Demand Forecasting

The most difficult demands to project are new products and markets. The sales plan should define overall objectives and tactics for this important activity. Performance objectives and key uncertainties should be recorded so actual results can be measured against the uncertainty criteria.

Key issues to cover in this section of the sales plan include:

• Customer & Market demand assumptions

• Estimate of demand transference from other product lines

• Logic of market & product uniqueness

• Differentiating product & market features

• Competitive products & markets

• Market & demand introduction plans

• Demand & supply contingencies for high & low demands

The new products section is almost a sales plan within a sales plan. These issues must be well conceived and constantly managed to assure they remain accurate and timely. Each of these issues deserve several paragraphs or perhaps a page of description.

Each new product or market should be treated separately. Assumptions, information, and market events tend to move fast and change rapidly for new products. Each new product or market should be reviewed formally each month perhaps each week. New information must be quickly updated and the subsequent impacts assessed. You must be able and willing to make adjustments and changes to your planning strategy very quickly.

The objective of the sales plan is to provide accurate and timely projections of product sales. Accuracy of at least 85% by indi­vidual products by month is a good goal or objective. While total annual sales accuracy and product group accuracy are good indicators of performance, detailed unit product accuracy by month is the best measure of forecast and sales plan accuracy because this is the level of detail required by manufacturing to establish a production plan.

Achieving this high level of forecast accuracy is conceptually easy. Set your objectives (the business plan), define the actions to accomplish (the sales plan), implement your actions (the forecasting system), measure your performance to plan (the field sales intelligence system), and take the necessary corrective actions (Strategic Forecasting and management).

The sales plan provides many of the steps needed to complete this important planning process. It provides the analysis of conditions, the logic of actions required, the actions needed to accomplish discretionary demands, and a formal basis for reviewing perfor­mance. The filed sales intelligence system seeks and audits your forward looking demand components.

Sales projections are needed for each product and market group identified in the sales plan. Product detail is then converted into market information within products. If market demands may behave differently for the same products in different markets, then sales projections for products by key markets must be developed and maintained independently. There is still another level of detail. Each market for each product is defined by three demand categories. Base demand is demand defined by statistical fore­casts. What will the demand be if the future is like the past? The second demand component is market condition modifiers, what adjustments are needed to the base forecast to reflect uncon­trollable changes in the market that is not part of the base demand history? This important adjustment must come from the field sales force. Examples include the economy, competitive actions, and market conditions. The third demand category is sales tactics, what are the impacts of the sales tactics from the sales plan?

The sum of these three demand components for each market and product add up to the total company sales plan. If the overall company sales plan projection is inaccurate, you can go to the next level of detail, individual products to find significant differ­ences, by product, between plan and actual. The next level, markets within products, breaks the analysis down even further. The base modifiers for each market segment of each product group defines the individual components of demand. You analyze and determine imbalances in your sales plan to the required detailed level of cause. Understanding the problem is 75% of the solution.

The sales plan must be developed first to provide the structure for the sales projections. Sales projections must be reviewed each month to evaluate their accuracy. If they are not accurate, you must determine the cause and location within the sales plan of the inaccuracy and correct it. The sales plan is the document that maintains planning and demand assumptions. Correcting the logic of the sales plan will increase your forecast accuracy.

Forward looking demand components must be defined and inte­grated into your forecasts to significantly improve forecast accu­racy. The sales-planning process defines the planning actions. The field sales intelligence gathering system is the formal communi­cations system from central forecasting to field sales people. Field sales information and sales tactic modifiers must be translated into product forecast units of measure and then integrated into a Strategic Forecast that includes the base statistical forecast as well as the influence of the forward looking demand components. These activities must be defined and effectively managed to improve forecast accuracy.