The Impact of Forecasting Improvement on Return on Shareholder Value
John T. Mentzer; Journal of Business Forecasting

Improving Salesforce Forecasting
Mark A. Moon and John T. Mentzer; Journal of Business Forecasting

Benchmarking Sales Forecasting Management
John T. Mentzer, Carol C. Bienstock, and Kenneth B. Kahn; Business Horizons

Conference: The Dynamic Supply Chain--Strategies for Implementing Sustainable Competitive Advantage,
Nov 17-18, NY
Hear Glen Margolis, Founder & EVP Steelwedge Software, Carol Ptak, Former APICS CEO and Author, Others
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Forecasting and Consensus Planning in a Rapidly Changing Environment
June 15, 2005, 1pm Eastern, 10am Pacific
Principal Speaker -
Christine Pfefferle, Director of Global Demand & Order Management, Tellabs  
Click here to view recording

Extending SAP for Global, Integrated S&OP ,
May 25, 2005
Stu Reekie, Air Products
Click here to view recording

By Anil Gupta, Principal, The Applications Marketing Group

Sales Forecasting and Planning is one of the most important business planning processes within a manufacturing company. Sales forecasting is also the starting point for sales and operations planning (S&OP) and has a significant influence on a company's operating budgets and spending plans.

In order to streamline the sales forecasting process, improve forecast accuracy, guarantee scalability, reduce overhead on sales associates and ensure transparency/auditability of the entire process, a company should deploy enterprise-class sales forecasting software, rather than using manual spreadsheets. However, a manufacturer looking for sales forecasting software can acquire such a system from three distinct categories of vendors:

• SFA/CRM system
• Enterprise planning system
• Business Intelligence

Each category comes with pluses and minuses, making it difficult to even decide which category to evaluate, let alone which vendor to select. This article will shed some light on the issue and provide a list of key capabilities and criteria one must look for in a sales forecasting system.

Sales forecasting is the start of the planning process

Do you consider sales forecasting to be an extension of your pipeline management process? Or, do you consider sales forecasting to be the beginning of your enterprise planning process? Your answer to these questions is critical, and forms the most fundamental sales forecasting issue. Sales forecasting should be the start of enterprise planning.

The reason for sales forecasting is to improve on-time delivery and profitability by lining up all the resources to meet the best estimate of what customers will want and when they want it at minimal costs. As a result, most manufacturing CEOs see sales forecasting as the starting point for the enterprise-planning process and the sales forecast should be core to the "enterprise plan of record"-i.e. it should managed and owned by the system that manages the overall enterprise planning process.

We recommend that a sales forecasting system be acquired from a planning vendor and fully integrated with your enterprise planning system despite the fact that it may seem cost effective to extend your SFA footprint to include sales forecasting. The BI systems provide rich analytics, but do not have the process capability or the data model to support a sales forecasting process. By using BI or CRM / SFA systems as the manager of your sales forecasting process, you risk creating a disconnected planning process that resides in multiple systems, leading to long planning cycles and lack of clear end-to-end plan visibility.

Need for clear mix and margin visibility

The sales forecasting process in many manufacturing companies does not provide clear visibility into the product-level forecast. Majority of these companies forecast sales using their SFA systems, where the system is unable to forecast at the SKU/model level detail. However, SKU/model level forecast information is required by the operations organization for their supply planning process and is needed by the finance organization to understand expected margins from the sales forecast (especially when product line may have a large pricing and margin diversity). Without getting such information from the sales forecasting process, most planners end up creating a mix scenario based on their best guess, leading to poor visibility into "demand-mix" and "expected margins".

Key Capabilities Check-list for a Sales Forecasting System

The following section provides a check-list for the sales forecasting system.

• Sales Forecasting Process
• Provide a mechanism for the account executive to create a bottom-up sales forecast by product (at SKU/model level detail) and customers, containing both - revenue and units.
• Provide a workflow for sales management to aggregate forecast, review and make changes/overrides, get buy-in on revisions from the team and publish it to management. The workflow should automatically move the process forward with notifications for process exceptions (such as not providing the forecast or approving the change by a certain time etc.)
• Ability to capture comments to the forecasts at multiple levels.
• Create a common plan of record which contains current and historical sales-forecasts and related information. Common plan of record enables every stakeholder to review and analyze the same forecast from their respective perspective.
• Contains reporting with drill-downs and aggregation to review forecast and history at aggregate and detailed level by various dimensions.
• Integration with CRM/SFA system
• Provide ability to extract sales pipeline information from SFA systems.
• Apply configurable business rules to the extracted data to automatically clean, filter and adjust sales pipeline opportunities (for bias) and populate them within sales forecasting module.
• Analytics with drilldowns and aggregation to enable forecasters to drive and improve the sales forecasting process
• Aggregate forecast and history by customer, by region, by SKU, by product line, etc.
• Changes to forecast/margin by account executive, customer, region, SKU, product line etc.
• Sales forecast accuracy analysis by account executive, region, SKU, product line
• Actual to forecast performance MTD, QTD or YTD by account executive, region, SKU, family etc.
• Margin contribution by account executive, customer, region, SKU, product line
• Sales Operations/Sales Manager and Executive dashboards
• Key data reporting: Forecast Consumption, Backlog etc.
• Audit Trail of all activity on the system including creation, changes and approvals
• Excel-like User Interface is critical for adoption of a new application by field sales. It is desirable to have an intuitive Excel-like walkup user-interface, so field sales can easily adopt the application without intense training
  

Summary

In summary, we recommend that you select the sales forecasting capability from your enterprise planning suite, since sales forecasting is the starting point for your planning process. If you do, you can achieve your vision of an enterprise plan of record managed by one system. Using sales forecasting capability from a CRM / SFA system is likely to end up creating a disconnected planning process that resides in multiple systems. And, remember that BI systems provide rich analytics, but do not have the process capability or the data model to support forecasting process.

Anil Gupta is a principal at The Applications Marketing Group. He has specific expertise in ERP, supply chain and analytics applications. He is also a research advisor to Ventana Research, an industry analyst firm, in IT performance management. Anil has been a VP of Strategy and/or Marketing of enterprise software companies such as Baan, Niku, Evolve and Oracle. He can be reached at www.applicationsmarketing.com