Striking a Balance between Sales and Operations in the Forecasting Process

EXECUTIVE SUMMARY | The key to a most efficient Supply Chain is forecast, which very much depends on people, process, and technology. This article emphasizes that in order to gain participation from Sales, we need to 1) educate Salespeople so that they understand why forecasting is essential, 2) develop a well-structured forecasting process, 3) clearly define roles and responsibilities, and 4) make access to systems easy to use to facilitate their participation.The forecast is the essential driving force behind an efficient Supply Chain, and will only be as good as its supporting elementspeople, process, and technology. Let's talk about people, specifically the Sales organization. Early in my career, I learned that engagement with Sales can be a challenge. Their perception of Supply Chain operations is somewhat skewed. To get their participation, we have to change their perception by breaking down the walls between Sales and Supply Chain to drive a more efficient collaborative forecasting process.But how do we do this and what can be gained? The Sales organization has the most intimate knowledge of customer strategies, tactics, and plans. They personally know the customer better than we do. At the same time, it is safe to assume that Sales organizations lack the same level of enthusiasm for the rigor of a forecasting process as we Supply Chain people have. However, we need their intelligence to generate a reliable, qualitative statistical forecast.EDUCATING THE SALES ORGANIZATIONAsk a Sales person how much inventory they need, and they are likely to ask you how much the warehouse can hold.To build the proper support for the forecasting process with the Sales team, you must start with a common goal. To drive excellent customer service is one we can all support. But what does customer service mean? Are both departments working off the same metrics? Take some time to educate the Sales team on how the Supply Chain defines customer service, and then learn how Sales defines it.The Sales organization is fully aware of their impact on the bottom line-in fact, most are measured for their contributions here. As a result, the downstream business realities are typically less tangible, and sometimes ignored. The link between Sales and Operations must be established if the Sales team is going to understand how revenue generation and cost of sales interact to deliver a company's gross profit margin, and how to read and interpret an income statement. With this foundation, the link between the Sales function and its impact on the company's costs can help establish the importance of an accurate Sales forecast as a vital key to optimize the balance between Sales and Operations. This organizational interaction is the basis for a strong Sales and Operations Planning (SO this way, everyone will be on the same page. It is also important to make Sales aware of where it fits in the process. Here are the steps to be followed in the process:1. Past performance is a good indicator of future opportunity. By taking demand history and applying appropriate statistical algorithms, we can generate a solid forecast.2. Next, qualitative inputs are applied to adjust the statistical forecast to account for the impact of forces that cannot be derived from historical data. …