The war of business forecasting ideas is being waged in the trenches of the online discussion groups. Where else can great disagreement be exacerbated (and sometimes even resolved) by often civilized discussion, with participants from across the globe?
One of the popular groups for business forecasting practitioners is Demand Planning, Sales Forecasting, IBP and Supply Chain Optimization on LinkedIn . There has been a long running discussion about whether the sales team should own forecast accuracy, which has evolved into the broader question of the role of the sales force in forecasting.
[Sidenote: I was thrilled to hear from LinkedIn last week that I have one of the top 100% most viewed LinkedIn profiles for 2012! That is, I was thrilled until a colleague pointed out to me the mathematics of being in the top 100%. Then I became despondent.]
The Role of the Sales Force in Forecasting
It is good to be wary of any inputs into the forecasting process, and this naturally includes inputs from sales. Forecasting process participants have personal agendas, perhaps to drive inventory higher or lower, or to drive sales / revenue expectations higher (as motivational targets) or lower (to make them easier to beat). When we ask someone for a forecast, we shouldn't expect an honest answer.
We can't entirely discount the role of the sales force in forecasting, or as part of the S&OP process. They definitely deserve a seat at the table. But I do want to encourage a healthy skepticism about their input. And let’s be efficient about it – only utilizing their input when they are demonstrably providing value by making the forecast more accurate and less biased.
In some situations, it is more likely that input from the sales force will be valuable. For example, if sales for an item are dominated by one or a small number of customers, insight into the intentions of those dominant customers could dramatically impact our forecast. However, if each item is sold to hundreds or thousands of customers, each accounting for a small percentage of total volume, we probably don’t need the sales force to tell us what individual customers are doing because it just doesn’t matter. Errors in individual customer forecasts just cancel each other out with no net improvement in the forecast for that item.
I would not trust sales to “own” the forecast (and then blindly plan operations around their number). But there may be ways to harvest their information and get some value out of it. As in an example provided by Mark Chockalingam, don’t just give the sales force a blank spreadsheet and tell them to fill in their forecasts – this would be a complete waste of time.
Instead, consider the approach suggested by Eric Wilson of Tempur-Pedic, and appeal to the competitive nature of sales people. Provide them with the forecast generated by your forecasting software, and ask for input where they can improve upon the computer’s forecast. This should limit the adjustments they make (to only those forecasts they are confident they can improve upon), and provides you with the data to determine the effectiveness of their adjustments.