Have you lost faith in Sales forecasts?
Does Sales consistently over or under estimate future sales activity?

A multi-billion dollar global manufacturer is struggling. Two divisions of the company are at odds on how best to achieve world class forecast accuracy. Regional sales account representatives provide forecasts well above historical sales levels. Why? Because inventories made available to each country are insufficient to meet market demand. The result: predict more sales to try to influence supply decisions and receive a greater portion of supply for your region. One division has decided that a centralized approach is best and is no longer considering regional sales input. The other division is moving to a collaborative S&OP approach where regional input is requested, evaluated and incorporated in the overall plan.

Which method do you think will produce a better plan?
Which method will distribute limited resources better?
Which method will yield higher profitability?

Time will tell for this organization. Yet, we can make a prediction today. Experience would suggest that a well-designed, collaborative S&OP process will produce better results. Here’s how we look at how Top-Down and Bottom-Up S&OP drives better results.
1. Bottom-Up Inputs: Bottom-up forecasts are accumulated from many contributors. A distributed sales force may have hundreds or thousands of contributors. Each contributor has a specific area of expertise such as a specific customer, product or geographic area. The contributor enters her forecasts for her specific area of responsibility. Forecasts from all contributors are summed to capture an overall bottom-up forecast.
2. Top-Down Inputs: Top-down projections apply a more centralized view. A small number of forecasters will look at various inputs and generate forecasts. Influencing factors may include market data, economic indicators, and general product and customer trends.
3. Balancing Top-Down and Bottom-Up Forecasts: The beauty of top-down and bottom-up planning is their ability to look at the world from differing vantage points. The folks in the “ivory tower” know important information, but they don’t know everything. The folks in the field have keen insights into their unique areas, but they only see their small piece.

Recommendations:
1. Gather Objective Inputs: The collaboration challenge is to capture the small pieces without tainting the field forecaster’s view. In other words, don’t tell the field forecasters the top-down targets. When field forecasters are told what their forecasts are expected to be, they tend to send back values right in line with the top-down values. Such tainted bottom-up forecasts miss the point of gathering field intelligence.
2. Balance Inputs: An effective marriage will capture top-down and bottom-up forecasts separately.
3. Manage by Exception: Look for forecasts with the most significant (unit and/or revenue focused) difference between top-down and bottom-up forecasts. Is there an opportunity the field sees that the top-down approach did not capture? A management by exception S&OP tool will make comparisons quickly to enable users to analyze critical differences and refine the ultimate consensus driven forecast.
4. Provide Feedback: Tell forecasters how they’re doing. Measure forecast accuracy and bias. Track performance at various levels, including individuals. Forecasters who consistently over or under forecast (bias) should know that the organization knows. Such bias may be intentional or unintentional. Either way, behavior needs to change to produce reliable projections to which the organization can deliver.
S&OP really does lead to improved bottom-line results. Break down the walls of distrust and embrace collaboration.