Why do Demand Planners handling the statistical forecast rarely or never listen to sales people? It’s because they are rarely or never right, not on article anyway. For me retail sales people are the enthusiasts that fearlessly charge forward to increase sales, regardless of the reality around them. This is a good thing, because if they had analyzed their situation they might see a hopeless situation and nothing would get sold. Retail thrives and these enthusiasts and the way that they tackle the everyday opportunities, for there are no problems. Forecasting on the other hand is not helped by the enthusiasm sales people bring to the discussion.
Why I never listen to sales when forecasting new articles
This is just one example of many…I was once the Demand Planner for storage boxes at IKEA. Most of these items where quite high volume and low price and they were sold in all countries and in virtually all stores. I had statistics from way back when and my numbers where reliable. This is a good start when you decide to add a new range. At IKEA we had never sold any good and cheap plastic boxes that had a width and depth that our competition provided, so we started a project to create this range. To cover the gap in sales and to test the market for these products we found a similar, ready-made product, at one of our suppliers that we bought to cover one year of demand in one country until the new range was in place. This was a good plan, apart from one thing, we asked the sales leader in this country to give us the amount of boxes they needed. 2 million she replied. I was quite shocked, our biggest seller at the time was selling at 1,4 million in this country and it was in multiple colors supported by multiple sizes to create a wide offer. 2 million sounded like a lot. We let it slide (management decision) and set up supply. The project ran like clockwork and we were getting ready to launch. The forecasts on the articles were now based on my statistical data and the market analysis we had done on the articles. The forecast was also double checked with sales and their input was that it was generally low but we persuaded them that we had back up and a growth plan to secure availability.
As the project was coming to an end, the suppliers started to produce the goods, we were ready to go, no wait; we have stock of 1 million plastic boxes left in our test country! We could not launch the new articles while this odd article existed in some of the stores, it would not give the right preconditions for the news. After some persuasion we managed to split the million on more countries, there was still some time before it was time for the global launch so we let the enthusiastic sales people do what they do best, they sold off the remaining stock in time for the release of the new item.
The launch was a success! All forecasts panned out except one, the smallest box. We sold twice what we expected! Of course I got complaints on the forecast quality, the sales people had told me that the forecasts were too low, but I do not recall any specific input why this small box would sell more, it just did. If I had listened to sales we would have been under achieving on 5 out of 6, I prefer that 1 out of 6 was over performing. There is always this risk with new articles, especially if the discussions are about numbers and not about the commercial value. It took me a month to fix the shortage issue, but we exceeded our turnover goal and that’s what really counts in the end.
Sales people are always going to exaggerate the numbers, it’s in their nature. So ask them about the commercial value. What is their plan with the new item? Ask how this compares to the information, the numbers, you have available:
- how is this new product different from product X, Y and Z
- what commercial actions are you going to take and how are they different to how you are working with product X
- when will you take these actions
- is there a synergy effect within the new offer
- is there a synergy effect between the new offer and current articles
- is there any cannibalism on related articles
- are there any customer values in the design or material that we do not have in our current range
If they cannot answer your questions, base your forecast on the statistics of similar items, because sales is most likely going to manage the item as they manage the current items.
If you have good statistics from a few years back, check the proposed forecast against existing range and if the forecast is higher than your best-selling range, take it down a notch, on an established market it would take a lot for a new article or range to exceed what has been proven in history. If there is a risk, have the Need Planning function increase the initial purchase to minimize the risk of running into a shortage. A shortage is not a good way to secure forecast quality on news, not to mention the damage this causes in the customer relations. This may require some forum and management approval. Never set a forecast too high to secure availability, this will only come back and bite you in the…
When a goal is over achieved, don’t grieve what you couldhavewouldhaveshouldhave done to sell even more, that’s just greedy. If your goals are right for your business then you should hit the goals not exceed them, that’s when you get good forecast quality, that’s when you get good profitability.