Forecasts are not about the number

I think there is a misconception when it comes to Demand Planning and Forecasting. I’ve done it for years and I realized the error in my thinking. I was caught up in the illusion that if I worked hard on my forecasts, if I set the right parameters, if I weeded out inconsistencies, my forecast will become better. I was soooo wrong. The problem is in people, people do not act the way you want unless you tell them how to act (and even then they don’t). 

My best and most used quote when teaching others how to forecast is

“The best way to predict your future is to create it!”

–  Abraham Lincoln.

It says it all. And it is not about securing 1000 products, It’s about the 10 you hang your strategy and your profitability on, these are the ones that are the future you are trying to create.

I remember sitting in discussions with sales leaders about these 10 heroes and how they would get more room in the catalogue, how the price investments will be tuned to support them with lower prices, and so on. Our forecast was sound, and based on good statistics, a proven algorithm and solid qualitative input. Then the catalogue was released and…nothing happened, no dramatic increase. Why? The guys and gals on the shop floor had no clue that there was a focus on these articles. They had been given highest priority by the supply chain to sell out some other 10 articles because there was an over capacity in production due to that those articles where over forecasted last year (or we would lose money). My forecast was now crappy on 20 of my biggest articles (10 under performing and 10 over performing) and eyes were on me for making a poor forecast. What do you think happened a year later?

If the sales organization had been clear on its priorities we could have made money in both last year and current year sales. If the WHOLE organization had been acting on the same prioritizations, we would have met the forecast. It’s all about communication.

So when talking about forecasts and how to increase forecast quality, remember that outside your structured systems there are people

Forecasts give companies the probable outcome of the future, sales plans secure that the outcome is the way you wished!

Sales strategy, do or die!

Why do I need a sales strategy?

If you don’t want to risk walking down an uncharted road, ending up in a dark unfriendly forest ultimately leading to the death of your company. A little dramatic maybe, but you get the point.

I read a good article by Stuart Harman. These are his words:

“Picking the “wrong” opportunities, overstretching resources, both organizational and financial, and taking your eye off existing business can all be damaging consequences of not having a systematic process for analyzing and selecting new business opportunities when they occur.

Periods of rapid growth can be just as confronting, and potentially damaging, to a business as an economic downturn. When multiple opportunities appear an executive team needs to give itself the best chance of “picking the winners” and maximizing its returns. In order to achieve this, there are some key considerations that executives need to be mindful of when analyzing opportunities.”

Stuart’s five steps to avoid this are:

  1. How does the opportunity fit with the organization’s strategy? Will it support the company’s chosen financial imperatives (growth, profit, cash, increased shareholder value or acquisition/divestment)?
  2. How does the opportunity leverage existing organizational capabilities and assets? The further an organization moves from its current sphere of business operations, the greater the risk to its success. If the opportunity requires a business to develop or bring in new skills, operate in a new geographic location, or trade in a new industry sector then the risks to success increase.
  3. What is the opportunity worth? What return will it bring and over what period? Are there also less tangible benefits associated with the opportunity such as positive publicity, marketing or strategic considerations?
  4. How much of the organization’s resource will winning and delivering the opportunity consume? Will it require key people’s time, bottleneck resources and/or cash? Is capital investment needed? Will it disrupt current operations? Will it cannibalize any of our existing business?
  5. What is the timing of the opportunity? Can it be secured next month, next quarter or next year?

From a sales strategy point of view you will cover the first 3 points.

Points 4 and 5 are more operational and come down to how good your internal communication is. Integrated systems make the communication more automated and give you the possibility of finding and compiling information from different parts of the company. This also requires that the sales process has a clear and structured approach to visualize what is happening in the pipeline, preferably in a CRM system.

A sales strategy will not resolve all your issues. For sure, but you will have the base to prevent you from wondering too far off the beaten path, you will be making quicker descisions  and you will save valuable resources. You can early in the opportunity ask “YES” and “NO” questions against your sales strategy and if the answer doesn’t fit, toss it!

Why is it so hard to set a clear sales strategy that is easy to understand and easy to follow? All, or at least most companies, have a strategy. Why not just write a sales strategy based on this?  It will not work, that’s why. You have to look the three preceding elements that formed the strategy: Vision, Goal and Objective.  Add the 7P* model to this and you’re rocking.

Once you have your sales strategy, devise a sales plan connected to the elements of the 7P model. From a Sales Management point of view, your areas of development are in People and Process, the other five elements are only areas where sales can give input and help devise plans for other parts of the company, you are not in control.  Your plan should contain the following:
State the current situation:
People, Process, Product, Price, Place, Packaging and Positioning
State the wished position:
People, Process, Product, Price, Place, Packaging and Positioning
State actions to get there:
People + Process + Tools & Systems
State the timeline:
What happens when?

Once you have got all this work done the real work begins, getting the people in the organization to adopt your strategy and plan. Repeat, repeat and repeat. Then follow up, give feedback and revise your plan as you go along.

Simple? No.

Necessary? YES!

*7P: People, Process, Product, Price, Place, Packaging and Positioning

With a map and a compass

As a former elite orienteer runner I’m used to handling a map and a compass. It is a great school on how to run a business, I did not realize it then, but now I see it clearly.

Running a business is all about planning and re-planning, as simple as that. It’s just like when you would take the next control point in the orienteering, check the map, draw up a plan for how to quickly take me there and then adjust my path along the way to avoid running into trees or off a cliff.

Sometimes, the plan was the straight path; sometimes it looked easier to run a detour since the conditions looked better to do so. Strong deviations from the plan would usually lead to loosing track of the direction, the sooner I realized it, the less time I lost getting back on track.

I had a technique where I chose a boarder that could catch me (for example if there was a field or river out of my path on the left side, I would in doubt choose to turn the left if I had to change direction) and on the selected route I would select milestones to pass, a big rock,   over the stream, pass a bog, and so on. If I at any time did not reach my mid-targets and I began to glimpse my boarder, I slowed down to orientate myself. Once I knew where I was, I could see if I had any new milestones or if I could use the old ones.

If we are to compare running a business to run an orienteering event, it’s like this. The length of the event represents a fiscal year, you compete against your competitors and the control points represent your range goals and the combination of taking all the controls in the event is your calculated total profit.

I have seen too many examples of companies that aim at targets and at the first hurdle make too large deviations from the plan, after a few quick turns they are lost in the woods. Sometimes they even throw away the map and start running around at random in the hope that they will find some control points.

Those of you who have been running orienteering know it’s not just a matter of finding the control points; it’s about finding the right control points. In the business world, this means that you end up last in the competition and you’ve wasted time on products/services that did not bring any profit; they may even be pure losses. Then management blame it on that organization is too slow or unfocused and that the system environment did not work (Map and Compass) …

Take charge of planning, use SMARTER * goals and objectives set on shorter horizons, keep a lookout for the correct warning signals, do a scenario planning and do not run faster than you know where you are. Then you will succeed!

Let us coach management to become elite orienteering runners!

* / Specific, Measurable, Action oriented, Realistic, Time-based, Energizing, rewarding

/ Håkan