Positioning Sales Forecasting for Better Results
Florance, Melissa M., Sawicz, Michael S., The Journal of Business Forecasting Methods & Systems
The Nineties have been called the Information Decade. During this period, information will become one of the most important commodities in the business environment. The companies with the best information will prosper over their competition. The need for accurate information is making corporations expand the role of Sales Forecasting. To this end, corporations have spent millions of dollars on computer systems, software, and MIS personnel to handle the vast amount of information necessary to compete effectively in today's business world. In the academic journals, numerous articles have been written on forecast systems, new software packages, and various forecasting techniques. Few, however, have stressed the importance of placement of different functions within the corporate structure. Proper placement of functions and departments within the corporation is critical in order to have a continual flow of information and ideas. This placement will create a secondary flow of information, with little or no cost to the corporation, compared to the expensive information systems. This secondary flow will result from close communication between information users (Marketing staff) and information preparers (Sales Forecasters). This is the next step in the evolution of Sales Forecasting as an ever expanding business discipline. Sales Forecasting, more than most other business disciplines, is placed in a variety of different departments, It can be found in Marketing, Operations, Strategic Planning, and Finance. With placement in all these departments, it is easy to see why sales forecasting is facing somewhat of an "Identity Crisis." Sales Forecasting must move out of the Operations Department and into the Marketing Department if the full impact of this important business discipline is to be realized.
By definition, Sales Forecasting predicts sales, not production or inventory. Sales Forecasting is not the same as Production Planning, and, therefore, should not be placed in the Operations Department, where it is too far "downstream." At Reckitt & Colman, it was realized early on that accurate forecasting was going to be a key to the Company's success. They went back to basics and reexamined the structure within their company. One of the first crucial steps that was taken was to move the Sales Forecasting Group into Marketing, where it belongs. This placement within the company affords the Sales Forecasting Group many advantages. The advantages include: a proactive not reactive corporate role, better interpretation of the data via closer contact with the decision makers, and a more team oriented work environment.
PROACTIVE VS. REACTIVE
In the Seventies and even Eighties, the forecasting function was not viewed as a crucial role. In a decade where customers routinely maintained and accepted higher inventory levels, and purchased their products perhaps in two key periods a year, the discipline of forecasting was viewed as quite simple. The old discipline could be labeled the "black box syndrome" approach to forecasting. Forecasting assumed that whatever happened in the past would happen in the future (reactive sales forecasting). A typical sales forecast would be generated from a mainframe system and normally would look at a three year time horizon and forecast sales demand based only on that past history (historical trend smoothing). This type of forecasting is no longer acceptable because we cannot continually forecast all businesses accurately this way in today's highly competitive environment. Brand Managers look to Forecasting Specialists to help analyze their businesses. Marketers spend a lot of time developing new products and finding new ways to gain consumer awareness on existing products. They do not have a lot of time to devote to forecasting, nor do they have the proper training in regression analysis and other forecasting methodologies. Sales forecasting is not an exact science, but knowing what drives sales demand is crucial to the success of the sales forecasts. …