According to Gartner statistics, significant bottom line results can occur with just a 1% improvement in forecast accuracy. In fact, there are staggering improvements in lead time, inventory reduction and margins, so why not at least explore the idea? Yet, there are lots of worries expressed by clients and contacts:
- We cannot predict what our customers will order!
- Customers don’t even know what they will order! (And, in seeing these ordering patterns, I concur that this is often-times an accurate statement.)
- Since we are using lean, our lean consultant told us we no longer need forecasts.
- We are a small company and don’t have resources to focus on forecasting
- And my favorite, “Why in the world would our significant sales team listen to you?”
I just have one question, if depending on the industry and study, a 1% improvement can lead to a 2.7% to 7% improvement in cash flow and minimally a few percentage points cost improvement in key categories such as freight, wouldn’t you be remiss if you didn’t consider your forecasting process? Of course you would be!
We have yet to run across a client that couldn’t improve the forecast, no matter how daunting the task seemed. Since the outcomes are substantial, it was worth the effort, and the effort was typically minimal in comparison to aligning the people on the forecast. A few tricks of the trade in driving results with forecasting:
- Let your tool (whether Excel or a sophisticated system) do the work for you – From an 80/20 standpoint, there is no doubt that a simple tool will perform far better than even your best person. Develop your base.
- Focus on exceptions – On the other hand, your team is best equipped to provide insights and feedback on exceptions. Use their strengths.
- Drive results; not blame – Remember, the definition of a forecast is that it will be inaccurate. I’ve yet to run into a client with a perfect forecast. With that said, the three most impressive were across the board – a $100 million dollar facility of a multi-billion dollar aerospace organization with a manually generated forecast, a close to billion dollar consumer products company with a home grown system and smart people, and a rapidly growing <$10 million dollar manufacturer with an Excel-based system with smart, agile and process-oriented people. None of these folks ran around blaming anyone with forecast inaccuracy yet they all outperformed their competitors.
Perhaps it’s time to take a second look at your sales forecasting process. Who is responsible? How does it work? You never know what you’ll discover as you shine a flashlight on the process. If you’d like to discuss forecasting and demand planning further, contact us.