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Building More Accurate ForecastsThe Problem: An Inefficient and Inaccurate Forecasting ProcessA manufacturer of standard and engineered electrical distribution equipment had a long and contentious sales forecasting process. It relied on feedback from the sales managers and key distributors, and it was a time-consuming process to generate a forecast that both sales and senior management were happy with. In addition, they were concerned about the accuracy of the forecasts being produce. Over the last two years, their corporate parent had expressed dissatisfaction with their track record. A key challenge was dealing with the need to forecast at the segment level. Some segments were a lot easier to predict than others. Our Approach: Decompose Market Drivers for Each Segment It was clear there were a lot of different sales drivers having an effect. For many segments, there was little commonality in the historical sales trends. An added complication was that this was a model of actual company sales, so the approach needed to consider both demand drivers at the total market level and the effect of the company's own strategies and tactics. Getting buy-in from each segment marketing manager was key, so Global Insight designed a Business Drivers Workshop process that focused on getting the insight of each segment fully discussed and integrated into the model. We identified a range of drivers such as construction in specific manufacturing industries, industrial production, capacity utilization in end-markets, and housing market indicators. We also integrated data from the company's bid and sales pipeline system to complement the external market drivers. This approach was particularly helpful in anticipating future changes in some of the more project-oriented product lines that typically had a "lumpier" sales profile. The Answer: A Top-Down, Bottom-Up Forecasting System Global Insight developed a model that integrated both external economic and end-market indicators with the company's own sales, promotion, and pipeline metrics that produced more accurate forecasts with a much clearer "story." It was also a model that sales and senior management (and eventually their corporate parent) felt they understood and accepted. It made the annual planning process and quarterly performance tracking much more efficient and effective. |
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