Sales Forecasting Systems
Many companies with which we have worked have asked us to advise them on the sales forecasting system they should use. Invariably, when we are asked this question, we ask them to describe the management process by which the sales fore- casts are developed. Often, there is no answer—the company is trying to develop a systems solution without an understanding of the management process! This is a backward approach to sales forecasting management.
In many companies, there is no one person who understands the entire sales forecasting process. Many individuals understand bits and pieces of the process, but few understand the entire process. Without such an understanding, it is not possi- ble to design and implement a system to augment this process. In fact, the sales forecasting system should be a communication and analysis framework (template) that can be laid over the sales forecasting management process. The company has to define the process first. An example should help illustrate this concept.
One global manufacturer of industrial products with which we worked has mul- tiple product lines sold all over the world by a direct sales force. Many of these products are sold to customers in numerous industries. Thus, we may have a prod- uct that is sold by one salesperson in Australia to a particular industry and another salesperson in Europe who sells the same product for a different use in another industry. This has led to a worldwide sales force that specializes in certain products, in certain industries, and in certain geographic areas.
Given this multifaceted complexity of the sales forecasting environment, the company wanted a system that allowed development of a quantitative forecast, with qualitative adjustment by geographic territory by industry by the sales force, with adjustment by product line by marketing managers, and with overall planning adjustments by upper management. This led to a definition of their sales forecast- ing process that is illustrated in Figure 5.5. The process starts with a computer- model-generated forecast. These sales forecasts are broken down by product, industry, and geographic territory and sent electronically to the sales force. Each salesperson is provided with a quarterly report of economic and market trends in his or her industry and asked to make adjustments to the quantitative forecasts. When adjustments are made, the salesperson is asked to electronically record the logic behind his or her adjustments.
The total of all sales force adjustments are electronically transmitted back to the forecasting group, where they are combined. Marketing managers then receive the adjusted forecasts for the product lines in their markets. Again, the marketing man- agers are asked to qualitatively adjust these forecasts and record their logic.
These forecast adjustments are received and compiled by the forecasting group and transmitted to management for adjustment at the division level. Once the upper management adjustments are received, the forecasts are broken down to the level and horizon appropriate for each functional planning area and transmitted electronically for use in planning.