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E y e O n bv B u s i n e s s P l a n n i n g & C o n t r o l S o l u t i o n s Sales on Board! How to involve Sales in the Forecasting and Planning process? EyeOn bv Business Planning & Control Solutions Croylaan 14 P.O.Box 85 NL - 5735 ZH Aarle-Rixtel +31 492 388850 +31 492 388835 [email protected] www.eyeon.nl 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 16 17 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. 18 19 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 20