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Sales on Board!
How to involve Sales in the
Forecasting and Planning process?
EyeOn bv
Business Planning
& Control Solutions
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P.O.Box 85
NL - 5735 ZH Aarle-Rixtel
+31 492 388850
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Planning & control in leading organisations
An EyeOn white paper
Sales on Board!
How to involve Sales in the
Forecasting and Planning process?
Dr. Freek Aertsen and Drs. Stephan Wouters,
EyeOn BV Business Planning & Control Solutions,
Croylaan 14, 5735 PC Aarle-Rixtel, The Netherlands
Tel +31 492 388 850. http://www.eyeon.nl/
Our special recognition goes to the members of the High-Tech
& Electronics network. The white paper reflects the findings of
interviews with the 31 participating companies
An EyeOn white paper
Summary
Table of contents
Summary
What do you mean, difficult to obtain a forecast?
Plan who knows best!
How to effectively assure Sales involvement?
Conclusions
References
3
5
9
13
18
19
The High-Tech and Electronics industry is
a highly innovative industry with a volatile
market demand. Participating companies
in the EyeOn network have indicated that
the contribution of the Sales and Marketing
department in the forecasting process is of
utmost importance. Some companies in the
network cope with a relatively small range
of customers, whereas other participating
companies have numerous customers, the
penetration of forecast customer demand,
however, is of eminent importance for both
groups.
forecasting process. As a follow-up EyeOn
has interviewed the participating companies
in the European High-Tech and Electronics
network to determine the status of Sales
force involvement in the forecasting and
planning process. The satisfaction on the
process itself and its results is far from
optimal. They experience the data collection
from Sales and Marketing as cumbersome.
It is time consuming and the quality of the
outcome offers considerable potential for
improvements.
Data collection is an important part of the
forecasting process. Market data can be
obtained from the sales force or from the
marketing department. In general, data
gathering by means of a direct approach by
sales is most appropriate for short-range
forecasting, whereas Marketing is more
focused on the mid and long-term forecast.
The Planning department is capable of
providing statistical forecasts for the short
and mid-term in case the product is continued
in the market. Each input is valuable to the
forecasting process with its own merits.
By applying this so-called 3-dimensional
framework, they complement each other in
building a consistent forecast.
Collaboration
Decision
support
Marketing
and sales
involvement
Life cycle
management
Behavioural
aspects
The survey shows that the most effective
means to get Sales commitment for
forecasting and planning, measured
by effectiveness and the number of
implementations, is focus and top
Previous research [Aertsen 2005] has shown
that the involvement of the Sales department
is of eminent importance for a high quality
Participating companies
Equipment
manufacturers
Component
manufacturers
Distributors
Electronic
Manufacturing
Services (EMS)
OEM / telecom
operators
ASML
ASM International
Assembleon
Omron
Stork
Vanderlande
Industries
Ferro
Freescale
Motorola
Philips
ST Microelectronics
Thomson
Tyco Electronics
Arrow
Avnet
Flextronics
Mediamotion
Navteq
Neways
Solectron
Acer
Apple
Bosch
Canon Europe
Dell
Fujitsu Siemens
KPN Mobile
Lexmark
Logitech
Philips
Vodafone
Table 1. Participating companies
What do you mean, difficult to obtain a forecast?
management commitment. Requesting large
batches of input data will de-motivate Sales
therefore the process should be focused on
forecasting key drivers. Statistical data and
market data on higher aggregation level will
help to ask for a limited set of market data
from Sales. Also the ABC classification will
help to distinguish real drivers from the
rest of the business. This data can then be
constrained to new customers, new products,
market promotions and special events. Ask
Sales people to only forecast those elements
that really matter and assure that this can
be done efficiently (easy data entry and a
forecasting support function) so they can
spend as much time as possible on selling.
For decades organizations have worked
on S&OP (Sales and Operations Planning)
processes with varying levels of success.
Key in applying an integrated planning
methodology is to align all planning
processes, with corporate and functional
strategies. The alignment helps to foster
a shared sense of ownership and ensures
executive buy- in. The objective of integrated
S&OP is to improve business performance
by designing and deploying a standard and
shared process incorporating cross-functional
objectives, business strategy, and targeted
and shared metrics, and to continuously
refine and improve the process over time.
Designing and deploying a more integrated
approach will inhibit decisions being made
in a silo and will support the deployment
of cross-functional activities and agendas.
An important element of the integration
challenge is to get all functional disciplines on
board.
In the next section the main difference
between Sales people and planners is
described. The key tactics to assure a proper
input from the Sales department is elaborated
on in the section “Plan who knows best”. In
general these practices are a tactic or method
chosen to meet a specific objective. The
objective served in this area is to obtain the
maximal Sales forecasting performance, at
the same time reducing the effort spent by
Sales in forecasting. The implementation and
perceived effect of the tactics is the subject of
the section “How to effectively assure Sales
involvement”.
process with important input. However,
forecasting and planning is not perceived
to be their favourite activity, quotes such
as ‘selling is my job, not forecasting’ and
‘forecasting is data crunching, the more
information I deliver the more questions
I receive’ are a reflection of their generally
held belief.
In the High-Tech and Electronics Industry
companies have different circumstances with
respect to customers, ranging from companies
with fewer than a dozen customers to
companies with Sales to thousands of
customers. Not only does the penetration
of the customer demand go deeper into
the demand chain in the event of a small
customer portfolio, but the motivation to
know the customer and to act as an extension
of his business is much more present than in
situations where a company serves hundreds
or even thousands of customers.
In both situations Sales plays a major role
in the forecasting process. Sales is strongly
knowledgeable on short term programmes
and projects or promotion campaigns of
its customers where Marketing overlooks
the specifically chosen product / market
combinations and its developments for the
mid- term and long term. Planning reflects
Each business function involved in the
forecasting and planning process has its
added value and the consistency and quality
of the forecast depends on the alignment of
the business functions. Sales are known to
be the eyes and ears of the company in the
market, they have to provide the forecasting
Give me the crystall ball...
Supply Chain and Finance
ask for ever more detail...
Figure 1. Sales perception on forecasting
Orientation
the demand patterns of latest history and is
capable of determining trends, seasonality
and campaign effects. This is also referred to
as the ‘plan who knows best’ principle.
Risk
Sales representatives have an ambivalent role
in the company. They represent the interests
of their own company and simultaneously
represent the interests on behalf of their
customers. They are the customer’s eye and
voice to watch over the delivery reliability,
the quality, and cost control and service
level. Marketing needs the input of Sales to
monitor the fulfilment of their Marketing
policy. Furthermore, they are continuously
connected to the market to determine the
future market policy. Planning, however, is
oriented to support decision-making. These
decisions aim to optimize the business
processes on the short term and aim to
sustain competitiveness for the mid term.
Most of the companies state that involvement
of Sales in addition to Marketing and Planning
is vital for the process, but in most cases
experience shows that it is difficult to get
Sales committed to the forecasting process.
The fundamental question answered in this white
paper is how to ensure that the best possible
forecast information is obtained from Sales
An examination of the nature of Sales,
Marketing and Planning shows a major
reason for differences in attitude towards
forecasting. Table 2 gives an overview of some
key differences between Sales, Marketing and
Planning.
Sales and Marketing see risk as an integrated
part of their business lives. In combination
with the trust, on which they rely in dealing
with customers, they accept that in some
cases the customers take decisions which are
not favourable to their business. For planning
risk is an enemy. Their task is to control
business processes. Risk in business can be
calculated, but should always be avoided.
External / Internal attention
Sales and Marketing deal with the company’s
external partners. They experience the
company as a part of a total market and
they are trained to position the company in
this market as well as possible. The effort
they make in their jobs is to acquire orders
from customers. Once the order is received,
they move forward. Planning spends most
of its time on controlling and optimising the
fulfilment processes.
Focus
Sales
Marketing
Planning
Customer oriented
Product/ Market oriented
Process control oriented
Focus on relations
Focus on market dynamics
Focus on numbers and drivers
Searching for opportunities
Applying opportunities
Dealing with variances
Accepting risks
Accepting risks
Avoiding risks
External company focus
Combining external focus and
internal capabilities
Internal company focus
Variable remuneration
Variable remuneration
Fixed remuneration
Short term results
Mid- term results
Mid and Long term results
Table 2. Differences of Sales, Marketing and Planning
Sales are focused on the relation with
customers. They build trust with their
customers. The relation is one of the most
cherished assets. For companies that act in a
market, where all customers and suppliers are
known, this relation is even more important,
than in a market where many customers are
present. Still in this market a good relation is
a condition for long-term success. Marketing
is focused on market dynamics. They consult
many partners who are present in the
market to review their Marketing strategy.
This may lead to adaptations in market
communications, in promotions, or even in
product portfolio. Planning on the other hand
focuses on information gathering, such as
numbers of Sales volumes. They rely on the
facts behind the numbers, for they miss the
experience that Sales and Marketing have.
Remuneration
Sales and often also Marketing have
remunerations that are for a part variable.
The variable part is in most cases determined
by the level of Sales or margin. In planning
the remuneration is often fixed. If there is a
variable part this part is often determined by
the level of inventory, the delivery reliability
or forecast accuracy.
Horizon
The horizon for planning varies, depending
on the business, to 18-24 months. Tactical
planning is focused on capacity creation,
material availability, workforce availability
or equipment availability. The operational
planning is focused on optimizing the
available resources. The horizon ranges
from half a year to a quarter of a year. The
Marketing horizon can be similar to planning.
The Sales horizon, however, is mostly shorter
than one year. Some exceptions exist though,
where projects, large equipment installations
or infrastructures are offered to customers.
The Sales targets on Sales volume and margin
drive Sales to a short term focus.
Opportunities
Sales and Marketing are trained to explore
opportunities in the market. They have
to trust their gut feelings that these
opportunities may lead to profitable Sales.
They put in a relentless effort to achieve
profitable Sales in making the opportunity
happen. Without this the opportunity will
never show. For planning opportunities is
often wishful thinking. They have difficulty
in translating these opportunities into a
numbered representation of reality.
Last year EyeOn carried out research with Sales managers
and Supply chain managers. It appeared that Sales managers have a different view of forecasting and planning issues
as compared to their Supply chain peers.
Plan who knows best!
One-number planning ignores the different requirements
of different business functions. Marketing & Sales,
Finance and Operations therefore create their own plans.
SCM 5%
1. 5
0% of the Sales managers reflected that a ‘One number
plan’ ignores the various planning requirements of various business functions such as Marketing and Sales,
Finance and Operations, whereas only 5% of the Supply
Chain Managers agreed with this ignorance.
Companies try to take the maximum
advantage of the potential market insight
provided by the Sales force. Sales are closest
to the customer and can therefore develop a
best guess on the expected levels of customer
demand for the coming period. Sales people
should provide the input when they have
insights into changing demand patterns of
their customers and when Sales people have
insight into the probabilities of securing
large orders. Many companies face spikes in
demand that are the result of large orders
placed by their key accounts. The question is:
how should the Sales organization become
engaged in forecasting?
95%
Sales Management
50%
Agree
50%
Disagree
Consencus forecasting is not suitable for
New Product Introdutions
50%
Supply Chain
2. M
ore than 70% of the Sales managers were of the opinion that New Product Introductions should be planned by
Marketing and Sales, whereas only 50% of the Supply
chain managers shared this meaning.
Sales
50%
70%
Agree
30%
Disagree
72%
3. M
ore than 72% of the Supply chain managers agreed on
the statement that statistical forecasting is at least as
good as judgmental forecasting, whereas only 59% of the
Sales managers agreed on this.
Sales
4. M
ore than 29% of the Sales managers found that planning is the sole responsibility of the logistics department.
Somewhat more that 13% of the Supply chain managers
agreed on this.
Sales
Disagree
87%
29%
Agree
Walk the talk
It is essential for Sales management to
clearly communicate to Sales people in the
field that sales forecasting is an important
element in their job. The Sales manager of a
newspaper publisher stressed the importance
of forecasting to the Sales force by installing
so called ‘red pen’ meetings. During these
meetings the sales forecast was discussed
and agreed with the field Sales force. The
importance of these meetings was made clear
by the fact that they had to be put on the
calendar in red and were not to be moved or
cancelled. Gaining commitment from Sales
management means that the field Sales
managers also have to be engaged in the
process.
Research on the involvement of the Sales
force is limited and often only states THAT
the knowledge of the Sales force should be
used in the planning process. However, only
limited information is available on HOW to
make Sales people enthusiastic to put their
maximum effort into the forecasting process.
A study executed by Moon and Mentzer
41%
Planning is the sole responsibility of the
logistics department
Supply Chain 13%
Communication
28%
59%
Agree
Within these focus areas 11 tactics are
distinguished. These tactics are described in
the remainder of this section.
Companies can apply different tactics to
improve the forecasting performance of its
Sales force. Key is to obtain the maximal
Sales forecasting performance while at the
same time reducing the effort made by Sales
in forecasting.
Statistical forecasting is at least as good as
judgement forecasting
Supply Chain
(1999) shows four focus areas to use the Sales
force as the eyes and the ears of the firm
successfully. These key areas are:
•Communication
•Transparency
•Focus
•Keep it simple
71%
Communication
Transparency
• Walk the talk
• Job description
• Reward
• Decouple forecasting
from quota setting
• Agreement session
• Provide feedback
Besides a strong communication from Sales
management, several other methods can be
applied to communicate that forecasting is an
important part of the Sales job.
Disagree
General management may demonstrate their
commitment to forecasting by installing a
demand manager. The demand manager is
responsible for the forecast results for an
entire Business Unit, Business Line or product
group. He monitors the forecasting and
planning process and initiates improvement
actions to have increased forecast accuracy.
He also takes the lead in the alignment of
the Sales, Marketing, planning and financial
forecast.
Admin
Excel is the best forecasting tool
Selling
Supply Chain 8%
5. M
ore than 93% of the Sales managers expressed the
opinion that Excel is the best forecasting and planning
tool. Other systems like SAP are too complex for data
entry. Only 8% of the Supply chain managers shared this
opinion.
92%
Sales
93%
Agree
Disagree
7%
Focus
Keep it simple
• Key drivers
• Easy data entry
• Support role
• Training
• Statistics as proposal
Figure 2. Key areas and detailed tactics to assure Sales
involvement
In the next section a number of tactics to benefit
from the Sales expertise fully are shown.
The alignment meeting is best chaired by the
business executive. He takes control to obtain
the best possible forecast. As a consequence
he manages the responsiveness to customers,
the amount of working capital tied up in
inventories, the allocation of scarce resources
and the utilization of important capacities.
The expression of the forecast in financial
values, such as revenues per customer,
region or business line is more in line with
the interests of Sales and Marketing. Sales
management will review the rolling financial
plans by discussing the underlying forecast
assumptions and the quality of the forecast
input data.
his / her territory, the Sales person will try
the lowest forecast. Second, when the actual
Sales are delivered to the company the
Sales force has no incentive to outperform
the forecast. This can be prevented by only
making a small part of the bonus dependent
on the forecast accuracy. On the other hand
it does not provide sufficient motivation to
achieve good forecast accuracy.
• Competition
Sales people are known to be competitive.
Publishing the Sales forecast accuracy per
Sales manager and attaching non-financial
rewards to this can provide an incentive
for Sales people to deliver high-quality
forecasts.
Job description
The job description will identify all the
tasks to be performed by Salespeople. The
components of a job description include both
selling and non-selling tasks. The types of
selling tasks that will be required depend on
the type of product, the types of customers
being called on, and the anticipated dollar
volume a Salesperson is expected to produce.
Non-selling tasks involve the amount
of paperwork required such as invoice
preparation, activity reports, expense reports
and forecasting.
• Product availability
In some companies the quality of the
forecast is linked to product availability
for the Sales manager’s customers. A good
forecast leads to better product availability.
Account managers who provide the best
possible forecast are rewarded with the best
product availability for their customers.
The challenge for this model is when a
key account demands product availability
even when the forecast was not available.
Normally the requirement of the key
account is answered in the affirmative.
Reward
Traditionally, Sales management has based
performance evaluation on the Sales results
of Sales people (i.e. outcome performance).
However, they are sometimes reluctant to
put effort in activities that do not directly
generate rewards. To make sure that they
make their forecasts as accurate as possible it
is important to (financially) reward them for
this as well. In general 3 sorts of rewards for
reliable forecasts can be distinguished.
Transparency
Decouple forecasting from quota setting
The process of generating Sales quota (budget)
can be counterproductive for the quality of
the forecast when it is integrated with the
forecasting process. The forecast will be
down-played to get Sales quota which are
not stressing and can easily be achieved. To
prevent this game playing, the generation of
the Sales quota should be decoupled from the
operational forecasting process. A possible
means of doing this, is by setting the targets
top-down based on market indicators like
market share. It is also possible to show
forecasts and quotas in different units of
measurement. For example setting the quota
in values (€) and the forecast in volumes.
Finally, the forecast can be decoupled from
the quota by separating the time horizons, e.g.
an operational forecast for the first 3 months
and the quota for an entire calendar year.
• Financial
In many companies Sales people are
rewarded based on variable compensation.
But how can a firm provide incentives to
its Sales force in line with their interest
to reveal what they know about the
market and, at the same time deliver the
Sales levels required? The answer is not
unambiguous. Having a bonus related to
their forecast accuracy can lead to gaming
at two moments. First, when the bonus is
determined. If the firm simply asks the
Sales person to forecast the Sales volume for
10
Focus
Agreement session
The relationship between the various
functional areas such as Supply Chain
Management (SCM) and Finance and
Accounting (F&A) and the field Sales manager
starts with an understanding that all
parties have a lot to gain from a meaningful
dialogue. For the Supply Chain Manager a
good relationship with the Sales manager
will deliver more insight into the assumption
underlying the submitted forecast. The close
relationship with the account manager will
also provide the support that is needed
to get closer to the customer, to pursue a
collaborative relationship over time. The Sales
manager obtains early insight into possible
supply issues, giving him ample time to take
corrective actions towards his customer.
This leads to a better relationship, which will
improve Sales potential and defend against
possible attacks by competitors.
The third key area in improving Sales force
involvement is to keep them focused on those
forecasts where they can make a significant
contribution to the companies forecast.
Key drivers
In many situations the information used
in all planning processes is determined by
the least denominated number. The level
of information gathered is very often at the
product /customer-site level for execution
purposes. This level of detail is also used
for the mid and long-term. Partly this is the
case because the systems allow it to be done,
and secondly because in many companies
the sole objective of forecasting has been
lost (taking decisions). In many companies
forecasting, also for the medium and long
term, has become a number crunching
activity. When information for the short term
planning process is gathered at product and
customer level for the first 6 months, this
level of analysis is generally also used for a
longer time frame. It aims to take tactical
and strategic resource decisions, by simply
extending the horizon in the ERP and APS
systems to 12 or 18 months. However, by
nature, level and time buckets (quarters
instead of months) of information are really
different for that time horizon. The choice
for aggregation level and time bucket sizes
depend on the type of decisions a company
want to take. In most cases capacity decisions
require less detail than decisions on critical
long lead items.
Other dimensions, such as scenarios and
market share information tend to be more
meaningful on the longer term. For example,
in a semiconductor company manufacturing
and selling Application or Customer specific
ICs (ASIC), the design-in of the IC into a
specific application drives future business.
Instead of asking the account teams to
forecast the individual components, the focus
should be on forecasting the design projects
with the key customers.
Each company should th erefore
conscientiously define its Key Value Drivers
as a basic starting point for designing its
planning process. This keeps the Sales
people focused on those forecasts where they
can make a significant contribution to the
To formalize this information exchange,
routine meetings are to be held on a periodic
basis. In terms of frequency companies
should create the possibility to hold these
meetings outside the regular process. This
is required when large changes in demand
become known in between cycles. This can
occur because of new promotions, spot deals,
unexpected upturns, etc. For these meetings
to be routine, they should follow a fixed
agenda.
Provide feedback
Sharing and discussing forecast results with
the Sales managers on a monthly basis will
improve the ownership of the forecast. For
continuous improvement, it is critical to
review and understand the key motivations
and the likely causes of forecast errors.
Most field Sales managers do not have
the time nor the expertise or resources
to thoroughly analyze the forecast and its
inaccuracies. The Supply Chain function can
show the financial effects (savings) of a high
quality forecast and can show the impact
of forecast accuracy on the availability of
products for their customers. In general this
improves the willingness of the Sales force to
put effort into generating the forecast.
11
company’s overall forecasting effectiveness
e.g. in a business model where the largest part
is driven by promotions. It makes no sense to
ask the account manager to forecast all the
products for his accounts. He should focus
on forecasting and planning his promotions,
regular business can be forecasted via
alternative techniques, for example using
statistical forecast models.
On the other hand, in many organizations the
80/20 rule applies, where 80 percent of Sales
are generated by 20% of the customers and
20% of the products. It really makes sense to
limit the Sales forecast input from Sales to
these 20%.
In general it can be stated that a very
careful evaluation should be made on ‘what
to forecast’ and not to run into the trap of
forecasting each and every individual item.
generation of the forecast but also for:
•Analyzing sales data and sharing the results
with field Sales managers
•Providing the Sales team with additional
internal and external intelligence
•Actively monitoring Sales orders for forecast
validation.
How to effectively assure Sales involvement?
EyeOn conducted interviews with the 31
members of the European High tech and
Electronics network; the respondents all hold
senior Supply chain management positions.
All stressed the importance of getting high
quality forecasts from Sales to enable highquality decision making in the Supply chain
planning processes.
Training
Sales are known for its high staff turnover.
Sales people tend to change jobs rather
frequently. Training to Sales has two main
objectives. First, to show the importance of
Sales forecasting to the organization and the
money that can be made by having a reliable
forecast. Second, they should be trained
in techniques and tools that help them
in preparing a high quality forecast. This
includes the use of the corporate forecasting
and planning system. This training is often
offered once when a new process or system
has been implemented. Given the high
turnover rate of Sales people it is important to
repeat this training on a more frequent basis.
An essential distinction should be made
between items which are produced to stock
versus items produced on order. For stock
items, the forecasting is very meaningful
for inventory and responsiveness reasons,
whereas items produced on order may not
need any forecasting. In some circumstances
they need only capacity planning and/ or
critical material allocations.
Statistics as proposal
Another way to keep it simple for Sales people
is to provide them with an accurate statistical
forecast. It is the responsibility of Sales to
check the system generated forecasts and to
adjust them if needed.
Keep it simple
In the next section we will describe the
outcome of the interviews and what appears
to be the most effective way of applying the
different tactics.
Easy data entry once
Since Sales is seen by all departments as the
eyes and ears into the market, the risk exists
that they are asked for their input by all
different departments to supply information
that suits the specific needs of that
department. To ensure a proper involvement
of Sales in the process, they should be asked
for a SINGLE input of the forecast information.
All departments in need of forecast
information should derive it from this data.
During the interviews the (1) actual
implementation and (2) effectiveness or
usefulness of the tactics, as explained in
the previous section, was investigated.
1. To make sure that Sales puts the
maximum effort into forecasting more
than 85% of the companies questioned
have implemented more than 4 tactics.
The enquiry shows that 50% of the
companies involved have implemented
between 4 to 6 different strategies
to assure Sales involvement in the
forecasting process. Only a limited
number of companies (4,55%) have
implemented all the different tactics.
2. The effectiveness was rated by the
participants on a scale from 1 – 5 where 1
indicates not relevant at all and 5 as being
very effective to assure Marketing and
Sales involvement. The average score per
technique can be seen in table 4.
% of the
companies
involved that
apply the
tactic
Rated
effectiveness
(scale 1 - 5)
Walk the talk
51%
4,0
Job description
17%
3,5
Reward
7%
3,0
Decouple
forecasting from
quota setting
41%
3,3
Agreement session
45%
3,7
Provide feedback
on performance
30%
3,7
Key drivers
54%
4,0
Communication
Transparency
Focus
Number of tactics
applied
Percentage
of companies
interviewed
Easy data entry
39%
4,2
0-3
13,64%
Support role
13%
4,3
4-6
50,00%
Training
17%
4,3
7-8
31,82%
4,3
4,55%
Statistics as
proposal
13%
9 - 11
Table 3. Application of tactics
Keep it simple
Table 4. Interview findings
In general it can be stated that limiting
the forecasting effort while stressing the
importance is deemed to be the best way
to get Sales involved. The effort is limited
by asking Sales to focus on key drivers,
the implementation of a support function,
providing a decent training programme and a
statistical forecast as a proposal and to have
tools that allow easy data entry.
Support role
A way to get the Sales organization involved
is to nominate forecast managers for large
key accounts reporting to the key account
manager. They are responsible for acquiring
relevant information to generate a forecast
and to discuss this forecast on a regular
basis within the account team. The forecast
manager is not only responsible for the
The level of implementation serves as a good
proxy of the effort that businesses have put
into the implementation of the tactics and
therefore the ease of implementation. In
general it can be concluded that companies
12
13
‘Walk the talk’ has everything to do with
the importance that is granted to forecasting
by business and Sales management. By
many of the respondents it was stated that
management involvement is a condition for
success. One of the component manufacturers
organizes a half-day meeting every first week
of the month to take all relevant decisions.
The input from Sales is discussed in this
meeting. Non compliance with the time
table is seen as a ‘sin’. A method used by the
participating OEM companies
was to talk about the Sales
revenue estimation and not
about forecasting for its Supply
chain management connotation.
have tried tactics, changed them and in some
cases abandoned the same tactics. The most
appealing example is the use of incentive
systems that reward forecast accuracy;
many respondents have implemented it and
later on abandoned it again and sometimes
implemented it again.
Figure 3 shows the implementation and the
effect of the tactic. By combining the two
factors 4 clusters are notable.
60%
50%
Focus (54% / 4,0)
Walk the talk
(51% / 4,0)
Agreement session
(45% / 3,7)
40%
Decouple target session
from forecasting
(41% / 3,3)
30%
Easy data entry
(39% / 4,2)
Feedback performance
(30% / 3,7)
20%
Job description
(17% / 3,5)
10%
Training (17% / 4,3)
Support role /
statistics (13% / 4,3)
Rewards
(7% / 3,0)
3,0
Management commitment gets
under pressure in times of
allocation. When availability
is linked to the quality of the
account forecast, management
has to stick to this even when
an account demands product
availability. A second risk is that
business and Sales management
are directed towards financial
forecasting and that volume
forecasting is seen as less
relevant.
MS Access as the tool
to gather the forecast
‘They (Sales) only
information from the
forecast promotions
Sales force. Arguments
and tenders on main
for this include flexibility,
systems. Derivatives
possibility to use it
and accessories are
off-line, familiar to
estimated according to
Sales people and not
attachment ratios”.
too much training
required. Frequently the
information is loaded in the ERP or Advanced
Planning systems.
manufacturers have added ‘logistics peers’
and ‘customer forecast managers’ to their
larger account teams. They rated the
effectiveness with a 5.
An OEM manufacturer:
The participating companies reported that the
use of statistical forecasts is limited due to
the volatility of the market, the many product
introductions and the small size of some of
their accounts.
2. T
hose tactics that were mentioned
to be effective but where the level of
implementation is low.
3. E
lements that score high on implementation
but low on effectiveness are agreement
sessions, the decoupling of forecasting
from quota setting and the feedback on
performance.
It is remarkable that in this cluster of tactics,
companies perceive the tactic as effective
in one respect, the level of implementation
however is low. What are the reasons for this?
It is remarkable that in this cluster of tactics,
companies have often implemented the
tactics, but perceive the effectiveness of the
tactics as low.
Among other things the largest effect is
attributed to training. Remarkable is that
regular training of Sales people, involved in
the forecasting process is implemented only
in a few cases (17%), however, is indicated as
very important (4,3).
A component
The availability of
manufacturer:
Sales at the agreement
session (S&OP meeting)
‘The monthly S&OP
is perceived not to be
meeting includes
important. Stress has
BU management,
been put on gathering
Controlling, Supply
the input from the Sales
Chain Management
before the meeting starts,
and sometimes Sales
not on participating
(support)’.
in the meeting. In the
majority of the cases Sales
management is member of the S&OP meeting,
the deployment of the actions agreed on to
the Sales force repeatedly leaves room for
improvement.
Sales people frequently
change jobs while
business requirements
change over time. After
‘Training is held for
the implementation of a
each operating company
new forecasting system
acquired on the use
many of the companies
of our ERP and CRM
organize training for all
system. But no follow staff involved, including
up training is given’.
Sales. On a regular basis,
training is limited to
planners and Supply chain staff.
A component
manufacturer:
4,0
5,0
Focus on key-drivers is very
well implemented in 54% of the participating
companies. Focus is obtained in different
ways:
•Sales forecasts exceptions.
•The forecast is generated at high aggregation
level.
•The 20 / 80 rule or ABC classification is
applied.
•OEM manufacturers ask only for promotion
and new product (NPI) planning.
•Focus of Sales on mature products with
unstable demand or one dominant customer.
Equipment manufacturers report to be very
satisfied with the focus of the Sales on the
control of the often complex and capital
intensive Supply chain.
Figure 3. Tactics: implementation and effectiveness
(% implemented / rating on tactic)
1. T
hose that are widely implemented and
where a common understanding exists that
they are very useful in assuring Sales buyin for forecasting:
These tactics widely implemented include
‘walk the talk’, focus,
An OEM manufacturer:
and easy data entry. The
high score of the last
‘In some cases the Sales
two tactics can partly be
reps make a halfhearted
explained because they
attempt at forecasting.
can be implemented by
In many cases this is
SCM without deep Sales
caused by ‘weak ’Sales
involvement.
Most companies have adopted easy data entry
systems (39%). 74% of them use MS Excel /
management.
14
The decoupling of target setting (Sales
quota) and operational forecasting and
planning is seen as a pre-condition to get
an un-biased forecast
A component
from Sales. In many
manufacturer:
cases the budget for Sales
managers is determined
‘Budget planning
top-down in values,
is separated from
while the operational
operational forecasting.
plan requires quantities.
When the quantities of the The aggregation level
is different. Budget
Supply chain plan can be
planning focuses on
translated into financial
financial values, the
values by applying an
operational forecast on
average Sales price, the
quantities’.
quality of the operational
plan improves. The
Also the support role and statistics have a
relatively high score but are applied only by
a limited number of companies. Companies
that did not have a good experience with
adding a support function
An equipment
for forecasting to the
manufacturer:
account team mentioned
the loss in accountability,
‘It was as long as three
the many handovers
years ago that the Sales
of information and
force was trained on the
the small size of the
new process.
accounts as main reason.
However, two component
15
Sales manager uses the system to validate
the budget. Although this seems to be in
contradiction,
examples of special reward or recognition
initiatives to stimulate accurate Sales
forecasting. In cases where special rewards
are applied, it is rated as very beneficial (5,0).
Discussions are going on about the effect
of applying incentive schemes for forecast
accuracy. One of the OEM manufacturers
implemented a new reward system 2
years ago, 20% of the Sales reps bonus was
related to forecast accuracy. After one year
it was ended, the 20% bonus was too low a
percentage to provide a real incentive for
Sales people to improve forecast accuracy.
Performance measurement is seldom
implemented on individual Sales manager
level for closed loop feedback. In general,
measurements are conducted on product
group, market segment or regional level. This
is in line with the Marketing interests, but for
Sales the individual feedback is necessary.
Feedback is given in the event of incidents.
A general comment of the respondents was
‘they are not interested anyhow’. This was
mainly the case in those companies where
management attention was also lacking.
Discussions on the measurement definition
prevent the use of a
An OEM manufacturer:
closed loop process.
Sales is motivated by
‘The review process is
the feedback on the
implemented. Forecast
added value of their
accuracy is part of the
forecast, confirming
Business Balanced
their expertise of their
Scorecard and financial
accounts and challenge
worksheets’.
them to meet their
targets.
to 3 to 8 months in targets, depending on
critical capacity and material decisions.
•The use of statistics forecasting is most
widely applied in companies with many
Stock Keeping Units and large Sales
numbers of products.
•Within EMS companies and Component
distributors the forecasting task is very
well communicated to Sales, for their
business is very much customer- oriented.
The ownership of the manufactured and/
or delivered products lies in the hands of
the customer. For a part they take over
the control of the Supply chain from the
customer. The accurate forecast is the
primary driver for capacity and material
availability.
The best possible forecast information can
be obtained from Sales by focusing and top
management commitment!
Another perspective is the way the
participants have implemented their Supply
chain concept. The practices range from
engineer-to-order to make-to-stock, with all
other variants in between. This analysis also
confirms the previous findings and identifies
some additional findings.
The analysis over the value chain axis
confirms the findings as presented above.
In comparison with the other network
participants the equipment and turn-key
solutions providers with only limited Sales
volumes and high selling values have a
different way of involving Sales and Marketing
in the forecasting process.
The relation between forecast accuracy and
product availability was generally rated as
positive as a reward on performance. At the
moment product availability is associated
with the forecasting endeavour of the Sales
force, the commitment for the forecasting
process increases.
Some additional conclusions can be attached
to this table:
•In Engineer-to-Order and Make-to-Order
companies (61%), the forecasting and
planning task is communicated more to
Sales and Marketing, than in Assemble-toOrder and Make-to-Stock companies (48%).
Within EMS companies the communication
and description of the forecasting task is
most common. This is merely related to the
complexity of the product and the limited
number of accounts.
•The further the customer requirements
penetrate the company, the more Sales is
involved in the forecasting and planning
process. Only a limited number of projects
Some additional conclusions can be drawn.
•The Equipment Manufacturers tend to give
a higher appreciation for training the Sales
force on forecasting. This is explained by
the complex nature of the equipment and
the large impact of a limited number of
customers on the turnover.
•OEM companies (71%) and component
manufacturers (90%) have decoupled their
forecast most often from target setting.
Budgets are always stated in financial
values, whereas Sales targets are stated
financially but also often in volumes. The
horizon differs from one year for budgets
4. M
ethods that score low both on
implementation and usefulness are job
description and the use of rewards.
Besides the regular incentive schemes for
Sales representatives, there are not many
Type of company
Supply Chain Control concept
EM
CM
EMS
OEM
ETO
MTO
ATO
MTS
Focus
Target setting
Focus
Communicate
Focus
Focus
Communicate
Focus
Communicate
Alignment
Communicate
Alignment
Communicate
Communicate
Alignment
Alignment
Keep it simple
Communicate
Keep it simple
Target setting
Keep it simple
Alignment
Target setting
Communicate
Focus
Alignment
Focus
Focus
Focus
Target setting
EM = Equipment Manufacturer, CM = Component Manufacturer, EMS = Electronic
Manufacturing services, OEM = Original Equipment Manufacturer
Priority
Priority
generate the annual turnover in Engineer-toorder environments. Transparency and focus
facilitate the Sales motivation. Therefore the
communication of the forecasting task is
highly applied in both this environment and
a make to stock environment.
•In the Engineer-to-Order companies only
a limited number of methods have been
applied.
•In larger companies, especially the OEM
companies, offering products to the
market by a Make-to-Stock policy, the
alignment of the forecasts and the focus
on the products and customers that really
matter is much applied. Ensuring the Sales
input and driving forecasts improvements
are facilitated by the application of the
80/20 rule on products, customers and/
or user applications. This 80/20 rule is
less applicable for EMS companies and
Component distributors. Nevertheless they
focus the Sales effort on ramping up new
products and phasing out old products, in
order to control the inventories.
ETO = Engineer to Order, MTO = Make to Order, ATO = Assemble to Order, MTS = Make to Stock
Table 5. Implementation and effectiveness in different parts of value chain
Table 5. Implementation and effectiveness in different parts of value chain
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Conclusions
References
Regular training on the forecasting process
and the associated tools is rated to be very
effective. Only a few companies, however,
have indicated to have implemented
and organized these training sessions.
Companies that make use of regular training
sessions have a company’s scale to develop
the training sessions and to have these
executed by a specialized taskforce. Better
understanding of the process and its impact
on the business, as well as more effective
use of the ICT-tools are the advantages of
the training sessions. The regular training
sessions help to adapt the forecasting process
to changing business requirements.
Based on the interview results and the
discussions among the High-Tech &
Electronics network members, conclusions
are drawn. The research shows that
the most effective means to get Sales
commitment for forecasting and planning,
measured by effectiveness and the number
of implementations, is focus and top
management commitment.
To ensure the involvement of Marketing and
Sales in the Forecasting and Planning process,
it is of utmost importance that management
demonstrates its full commitment. This
commitment appears in chairing the
alignment meeting or the operational
business meeting. The presence of forecast
accuracy data per market segment, region
or product group might help to analyze
the current performance and to initiate
improvements in the forecasting process.
Another way of demonstrating management
commitment is the organization of regular
trainings in the forecasting process. Above all
the insistence of management to allocate time
in the Sales people’s agendas and to spend
time on both forecasting and the presence in
the trainings show the importance.
• Aertsen, Versteijnen [2005]. Responsive planning and forecasting in the high tech industry.
An EyeOn White paper
• Chen [2005]. Sales force incentives, market information, and production / inventory
planning. Management Science, No. 1, January 2005, pp 60 – 75.
• Moon and Mentzer and [1999]. Improving Sales force forecasting. The journal of business
forecasting, Summer 1999. pp 7 – 12.
Support to the forecast process by the
nomination of forecast managers is
indicated to be very effective. The forecast
manager supports Sales and Marketing to
implement the process and the consecutive
changes, to gather the data, to coach and
analyze the account specific forecasts. In
some circumstances this support role is
indicated to take away the accountability
of Sales and Marketing and to diminish the
responsiveness. Furthermore account teams
should be big enough to allow a forecast
manager.
The ‘Plan who knows best’ principle has a
huge impact on the motivation of Sales and
Marketing to forecast the customer demand.
Sales and Marketing should be asked to
focus on market information that is uniquely
available to them. This information could
contain specific developments in the market,
but even more specific customer information
on event, campaigns, promotions or new
product introductions. This underlines the
respect for their expertise and the recognition
that they manage the customer relation
instead of annoying them to spend time on
number crunching.
The use of statistically generated data is very
effective, for it requires Sales to only check
the data. Conditions for statistically generated
data are the volume of Sales, the volume
of an account and the stage of the product
in its product life cycle. Also the market
circumstances, such as the volatility of the
market play a role in the effectiveness of
statistical data.
The process of data gathering, recording and
reconciliation is best facilitated by the use of
familiar tools for Sales and Marketing people.
In most cases, this tool will be MS-Excel, but
also MS-Access and CRM-tools appear to be in
use.
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About EyeOn
Contact
For additional information regarding this
research, please contact EyeOn BV.
In 100 days EyeOn delivers structural
improvements in speed, efficiency and output
reliability of the planning processes. EyeOn is
a consulting firm specialized in designing and
implementing planning solutions in complex
organizations.
Dr. Freek Aertsen
Partner
++31 629072387
[email protected]
Drs. Stephan Wouters
Senior Business Consultant
++31 623226994
[email protected]
About High-Tech and Electronics Planning
and Forecasting Knowlegde network
The knowledge network ‘HT&E’ offers Supply
Chain professionals a learning network on
contemporary trends and best practises in
planning and forecasting in the High-Tech and
Electronics Industry. HT&E enables members
to share experiences and learn from each
other via research, members presentations
and benchmark studies whereas members’
needs are closely reflected. EyeOn has
initiated the network as per June 2005.
There is a possibility to meet each other in
person semi-annually during Round Table
sessions. HT&E is targeted at large sized
companies realizing at least 500 Million Euro
sales revenues. The participating companies
include among others: ASML, Apple, Avnet,
Dell, Flextronics, Freescale, Fujitsu-Siemens,
Omron, Philips, Mediamotion and Vodafone.
For more information: http://www.eyeon.nl
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