by Manfred Frie and Andreas Gillessen1
Entrepreneurs are hopeful characters. They believe in the future and find ways to realize their ideas. In corporate planning, their goals are combined with the implementation of what is possible in a market economy environment. Because planning should be based less on hopes and more on plausibility, past figures as the basis for a sales forecast in conjunction with sound market expectations are the best starting point for successful corporate planning.
Selection of forecasting method
The added value of production is only realized in the marketing of the goods produced. A well-founded future calculation can show which quantities can be sold to customers at which market prices in the future. However, the quality of a forecast is decisively influenced by the quality of the historical data and the accuracy of the calculation method used. There are a variety of mathematical-statistical methods that are suitable under defined prerequisites and conditions. But which method from the extensive “toolbox” of statistical mathematics must be considered in which case? Many planners are overwhelmed by the variety of methods, especially as they often have to make a selection under time pressure. However, if the wrong calculation method is chosen, mathematical-statistical methods have the fatal disadvantage of delivering unusable results. This in turn can lead to problems with delivery readiness and/or excessive stock levels. What is needed here is a supporting system that examines the series of figures from the past in order to determine which forecasting method stored in the “toolbox” is best suited to past trends. The system presented here provides planners with a method that achieves the lowest stock level at the desired delivery readiness level.
Corporate planning from sales forecasts
Once the right method has been found, the actual forecast calculation can begin. The historical data trends are analyzed for each product or product group. The results are processed and presented in tabular and graphical form.
Although numerical analysis fulfills the requirement of mathematical precision, it cannot replace the entrepreneurial aspect of actively shaping the future. It is therefore necessary to incorporate the expertise, experience and intuition of employees who deal with market developments on a daily basis into sales planning. Market and opinion researchers refer to this as the Delphi method. The function of the Pythia of Greek mythology is assumed by the sales staff. In order to survive in the market, they need a great deal of optimism, which often shapes their sales ideas accordingly.
In our experience, it is therefore best practice to base sales planning on a mathematical-statistical analysis of historical data wherever possible. The data obtained in this way can be revised and corrected by the sales department, and additional sales campaigns can then be better planned. The calculated seasonal factors and trends remain visible for the sales department.
The sales forecast calculated from historical data should serve as an ignition surface to generate discussions about the possibility of sales increases or decreases in individual goods, product groups or customer groups. The competence of the sales managers is required to take corrective action if necessary. At the same time, this has defused the perennial issue of the sales target for the coming year. The processing time in Sales should take about two weeks in October. The prepared figures are available in the typical planning month of November and can be used for corporate planning and decision-making. The marketing plan is derived from the sales plan, which in turn leads to the production plan, which in turn leads to investment planning with financial accounting and personnel planning. The effectiveness and thus the cost-effectiveness of production can be significantly increased by specifying stable marketing data. By investing wisely in the right products and product lines, losses of funds are minimized in both marketing and production.
Rolling adjustments
The greatest benefit for a company from the system described here may not even lie in the opportunities for cost reduction resulting from improved corporate planning, but in the development of a market early warning system. Underfulfillment and overfulfillment of the last forecast sales volumes are evaluated on a monthly basis. The structure of the process organization requires mandatory declarations by sales management to follow up or investigate these deviations.
In the interests of rolling sales planning, the sales forecast should be reviewed monthly or quarterly on the basis of the new actual figures and adjusted if necessary. It should be possible to react to market changes immediately, but without rushing. This applies to all affected areas of the company.
In order to realize the goals of corporate planning, it must be possible to serve customers. It is therefore essential to ensure that the necessary readiness to deliver can be achieved. In addition to the forecast values, the safety stocks to be maintained in order to achieve delivery readiness must therefore also be determined. These serve to cushion deviations that exceed the average planned consumption of a product. The calculation of these safety stocks also determines the level of a company’s actual inventories. Their influence on sales and earnings is therefore very high. It is therefore important to determine them using distribution-free methods, which offer considerable advantages over the distribution-based methods usually used in achieving minimum stock levels at the required level of readiness for delivery.
Abels & Kemmner supports the introduction of such a forecasting and controlling system by adapting the internal organization, integrating it into the PPS/merchandise management system, training employees on the system and assisting in the introduction phase.
1 Dipl.-Ökonom Manfred Frie is Director Marketing; Dipl.-Betrw. / BA (Hons) Andreas Gillessen is a management consultant at Abels & Kemmner GmbH.
