Most companies would kill to have the problem Apple currently has on its hands. Last Wednesday the company announced that it was postponing the overseas launch of the iPad because initial demand was outstripping production. Part of the production pinch was tied to the fact that Apple’s component suppliers weren’t able to scale-up fast enough. Clearly, Apple didn’t get the forecast right. To its defense, the iPad is a new-to-the-world product with no past history to provide guidance. However, with Tim Cook in the COO seat (a seasoned operator) you can be sure they threw their best efforts at calculating demand. If Apple couldn’t get the forecast correct, what are the rest of us supposed to do in our businesses? Short answer: at least try!
Having worked as both an operating executive and as a consultant, I have had enjoyed terrific visibility into companies large and small, public and private, across a variety of different industries. It is sad to say that the vast majority of companies to which I have been exposed do not have robust forecasting processes. Moreover, the “wet finger in the wind” sales forecasting that does take place is typically “siloed” in sales and not linked to production planning! (Production usually has its own forecast not tied to market factors.) Clearly, as witnessed in the Apple case, an unforeseen uptick in sales can lead to production shortfalls, excessive overtime, and expedited shipment costs. Conversely, an unforeseen slowdown in sales can lead to excessive inventory, ill-timed CAPEX investments and other costs. Quite simply, bad forecasts hurt profits.
Good forecasts improve profits. Good forecasts also signal that companies are well-run. Organizations that forecast well tend to exhibit five key characteristics that are also hallmarks of overall good management. These are:
1. A Disciplined Sales Process
Companies that forecast well have a disciplined sales process that methodically executes against targeted opportunities. Their sales organizations are well-tuned machines where a defined number of prescribed activities take place each day, each week, each month with consistency. Companies that randomly cast about chasing customers will never get the numbers right; the missed forecast being symptomatic of a sales strategy and organization deficiencies that risk business failure.
2. An Appreciation of The Relevance of Forecasting
Well-run companies view forecasting to be a core business discipline and employees understand and embrace the importance of the process. In companies which struggle with forecasting, employees blow-off collecting valuable information, sandbag data, and often mock the process with the implicit support of their immediate management. The best way to combat these breakdowns is with education. Take a simple test: (1) how many of your sales and marketing people know and interact with any consistency with your manufacturing and production people? (2) how many of your sales and marketing people have ever been on the production floor let alone worked on the line for a few days? If the answer is “very few” then begin by having the team walk in the shoes of production. Some enlightenment will occur. Then, have the team spend some time with the CFO. Guaranteed enlightenment.
3. A Situational Awareness of the Broader Market Environment
Many companies are intimate with their own immediate industry but fewer truly understand the dynamics of the industries in which their end customers operate. As an example, let’s consider the solar module industry. Assume that you sell tempered glass to First Solar. You are probably having a break-out year thus far with a dramatic uptick in order volume. However, are you aware of what’s going on in Germany? Germany is First Solar’s biggest market and the country is phasing out its solar subsidies. This is creating a rush to get projects completed before the subsidies expire which, in turn, is driving an uptick in module sales. Yet once these projects are completed, the future doesn’t look so frothy. If you have situational awareness, you probably will have begun planning for a slowdown. Without situational awareness, you might be breaking ground on additional production capacity.
4. An Ability to Collect and Synthesize Information
Good salespeople ask good questions and then listen. Great companies not only have such salespeople but they also have processes for collecting and leveraging the information their salespeople collect. Probing is a skill that can be taught and learned. I am a big fan of Neil Rackham’s book Spin Selling and recommend it to everybody irrespective of whether or not they work in a traditional sales role. Begin by training your salespeople to ask good questions. At the very least, your win rate and customer satisfaction will improve. Collecting the data is a bit more work. CRM systems have fields that can capture much of this information. Some companies are beginning to adopt social networking techniques to capture and share market intelligence. Sometimes, however, old school approaches work best. Schedule weekly sales calls where people share what they are learning from the market. These calls need to be well moderated and a sales assistant can document what is being said. What you will find is that a complex mosaic image of the market will emerge -- a richer picture than if salespeople worked in a vacuum to log their discrete observations in a CRM system.
5. An Established Trust with Business Partners
Most companies have a portion of their revenues generated by channel partners. Some companies sell exclusively through channels. With indirect distribution, it is very difficult to stay abreast of developments in your end markets as you may not be interacting with the end customer with any consistency. Great companies have great relationships with their channels and information is shared freely and handled with trust and integrity. If you have tenuous relationships with your channel partners because of lack of trust, you are at a competitive disadvantage because you are driving blind. Lack of trust is too costly to ignore - fix it.
Comments