How to Implement S&OP when you don’t know how to Forecast

Every client that I have worked with has struggled with developing a consistent and reliable forecasting process.  Here’s a success story.

Sales & Operation Planning (S&OP) is a process to align an organization across all functions, so that production loads are optimized, balancing demand (sales) and capacity. When done well, S&OP allows business to capture efficiencies in their operations because they can proactively adjust their business as forecasts change. 

An integral element to implementing an S&OP process is a clear forecast of future demand.  Forecasting is a muscle that is rarely used, let’s talk about how to build that muscle in your organization. 

A manufacturing client that I worked with had a sales team made up of a combination of brokers and employees.  They had five plants that produced two main product lines with several distinct sub-product lines.  Two of their plants were over capacity, two plants were at a comfortable capacity level, and one plant was significantly under capacity.  Visibility into future demand was imperative to improve operational efficiency across their network.  The sales team had never been asked to provide forecasts or visibility into upcoming demand at a product family level. 

We decided to implement an S&OP process to enable the operations team to plan and schedule efficiently.  The sales team pushed back significantly.  This is what we heard from them:

·         “Our customers don’t know what they will be buying, so how can we”

·         “We are focused on getting new business, not guessing what our sales will be with existing customers”

·         “We don’t have time to figure this out”

We needed buy in from the sales team to make this work.  Without a reasonable forecast, an S&OP process would be useless.  I worked with the Vice President of Sales to build a plan to make this successful. 

First, the Vice President of Sales was deeply involved and championed the process.  He stood behind the need for an S&OP process and the sales team to provide thoughtful forecasts.  He was present in weekly meetings continuing to deliver this message.  For the process to start, it was imperative that the sales team receive the message that they were responsible for creating and improving their forecast by talking to their customers.

Second, we used historical data to build a starting point for the forecast.  We provided each sales representative, inclusive of non-employee brokers, with a summarized view of their historical customer sales.  This data was broken down by product line and included a time-series forecast of future demand.  Giving the sales team an algorithmic starting point for their forecast allowed them to review a mathematically driven forecast, talk to their customers, and identify any relevant adjustments.  They did not have to build the forecast from scratch but could provide input and adjust based on factors that would not be picked up by an algorithm. 

Third, we implemented a monthly review process where we analyzed the previous forecasts compared to the actuals as a team.  We saw how some sales representatives consistently over forecasted and some consistently under forecasted.  This information helped the sales representatives understand their bias and improve month over month.

We also used this monthly meeting for the sales representatives to talk about what worked for them.  They discussed how they learned to coach their customers into providing better information for forecasting.  Key questions the sales representatives asked their customers which improved their ability to forecast:

·         Did our customers have a promotion coming up? 

·         Did our customers have a maintenance shut down planned? 

·         Could our customers get forecasts from their customers?

These meetings allowed the sales team to discuss and develop best practices which improved forecast accuracy across the company.  A side benefit of this practices was improved relationships between the sales representatives and their customers.  The sales representatives learned more about their customers’ needs and with the additional information the business was better able to meet those needs. 

The success story is that you can train your team how to forecast by using data analysis, with high level management support, a sustained initiative, and consistency in the process.  With this approach, there will be dramatic improvement.  This is just one piece of the S&OP process, but an integral part of the process. 

Over the course of three months, this client went from not having the ability to forecast to developing a directional forecast out six months into the future. 

If you would like to talk more about forecasting or developing an S&OP process, e-mail me at stacy@pricingvelocity.com.