered rather conservatively because of their targets. As such, various departments used different forecasts throughout the organization even though the uploaded volume (base-line forecast) was the same. For instance, Finance might have added more optimism to the forecast, while Production Planning may have applied a bit of conservatism to maintain low inventory. Therefore, everyone, especially Brand Management and Sales, ended up spending too much time on debating "true demand." Their estimates differed from each other because of the use of different assumptions. When the shipment did not materialize as forecasted, everyone had their own explanation of why it missed the volume call.
Despite all that, the Forecasting Department, a third party, maintained its obj ectivity in developing forecasts by using consistent formats and methodologies. …