BENCHMARKING SALES FORECASTING MANAGEMENT

In todays world forecasting plays a huge role in all aspects of business

operations. Almost all the various business functionalities is in need of
forecasting be it marketing, sales management, finance, production; but still
only very little attention has been paid to examining how the forecasting
function should be managed. Mentzer and Kahn came up with the four
management approaches: independent, concentrated, negotiated and
consensus. Based on their study it was realised that most companies preferred
the negotiated and consensus instead of the independent approach. In 1998,
they conducted a second study along with Moon and Graver and came up with
seven key managerial perspectives to guide sales forecasting management. For
taking this into account they took a survey of 20 companies with histories as
leading financial and/or market share performers, though not necessarily top
performers in sales forecasting. The conclusion was that a sales forecasting
management can be divided into four dimensions: Functional Integration,
Approach, Systems, and Performance Measurement, and within these
dimensions four stages of effectiveness were identified and using their
characteristics a company can progress towards a higher level of sophistication
for each forecasting dimension. The summary of observations made for each
dimension are the following:
FUNCTION
INTEGRATION

APPROACH

SYSTEMS

STAG
E1

disconnectio
n
between
each
functional
section
Each
section
performs its
own
forecasting
effort

Systems are not

linked
Manual
transfer of data
Few people
understand
systems
Lack of
performance
metrics

STAG
E2

Coordinatio
n of
functional
sections
Forecasting
for
functional
areas

Plan driven,
top-down
forecasting
Simple
statistical
approach
( Black Box
Forecasting )
No training
of forecasting
personnel
Only
shipment
forecasting
All are
treated the
same
Bottom-up ,
SKUL based
forecasting
Recognition
of
relationship
between
forecasting

PERFORMANC
E
MEASUREME
NT
Accuracy
not
measured
Forecasting
performanc
e evaluation
not tied to
any
measure of
accuracy

Electronic links
between
business
functional areas
On-screen
reports
available
Reports

Accuracy
measured,
primarily as
MAPE,
sometimes
inaccurately
Recognition
of impact of

STAG
E3

STAG
E4

Planned
consensus
meeting,
but
dominated
by
operations,
finance or
marketing
Performanc
e rewards
for
forecasting
personnel
only
Communicat
ion and
coordination
between
functional
sections
Existence of
forecasting
champion
Consensus
&
Negotiation
process to
reconcile
forecasts
Performanc
e rewards
for
improved
forecasting
accuracy
Recognition
that market
is a capacity
Achieves
functional
integration
by stressing
forecasting
C3
Existence of
forecasting
as a
separate
functional

and business
planning
Limited
statistics
training and
understandin
g

periodically
generated

demand on
external
factors

Both topdown &

bottom-up
forecasting
Use of ABC
analysis,
Identification
of categories
of products
Importance
of subjective
input from
functional
areas
Training in
quantitative
analysis/stati
stics

Client-server
architecture
Improved
system-user
interface to
allow subjective
input
Common
ownership of
database &
information
systems
Reports
generated on
demand/
performance
available online

Accuracy
still
measured
as MAPE,
but more
concern
with
measuring
supply
chain
impact of
forecast
accuracy
Graphical
and
collective
reporting of
forecast

Top-down &
bottom-up
forecasting
with
reconciliation
Understandin
g of game
playing
Development
of forecast
and business

Open-system
architecture
Linkage with
major
customers and
suppliers to
allow
forecasting by
key customer
and supply
chain staging of

Realization
that
exogenous
factors
affect
accuracy
Forecasting
error
treated as
indication of
need for a

unit
Multidimensional
performanc
e rewards

plan
simultaneousl
y
Ongoing
training in
quantitative
analysis/stati
stics

forecasts

problem
search
Multidimensional
metrics of
forecasting
performanc
e