ASHWIN K MANOJ

B - PGP31074
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

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

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

Accuracy
measured,
primarily as
MAPE,
sometimes

STAG
E3

STAG
E4

for
functional
areas
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

relationship
between
forecasting
and business
planning
Limited
statistics
training and
understandin
g

reports
available
Reports
periodically
generated

inaccurately
Recognition
of impact of
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

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

Realization
that
exogenous
factors
affect
accuracy
Forecasting
error
treated as

separate
functional
unit
Multidimensional
performanc
e rewards

of forecast
and business
plan
simultaneousl
y
Ongoing
training in
quantitative
analysis/stati
stics

and supply
chain staging of
forecasts

indication of
need for a
problem
search
Multidimensional
metrics of
forecasting
performanc
e