Business forecasting and sales and operations planning is increasingly becoming a fundamental part of any business strategy. From its early conception and application in the manufacturing sector, it has spread outwards, gaining traction in diverse sectors across many geographies.
With the globalisation of business, expansion into new markets, the growing complexity of supply chains and rapid technological innovation, business forecasting and S&OP are poised to become even more important if companies are going to thrive in this increasingly challenging environment.
Firms are taking the message on board: a 2006 study found that 70% of companies surveyed globally were taking steps to enhance their capabilities. Nonetheless, most companies have limited experience. theforecaster surveyed nearly 300 executives in the field in 2007 and found that 33% have only had a dedicated forecasting function for two years or less. Generally, teams are small: 55% of companies surveyed employ two or fewer forecasters.
Approaches to forecasting vary. theforecaster’s survey found that 43% place the forecasting function within their marketing department, while 31% place it in strategic planning, 21% in finance departments and 14% in stand alone departments. Some firms are content to use Microsoft Excel for their modelling work while others require elaborately constructed, bespoke technological solutions. Some outsource elements of the process, while others carry out all work and analysis in house. Moreover, forecasters have a wealth of techniques to choose from, both qualitative and quantitative, including scenario building, market survey, the Delphi method, expert judgment, predictive markets, artificial neural networks and more.
Choosing the right solution is a complicated and often idiosyncratic process, dependent on a variety of factors that come down to industry, product, geography and product cycle, among others. Nonetheless, there are a number of commonalities and best practices that every company must heed. The experts who talked to theforecaster pointed to several major themes that needed to be addressed to overcome pitfalls and implement a successful, useful forecasting process:
• Getting buy-in: The most accurate model devised will be of no use unless a company can secure buy-in. This includes developing a structure to communicate forecasts across teams and making sure the senior management supports the process.
• Process: Forecasting is never going to be 100% accurate but in order to use the information most effectively. Companies have to develop a means of reacting to the information sensibly. This includes committing to regular meetings to discuss and interpret the information according to agreed guidelines and being prepared to change approaches, both in terms of forecasting and business activities.
• Don’t let technology drive the process: While important, it is impossible to reduce forecasting to modelling and technological data manipulation. While technology is important in generating the necessary numbers, being able to interpret and share those numbers is the key.
• Make forecasting strategic: Companies must have clear goals driving the forecasting process. Every part of the process must be developed with company objectives in mind. In this way, companies should engage as widely as possible to get the types of information necessary to meet their goals.
This paper explores the state of the forecasting and planning industry, using survey data, expert commentary from over 100 forecasters & planners and 15 in-depth case studies to paint a broad picture of an industry of fundamental and growing importance to business leaders the world over.
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