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Improved sales forecasting accuracy frombetter procedures, methods and use of software |
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Sales forecasting improvement programmesCompanies review the matter of sales forecasting for a number of reasons, but at the heart of it is usually the realisation that sales forecasting is a critical process that affects business and supply chain planning throughout the company. Case study on sales forecasting process improvementAll businesses are unique, and improvements can be made in many different ways, but the following steps represent a logical approach to tackling a thorough review of the demand forecasting process: 1. Assessment of current stateThe first stage in an improvement programme is to carry out an assessment of the current system in terms of the forecasting process that is followed, the methods employed and the forecast accuracy that is achieved. Forecast Solutions can carry out a quantified analysis of current system effectiveness using specialist software. 2. Set objectives for demand forecastingForecasting potentially supports a number of different business processes and the purpose of existing forecasting activities is not always clear. This stage involves stepping back and considering the basic reasons for forecasting including the time horizons involved and the level of detail that is appropriate for time buckets, products and customers. The needs of short term demand planning to support effective inventory control and customer service management are different to those for the medium range horizon of sales and operations planning. And it should not be assumed that maximum complexity will necessarily lead to optimal results.3. Select appropriate sales forecasting methodsAttention should be given to the best methods to use to meet the defined objectives for demand forecasting, including consideration of the extent to which statistical forecasting can help. In some companies the nature of the business at the detailed level of SKU or SKU x customer is fragmented and driven by one-off deals and contracts, defying any attempt at statistical forecasting. If that is the case it is best to recognise the fact and allow the sales team to build a bottom-up sales forecast using market intelligence. There may, however, be a need for statistical forecasting at a more aggregated level to support a sales and operations planning process or other medium term planning activities. Forecast Solutions can construct a multidimensional forecasting database. Simulations can be carried out under alternative forecasting regimes and potential forecast accuracy levels can be compared with those produced by existing methods. 4. Define the future forecasting processJust as important to the future forecasting process is the organisational and procedural framework within which it will be carried out. Effective forecasting usually involves many individuals both inside and outside the business and the necessary collaborations must be supported by the forecasting process. Even if there is to be heavy reliance on a statistical forecast it should be reviewed and modified if necessary by sales and marketing teams, particularly regarding the effect of promotions and new product development. It is often beneficial to create and review forecasts at more than one level of detail, reconciling alternative viewpoints within an effective process. 5. Sales forecasting softwareIt often appears that existing software dictates the type of
forecasting that can be done and the methods that can be used. However,
forecasting software should be regarded as a tool to
assist in the sales forecasting process, not something that defines it.
Obviously there are practical considerations including the
often large investments that may have been made in
software, but efforts should be made to use existing software in the
optimal way. If necessary, consider augmenting existing software with
an additional process, or review alternatives. Forecast Solutions
is available to help. 6. Monitor and improveIt is not enough to implement improved methods and processes and then sit back and enjoy. Appropriate forecast accuracy measures should be put in place as the basis for a drive for continual improvement. Best not to worry too much about benchmarks - focus on what is achieved now and aim to improve it steadily over time. • Forecast
accuracy measurement |
