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Sales Forecasting and Demand Sales Forecasting and Demand ManagementManagement

Introduction

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A Manufacturing CompanyA Manufacturing Company

“‘We want to deliver a good return to our shareholders. To do this we want to deliver Quality products to our customers, competitively priced, delivered on time, ensuring that they always have a positive experience with us. Suppliers will enjoy working in partnership with us. We will ensure that our employees will consider this a fun place to be, and we will take care of the environment.” said the mission statement at the entrance.

Marketing is in the middle of a special promotion, which has suddenly been arranged, to meet the quarterly financial target. The artwork for the packaging is having to be arranged at short notice. Sales have just tendered for a big contract which will mean significant extra business above the business plan. It is not long till year end, and if they get the order in time then the Sales and Marketing Director will get a bonus for exceeding her annual target. Confidence is high. Customer Services will be working late tonight to catch up with the backlog of orders. There have been real problems with deliveries from the factory.

Supply Chain has heard a rumour about a ‘really big order.‘ But they've heard about these before. So they are proceeding with their plans to cancel overtime at the factory to meet cost targets. The Supply Chain Director meets weekly, individually, with the Marketing manager to get a feel for the market. Then he meets with his Production Planner, compares his ideas with past history and they finalise the Forecast and Production Plan, based on their own knowledge of demand. They know about marketing forecasts.

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A Manufacturing company – A Manufacturing company – cont’dcont’dCorporate are short on Cash Flow, and hence have told the division to implement a

cost reduction programme, and to reduce inventory by 20%. The Finance Director is working on ways to do this, in principle by delaying payments to suppliers

The Manufacturing Director has just come back from a course with ideas on Operating Equipment Effectiveness. He wants a smaller product range and bigger batches. His basic manufacturing philosophy is that lower costs are achieved through maximising utilisation of machines, and keeping direct labour at maximum levels of output. The Distribution director has heard that demand is increasing, so is putting together plans to open a Central Distribution centre just outside Paris.

Development are in the middle of developing a revolutionary new product range, that will dramatically increase market share. However, a minor modification to the product will reduce costs, and improve the quality. Customer response through market research so far is excellent. Unfortunately this development will delay the launch to Quarter 3 of the next year.

The Chairman and the Chief Financial Officer just met with a key group of Stock-market analysts, and have said that cash-flow will improve this year through a radical cost reduction and inventory management programme. Sales and Profit will rise by 20 % next year, which should mean an increase of 25 % in Earnings per share, due to an exciting new product to be launched in Quarter 4 of this year. The result has been a “buy” recommendation for the shares.

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Balancing the objectivesBalancing the objectives

Inventory

Customer Service

ManufacturingCosts

ManufacturingFlexibility

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Why is a Forecast needed ?Why is a Forecast needed ?

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Why is a Forecast needed ?Why is a Forecast needed ?

Design

Purchase

Intermediate Manufacture

Sub-assemble

Finish

Distribute

Cumulative Lead Time

Customer PlacesOrder here

Forecast needed to cover this

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What is a Forecast used for?What is a Forecast used for?

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The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply

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Forecasts Provide Forecasts Provide Business PlanBusiness Plan

ForecastsForecasts

Vision and strategy

Finance

Shareholders

Supply Chain

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Common Reasons for Not Common Reasons for Not FForecastingorecasting

I can never make it100% accurate

My business has toomany unforeseen

peaksMy business isdifferent - you can’t forecast it

I don’t know who’s responsible

for it anywayIt’s not in my

objectives

I’m measured on getting high sales

- so who cares about the forecast

The factory nevermake what I forecast

anyway

Nobody thanks me for it – so why

bother ?

The customer doesNot even know what

He wants.. So how am I supposed to ?

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What are the Causes of an What are the Causes of an Inaccurate Forecast ?Inaccurate Forecast ?

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Vertical Functional Vertical Functional OrganisationOrganisation

MD

SalesSales MarketingMarketing TechnicalTechnical OperationsOperations FinanceFinance HRHR

R& D

R& D

MKTG

MKTG

SALES

SALES

OPS

OPS

ACCTS

ACCTS

HR

HR

Directors

Managers

Supervisors/Team Leaders

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Impact of Biassed ForecastImpact of Biassed Forecast

Increase resources to meet higher demand

OVERFORECASTING IS AS BAD AS UNDERFORECASTING

More StocksMore Labour

More MaterialsMore Plant

No SalesCost of Goods

increases

OVERFORECASTING

GROSSMARGINGROSSMARGIN

Stocks LowLabour UnavailableShort of CapacityShort of Materials

Lost SalesCost of Goods

increases

GROSSMARGINGROSSMARGIN

UNDERFORECASTING

Resources insufficient tomeet demand

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Who Forecasts ?Who Forecasts ?

• A forecast is needed to cover the difference between the customer lead time and the Cumulative Lead Time

• Often the question is simply who does the forecast

• Sometimes many people do the forecast

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The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply

Responsibility

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Forecasting - Is There a Forecasting - Is There a Definition?Definition?

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Forecasting – DefinitionForecasting – Definition

A forecast is a formal request to the Supply Management function…

From Sales and Marketing to

have the product, materials andCapacity available according to the quantity

and

At the time

that they anticipate the demand will occur from the Customer to ship the product to their premises

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The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply

One set o

f num

bers !

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IntegrationIntegration

CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

ConsumerAnd Customer

Focussed

SimplicityItself

DeliveringShareholder

Value

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Improving the Forecasting and Improving the Forecasting and Demand Management Process Demand Management Process

will improve will improve

Customer Service Customer Service InventoryInventory

Business ControlBusiness Control Financial PerformanceFinancial Performance