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ForecastinginaDownEconomy:
LessonsfromVolkswagen
JonathanSparks
Manager of Sales Planning & Forecasting
ManagerofSalesPlanning&Forecasting

Agenda
Introductions
CompanyBackgroundandSupplyChainOverview
IndustryOutlookin2008
HowRecessionsAffectForecastResults
ForecastingTechniquesforaDownEconomy
Respondingtothe2008Recession
ResultsandNextSteps

CompanyOverview
VolkswagenGroup

HeadquarteredinWolfsburg,Germany
99factoriesin27countries
Delivered 8 265 million vehicles in 2011
Delivered8.265millionvehiclesin2011
12.3%globalmarketshare

CompanyOverview

VolkswagenofAmerica
HQ in Herndon VA
HQinHerndon,VA
13carproductportfolio
324,000salesin2011
2.5%marketshare
Jetta#1sellingproduct
Jetta #1 selling product

SupplyChainOverview
6factories Portugal,
Germany,Mexico,
Slovakia,US
4 PortsofEntry
Shippingmethods:
boat,air,rail,truck

5RegionalOffices
5R i
l Offi
Wholesaling,marketing,
incentives,network
development

VWForecastOverview(2008)
Longtermforecasts(10years) volumeandmix

Lifecyclemanagement
Industryprojections
yp j
Segmentprojections
Economicfactors
Carlinegrowth

Shorttermforecasts(12years) volumeandmix

Statisticalmodelingfromhistory
Subjectivejudgment
Regionalfeedback
Growthtargets

2008IndustryOutlook
IndustryFcst

SalesUnits(Millions)

20
16

16.1
14.4

14.6

15.1

2008

2009

2010

16.5

15.8

12
8
4
0
2007

2011

20082011Reality

2012

IndustryFcst
Actual

20

SalesUnits(Millions)

16

16.1 16.1

8%

29%
29%

19%
16.5

15.8

15.1

14.6

14.4

23%
23%

13.2

12.8
11.6

12

10.4

0
2007

2008

2009

2010

2011

2012

RisingSupply

IndustryDaysofSupply
114 114

83

82
76
67

70

64

65

67

86

82
75

73

6/1/07

91
83

79

74

70

1/1/08

71

76
69

6/1/08

12/1/08

Source: Autodata

2008Aftermath
2007 Market Share

Other

2009 Market Share

GM

19%

GM

Other

23%

22%

20%

VW

1%
NISSAN 6%

VW 2%
15% FORD

NISSAN 7%

CHRYSLER

15%

13%
8%
HONDA

14%

FORD

CHRYSLER

9%
10%
HONDA

TOYOTA

15%
TOYOTA

Source: Autodata

2008Aftermath

DemandDrivers

Percent of Demand Variation Analysis

(Components of Demand Variation )

Source: L. Lapide, 2009

RecessionsChangeDemandDrivers
Turbulent Economic Times
Normal Economic Times

This means forecasters will have to grapple with greater promotional/event

and business -cycle demand variations
Source: L. Lapide, 2009

DemandVariations/Promotion
2009 Industry Sales
1,261,977

857,735 819,540

925,824

1,029,936

997,824
859,847

838,052

Jan

Feb

Mar

Apr

746,928

745,997

656,976 688,909

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Cash 4 Clunkers

Effectsof2008Recession
Consumerbehaviorchanges

Discretionaryspendingreduced
Creditavailabilityreduceddramatically
Gaspricesincrease morefuelefficientmodelsfavored
Shiftsindemand luxury,minivan,convertible,sedans

Positioningchangesresultamongcarlines
Newpromotionalstrategies
Cheapermodelsintroduced
Morefuelefficientengines

Result:priortrendassumptionsbecomeinvalid

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ChallengeswithVWsPreviousMethodology
Highlysubjectiveassessmentofrecentsalesbycarline,
seasonality,pipeline,production(capacity/constraints)to
derive shortterm
deriveshort
termforecast(next3
forecast (next 34
4months)
months)
Lackofquantitativeanalysis/processconsideringindustry,
segment,andsharetrends
Limitedabilitytodevelopmediumtermforecast(next2
years) based on market demand
years)basedonmarketdemand
Frequent,significantforecastchangescausingdisruptionsto
supplychain
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TechniquesforTurbulentTimes
1.Stayabreastofwhatisgoingoninthemarket
andorganization
2008 Situation

Finance

Incentives
Sales
Forecasting

Marketing
Product
Planning

Distribution

Source: L. Lapide, 2009

TechniquesforTurbulentTimes
1.Stayabreastofwhatisgoingoninthemarket
andorganization
Sales
2012 Situation
Forecasting
Distribution

Marketing

Incentives

Product
Product
Planning
Finance
Source: L. Lapide, 2009

TechniquesforTurbulentTimes
2.Collecttimelydownstreamdataasearly
indicatorsoftheperformanceofpromotionsandnew
products(e.g.,pointofconsumptioninformation)

Nissan Altima

Ford Fusion

July
28

27

29

Aug
30

31 32 33 34 35

Honda Accord

Sept
36

37

Oct

38

39

40

41

42

Nov
43

44

45

46

Dec
47

48

49

Nissan Sentra

50

51

52

Honda Civic

TechniquesforTurbulentTimes
3.Stayabreastofchangingeconomicconditions,
listeningtointernalandexternaleconomists
Housing Starts

Fuel Prices

5
4

100

Avg.FuelPrice

BuildingPermits(Thousands)

150

50

3
2
1

0
2007

2008

2009

Source: US. Dept. of Commerce

2007

2008

2009

Source: US. Dept. of Energy

Source: L. Lapide, 2009

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TechniquesforTurbulentTimes
4.Minimizeforecastuncertaintybyplacingmore
focusonhighvolumeandrevenuegenerating
segments

Source: L. Lapide, 2009

TechniquesforTurbulentTimes
5.Usescenarioandrangeforecastingtomodel
andrepresentforecastuncertainties
Explore
Exploremultipleforecastingmethods
multiple forecasting methods
Measureeffectivenessofeachtechnique

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TechniquesforTurbulentTimes
6.Communicateforecasterrorsenterprisewideto
supportriskmanagementstrategiesinsupply(e.g.,
hedging,buffering,andriskpooling)

Incorporateintoscorecard
Holdaccountabilitywithstakeholders
Identifylargesterrorsandadministerrootcauseanalysis
Discusswithimpactedteamtomitigateforfuture

TechniquesforTurbulentTimes
1. Stayontopofindustryanddepartmentalactions
2. Lookaheadforcompetitoractionsthatcouldimpact
yourbusiness
3. Lookateconomicconditionsforleadingindicators
4. Evaluateyourportfoliotofocusoncorerevenue
generators
5. Explorealternativeforecastingmethodsandtestresults
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p o e a te at e o ecast g et ods a d test esu ts
6. Communicateforecasterrorsanddiscussrootcause

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VWForecastOverview(2012)
Longtermforecasts(10years) volumeandmix
Lifecyclemanagement
Industryprojections
yp j
Segmentprojections
Competitorlaunches

Economicfactors
Carlinegrowth
Pricing
Marketing
Store growth
Storegrowth

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VWForecastOverview(2012)
Shorttermforecasts(12years) volumeandmix

Statisticalmodelingfromhistory
Subjectivejudgment
j
j g
Regionalfeedback
Growthtargets
Economicfactors
Segmentgrowthandshare
Competitormarketingandincentives
Webtraffic
Industry seasonality
Industryseasonality

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13

VWRevisedMethodology Statistical
Baselineforecastproducedusingalternativestatistical
methods and consensus agreement
methodsandconsensusagreement
Seasonalliftfactorsarecalculatedbyinternalandexternal
saleshistory
Removeseasonalliftfactorstocalculatetruetrendline
Overlayseasonaltrendswithmovingaverage

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Results
Increasedtrendstabilityduetoeconomicmodeling
Increasedcollaborationwithstakeholderstodetermineshifts
inmarketconditions
Promotionalprogramsdevelopedtomeetadjustedsales
targets
Marketingstrategiesadjustedtorespondtochangesinthe
market

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Results

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Thankyou

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Questions??
Contactinfo
Jonathan.Sparks@vw.com

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