In two previous posts, I claimed that by segmenting your forecast and focusing your energy in the right areas, you can increase revenues and forecast accuracy while decreasing inventory. Does that sound too good to be true? Are you skeptical of this claim… as skeptical as you are about your forecast? After all, how much good can you do if you spend more time on a specific customer than another? Or could you increase your revenue if you spent more time with a particular sales rep than another?
I aim to prove, with real life examples, that you can.
Increased forecast accuracy by 15%
A telecommunications equipment manufacturer was in a situation where operations teams would state that the sales and marketing forecast was sometimes 100% wrong. In fact, there was so little trust between the two groups that operations would build to its own forecast without sales and marketing even knowing. However, as you can imagine, inventory overages and stock-outs caused lost orders and encouraged the company to improve its forecasting. By following a proven four-step process to forecasting and putting structure around that process, the company was able to measure forecast accuracy and pinpoint the areas of forecast on which to focus.
Once operations, marketing and sales could see the areas of the forecast that required attention, they were able to increase the forecast accuracy by 25%. As I argued in a previous post, the intelligence to address the forecasting challenge exists in the minds of the people doing the forecast, they just need to focus their energy in the proper places. Now this telecommunications equipment manufacturer wins more business with shorter lead times and has reduced inventory levels by up to 25% by simply having a forecast on which operations knows exactly which elements can be trusted.
Decreased inventories by 20%
A semiconductor company that competes in a lead time-based market consistently had high levels of inventory to ensure that it could always have parts available to meet the customer demand. Unfortunately, this would result in excess and obsolete inventory that weighed negatively on its earnings and growth. It needed to stay competitive without carrying excess inventory. It implemented a similar four-step sales forecasting process and began measuring and enforcing forecast accuracy rules. The company quickly determined which products were the high accuracy products and changed its process to build to forecast on those products.
The company also found the lowest accuracy products and focused the sales team’s energy on improving the accuracy of those products. Just by building the high-accuracy parts to forecast, instead of to stock, the company decreased its inventory by 20%.
With improvements it is seeing in forecast accuracy of the other parts, the company expects to decrease its inventory levels another 20%. What can it do with all that extra money? Hire more sales folks? Build better products? Invest in growth?
The point is, decreasing inventory is not only good for operations—it is good for entire company.
I hope, with two real world examples, I have reduced your skepticism that there is gold in your forecast. It may be hard to find, but it is there. Through process and technology, like Right90 Trust Analytics™, you can find it. If you are still skeptical or you simply want to learn more, I encourage you to read other success stories or come to talk to us.
Tags: Best Practices, customer success, revenue performance management, trust