I’ve written previously about one of the Seven Deadly Sins of Sales Forecasting. In today’s article, we’ll explore another major mistake that too many manufacturers and distributors make as they try to generate accurate sales forecasts.
Picture the typical demand review meeting. Who’s sitting around the table? Probably product managers and forecasters.
But there may also be a senior executive, such as the vice president of sales or operations, the CFO, or even the president. If so, that can lead to problems.
Yes, senior executives can offer valuable input within the sales forecasting process—especially if they began their careers by rising up through the ranks of the company.
But these executives may feel compelled to try to control inventory levels based on the company’s strategic objectives. In that case, you’ll hear comments like, “We’ve got to get our customer service levels up. Let’s make sure we have the supplies to pull that off. Bump up that inventory level from 800 units to 1,000.”
Because this executive is, well, an executive, everyone will then scramble to tweak the forecast with various overrides.
This reaction is understandable—but flawed. As far as I’m concerned, it’s never a good idea to let executive meddling affect the forecast.
Your Executives Don’t Control Demand—Your Customers Do
Everyone wants to please their executives. And no matter how hard we’ve worked on a forecast and how much confidence we have in our numbers, it’s tempting to discount all of that when an executive tells us, “Raise sales by 10% this quarter,” or, “Let’s reduce our safety stock by 20% this year.”
But let’s face it: customers don’t buy according to our sales goals or inventory targets—they buy based on their own demand. Your forecasting team knows (within a reasonable margin of error) what that demand is and how it’s going to look over the next quarter or year.
If you let executives overrule all this valuable insight by simply overriding the forecast, you’ll do worse than threaten the accuracy of your numbers. You’ll also undermine accountability for future forecasts.
After all, if a forecaster knows his next carefully created forecast is just going to get “enhanced” by an executive who’s trying to motivate the troops, then what’s the point of putting in long hours and considering all the data?
Leave Forecast Responsibility in the Right Hands
The forecast should be our best estimate of customer demand, regardless of whether we think we’ve got too much or too little inventory. It should be our most accurate barometer of customer demand—not our best guess of the budget, or senior management’s attempt to control inventory by adjusting the forecast.
Whether you let Sales own your forecast or leave it in the hands of your best analysts, just be sure it’s clear who’s ultimately responsible for it. And then make sure you’re not letting your executives force their own budgets onto those forecasts. When you leave responsibility for the forecast in the right hands, you’ll maintain accountability and ensure greater accuracy and reliability going forward.
Looking for solutions that can enhance your sales forecasting processes? Drop us a line.