For most organizations, sales forecasting is a time-consuming painful process that results in very little value. As stated in a blog I recently read, the typical process goes something like:
- Collect the forecast from sales reps, and assemble in a spreadsheet
- Roll-up forecast to managers who apply their subjective judgment
- Roll-up manager forecast to VPs who apply their own personal bias
- Roll-up the VP forecast to executives, who change it because it is too low
- Hand over the forecast to operations and finance who toss it in the garbage because they don’t trust it and it’s not timely enough to make an impact to production or planning.
It is no wonder that everyone hates forecasting. Would you like to be involved with a project where the final deliverable is considered to be highly untrustworthy by everyone in the company? I didn’t think so. However, organizations do exist where operations, finance and executives do trust the sales forecast.
How can your organization get a trusted forecast? It starts with the process. The process we have seen successful organizations adopt goes well beyond the typical collect, roll-up and report process:
- Capture the forecast from all the relevant folks.
- You need input from everyone—not just sales, but also marketing, distributors, resellers and even statistical projections
- Provide the forecasters (the reps and other folks) with information to make better forecasts, such as last quarter’s shipments or this quarter’s unfulfilled backlog
- Allow forecasters to enter data in a manner that reflects their role. Don’t make a rep forecast by product, they forecast by account. Don’t make a marketing person forecast by account, they forecast by product or market segment.
- Vet the forecast objectively
- Individual forecasts are subjective; individuals have inherent biases and inaccuracies. One can objectively remove those biases by using real data from the past, like forecast accuracy, bias and consistency to judge that forecast objectively.
- Furthermore, folks judging the forecast should have information about how the forecast and shipments evolved and changed through the previous quarters so they can objectively utilize this data to judge the current quarter forecast.
- Analyze the forecast completely
- It is not enough to understand your forecast by top level region and know how the forecast has changed for top 10 accounts.
- You need to understand trends deep inside the forecast so that you can capitalize on competitive opportunities or avoid potential downfalls, before they happen. You should understand every detail of what has changed in the forecast, and why.
- Apply the same rigor and analysis to analyzing your forecast that you do to analyzing past order and shipment data.
- Drive your business
- Of course a sales rep finds forecasting useless if he forecasts a product, but the operations teams do not build to that forecast. If you have a trusted and accurate forecast, operations and finance teams can build to that forecast, including taking inventory positions, building exactly to forecast, or making hiring decisions based on that trusted forecast.
- Hold the forecasters accountable by measuring their forecast accuracy, bias, and consistency—so you know who to trust in the future, and you have confidence in making business decisions based on the forecast. Close the loop and bring this information back into the vet step to improve the overall forecast.
If your organization falls into the flawed “collect, roll-up, and report” paradigm of sales forecasting, it’s likely you are experiencing all the pain and getting none of the benefits. Right90 customers that have followed the “capture-vet-analyze-drive” process have seen tremendous benefits, like 20% decreases in inventory and 15% increases in forecast accuracy. Perhaps more importantly, forecasting becomes a little less painful and certainly worth the effort.
Tags: demand planning, forecasting, Sales, sales analytics, sales forecasting, sales management, trust