THE POLITICS OF FORECASTING IN
SALES AND OPERATIONS PLANNING
By Chris Whisenant
The key players of politics in
corporate America are the Executive
Branch (Senior Management),
the Legislative Branch (Sales and
Marketing), and the Judicial Branch
(Finance) to win the support
of Finance you must show cost,
average selling prices and margins
one-number forecasting is the key
to the success of S&OP process.
O
vercoming corporate politics can
be a big obstacle when forecasting
for a sales and operations planning
(S&OP) process. In a corporation, each
area of operations closely resembles the
three branches of the U.S. Government
Executive, Legislative, and Judicial.
Unfortunately, like government politics,
corporate politics can hinder your ability
to address quickly and efciently the
companys goals. When it comes to S&OP,
it is a challenge to keep the three branches
in sync. Without collaboration, the result
will be a broken S&OP process. Forecasting
professionals are caught in the middle as
they try to balance individual needs against
what is best for the company.
The goal of S&OP is to continuously
balance demand, supply, distribution,
and nancial plans to achieve corporate
objectives. By having a collaborative
S&OP process, a company builds a good
defense against lost sales and diminished
margins. If your S&OP process is broken,
planning teams will operate with a silo
mentality, causing earnings to suffer and the
companys competitive edge to slip. This
makes a successful S&OP program crucial.
THE JOURNAL OF BUSINESS FORECASTING, SUMMER 2006
But, how do you get the buy-in you need
from each of the three branches to achieve
this success when each branch is lobbying
for its own agenda?
Forecasting must balance the needs of all
three branches. But getting from point A to
point B is not an easy process. The needs of
the Executive Branch (Upper Management
and Operations) must be addressed.
Also, the needs of the Legislative Branch
(Marketing and Sales) and the Judicial
Branch (Finance) must be balanced to
stay on course during the S&OP process.
Furthermore, to streamline this process,
you must have a champion in each area
CHRIS WHISENANT
Mr. Whisenant is the Manager of
Logistical Systems and Forecasting at
Shaw Industries, where he has been
working for the last 14 years. He holds a
Bachelor of Science degree with a major
in marketing from Jacksonville State
University.
who may not necessarily be the head of that
department.
It is also crucial to note the importance
of communication and timing the
what, when, and where of planning.
The most important element of timing
is when, which is often overlooked.
For example, lets say that the Executive
Branch (Operations) of a manufacturing
company wants to purchase new machinery
that costs approximately $6 million. The
new machinery is not necessarily needed
right now but it may be required to support
long-term plans, so the Executive Branch
makes the purchase. This creates a problem
with the Judicial Branch (Finance) and
the Legislative Branch (Marketing and
Sales). Both of those branches would like
to postpone such a spending, though for
different reasons. The Judicial Branch may
like to postpone it for a nancial reason
and the Legislative Branch does not see at
the moment that it would help them in any
way to meet marketing objectives. In this
instance, communicating the timing through
the S&OP process could synchronize the
time-phased needs of each branch. So,
how do you campaign to win this political
battle?
WINNING SUPPORT FROM
UPPER MANAGEMENT AND
OPERATIONS
For a successful S&OP process, it
is necessary to have sponsorship and
support from the Executive Branch (Upper
Management). To win the case with Upper
Management and Operations you need to
know what will be most important to them
17
in the S&OP process. You can get this
information by asking the following:
What are the future needs of our customer
base and corporate trends?
How does the nancial future of the
company look?
How much will we need for capital
expenditures?
What are our current and future inventory
turns?
What are our current and future
margins?
To run a strong campaign within the
Executive Branch, it is imperative to
consider market demand, trends, timing,
and budget. You can add ammunition to
your campaign by providing the Executive
Branch with trending analysis at the
product-family level. Its often valuable to
view the plan in a standard unit of measure
as well as in dollars to gain insight into
pertinent nancial trends. Additionally, look
at the total process to determine capacity
constraints that may require future capital
investment based on both current and
future inventory levels, as well as inventory
turn rate within each product family. By
providing all this as well as cost factors
within a product family and a view of margin
dollars, you are adequately addressing the
high-level nancial and capacity concerns
that the Executive Branch needs to focus on
during the S&OP process.
GETTING VOTES FROM
SALES AND MARKETING
The Legislative Branch (Sales and
Marketing) will have an entirely different
agenda when looking at the S&OP process
if we focus on these concerns:
Where do we stand on budget?
Do we have enough inventory?
Is the inventory of the right products?
Where do we stand on backorders?
18
FIGURE 1
HOW S&OP WORKS
Marketing Logistics/
Sales History Operations Consensus Forecast
Sales Finance
One Number
Units Review/Consensus Operational View
Meeting
Marketing/Sales View
Forecast
Time
Adjustments
Shipments Marketing Intelligence
Orders Baseline Sales Information
POS Data Forecasts Trade Promotion
Into
Common
Terms
Forecasting
Software
Forecasting
Software
Causal Overrides
Time Series Top-Down Allocations
Promotional Bottom-Up Adjustments
Forecasting
What are the regional trends? margins, you will champion your position
well within the Judicial Branch (Finance).
Are new product introductions performing Also, ask the following questions that are
as planned? crucial to nancial executives:
There are several ways to satisfy the needs Are we in line with our current budget?
of the Legislative Branch. A powerful S&OP
should include the error in dollars between In what timeframe will our capital
the planned budget and the actual forecast; expenditures be incurred?
a view of the forecast and inventory plan
Does the forecast project a growth or
and projected aggregate-product family
decline in our inventory dollars?
shortages; disaggregated product families,
viewed by S&OP, with a detailed view
What will be the impact on our margins?
of expected gaps within inventory plans
and projected needs; backorders; and an
aggregate regional view supported with Can we decrease inventory carrying costs
projected trends. and still provide the needed customer
service?
If forecast trends show increasing product
The Judicial Branch wants to see the
family shortages in the future due to capacity
nancial benets of planning. Provide them
constraints, which could be relieved by
with an error-percentage view between the
investing today in new machinery, then a
budget provided by sales and/or marketing
clear alignment is established between the
in dollars and the forecasted dollar amounts.
investment and the future sales and budget
With that you are demonstrating when future
goals of Sales and Marketing.
capacity constraints will occur and whether
or not they are expected to continue. Also,
BALANCING THE BUDGET by looking at the mix of your products and
the forecasted trend, you can provide the
By providing a forecast that includes Judicial Branch with a future-cost view as
cost factors and average selling prices and well as a projected dollar-margin view. By
THE JOURNAL OF BUSINESS FORECASTING, SUMMER 2006
addressing these areas, you will be showing
the nancial operations of your organization
what they are most interested in. With the
results, you will gain their support.
HOW TO PLEASE ALL
CONSTITUENTS
When dealing with the political
environment in sales and operation
planning, communication is extremely
important. While addressing the needs
of each branch, you must ensure that you
are using a one-number forecast. It is
critical that all branches are on the same
page. Without a one-number forecast in
place, all efforts will be wasted. You should
also provide multiple views of forecasting
data so that each group in the organization
sees the S&OP plan in the context that is
important to their role in the business. Also,
make sure that changes in your forecast
are synchronized with your inventory and
replenishment plan. In a successful sales and
operation planning process, the constituents
compromise so that the organization wins.
HOW S&OP WORKS
Figure 1 shows how S&OP works. It is
a complex business process, especially
in markets that are highly dynamic
and competitive. It is designed to keep
operational execution aligned with corporate
goals, and thus it should start with a solid
demand plan.
To achieve best results, companies
should migrate toward an S&OP strategy
and metrics that drive protability. Regular
planning and review meetings are part of
best-in-class sales and operations planning
where departments share information and
goals, and provide forecast visibility and
accountability for rolling 12- to 24-month
planning horizons. In the beginning, the
focus should be on getting executive buy-
in and leadership so that processes, not
technology, get the most attention. An
organization has to realize that the process
is driven by demand and you have to
proactively focus on future market needs
and improving forecast accuracy.
THE JOURNAL OF BUSINESS FORECASTING, SUMMER 2006
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Technology will automate and streamline
the process. With a technology solution
in place that ensures forecast is built with
collaborative input, you will gain consensus
across your organization and be able to
synchronize plans with the supply side of
your business. Technology allows you to
gain insight into disparate data so that you
can spend less time compiling data and more
time analyzing business scenarios. Make
sure that performance metrics are linked
to revenue, forecast accuracy, service,
inventory, supply chain costs, margins, and
cash-to-cash cycle.
For the S&OP process to work,
responsibilities must be shared across the
organization, and measured and rewarded
when value is added. Collaboration must be
continual, and forecast levels are adjusted
in an iterative process. The S&OP team
receives proactive alerts on key supply
chain issues. And, most importantly, results
should be clearly communicated across all
three branches to build credibility into the
process.
CONCLUSION
Each branch in the corporate political
landscape views the business from a
different vantage point. So, forecasters
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must be prepared to translate each plan in
a way that facilitates communication and
collaboration. With clear visibility and
PDF le:
communication across the three branches,
it is possible to achieve a successful S&OP
The Journal of Business Forecasting
process. S&OP can be the single most
important weapon you have to ensure that
your enterprise is protably servicing the
right customers, through the right channels,
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with the right products.
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