State of Sales Forecasting Systems in Corporate America
Mentzer, John T, Kahn, Kenneth B, The Journal of Business Forecasting Methods & Systems
Middle managers are mostly involved in developing sales forecasts... many companies neither evaluate nor reward forecasting performance ... half of the companies do not have electronic connection between forecasting systems and production and inventory planning systems.
Most of the companies use a negotiated or consensus approach to arrive at final forecasts. Very few companies have a system in place to benchmark their forecasts with other companies and provide training to newcomers. Often forecasters do not have adequate access to the vital information needed for preparing forecasts. Many companies view the sales forecasting process backward. They first develop the sales and financial plans and then the forecasts. These are some of the findings of the study recently completed by the authors.
Numerous previous studies have examined such sales forecasting technique issues as technique familiarity, satisfaction, and usage. However, no study to date has looked at the broader sales forecasting issues of the types of systems used to support the sales forecasting techniques or how the sales forecasting function is managed. This is surprising since forecasting systems and management have as much, if not more, potential to affect the ultimate effectiveness of sales forecasts as does the proper selection of the forecasting technique. Such fundamental nuances as lack of access to the necessary data or the inability for users to readily make adjustments to the statistically generated forecasts (both systems issues) can have a profound impact on forecast accuracy. Further, the misuse or non-use (or simply the lack of believability) of the forecast can affect business performance. This second, more managerial, issue is especially important. Often functional areas which use the forecast (marketing, sales, finance, production, or logistics) simply do not believe in the system generated forecasts and, thus, resort to their own uninformed, naive forecasts.
Although the systems within which sales forecasts are developed and the management processes by which the role of sales forecasting is defined are integral parts of the sales forecasting function, previous surveys of sales forecasting have largely ignored these topics. This led to the research questions which drove the present study: What are the characteristics of sales forecasting systems? What is the level of management satisfaction with these systems? What management approaches are used to prepare forecasts?
To address these questions, a mail survey was sent to a random sample of sales forecasting executives in 478 companies. The questionnaire included measures of the number and types of systems used in the sales forecasting process, as well as questions about sales forecasting management approaches and responsibilities. The cover letter directed the questionnaire to the manager responsible for the sales forecasting function and asked for their participation in the study. A review of business cards enclosed with survey responses, as well as responses to a question about job title, confirmed that surveys were completed by forecasting managers.
Prior to the initial mailing, a pretest was undertaken with forecasting managers from nine companies to check the appearance and comprehensibility of the questionnaire. Two survey waves of the revised questionnaire resulted in 207 completed questionnaires, a 43% response rate.
Analysis revealed no demographic differences between each wave of respondents. The majority of responding firms were consumer products manufacturers. There was a slight bias toward larger companies, but the range of corporate demographics indicated a representative sample. On average, responding firms had sales of $1.375 billion (range of $1,000,000 to over $10,000,000,000), assets of $1.984 billion (range of $1,000,000 to over $10,000,000,000), and employment of 12,032 individuals (range of less than 100 to 100,000 employees). …