FORECASTING AND SALES & OPERATIONS
PLANNING: SYNERGY IN ACTION
By Tom Wallace
Adversarial relationships that wrong, we were never right. We were
existed between the commercial side constantly getting beat up for lousy forecasts
and we never got a pat on the back for those
of the business (Sales and Marketing)
and the operations side of business
(Production, Distribution, and
Purchasing) are changing for the
better … S&OP process yields one-
number forecast … bias is almost
always caused by how people are
compensated and recognized for
their performance, which lies outside
the forecasting process.
B
efore we get into the specifics of
how sales forecasting and Sales &
Operations Planning (S&OP) are
mutually beneficial, we need to get a bit of
history under our belts. So please bear with
me for a moment while I take a quick trip
down memory lane.
BACK IN THE DARK AGES
I got my feet wet in the forecasting business
about 40 years ago. I was the supervisor of
the sales forecasting and planning group at
a sporting goods manufacturer. We had:
• Over 10,000 SKUs (with sizes, colors,
grades, and so forth),
• A fiercely seasonal business (we didn’t
sell many football shoes in February
nor did we sell many baseball uniforms
in September), and
• No tools (unless you consider a
mechanical calculator a tool).
It was very difficult. We were always
16
TOM WALLACE
Mr. Wallace is a writer and educator
specializing in Sales & Operations
Planning, Sales Forecasting, Demand
Management, and Resource Planning.
He is currently a Distinguished Fellow
of The Ohio State University’s Center
for Operational Excellence. He has
authored over nine books, including
Sales & Operations Planning: The How-
To Handbook; Sales Forecasting: A New
Approach; and Master Scheduling in the
21st Century. He has run a variety of
seminars for executives here and abroad.
In a consulting capacity, he has worked for
organizations such as Boeing, Guinness,
Honda, Microsoft, Pfizer, Pitney-Bowes,
and Procter & Gamble. He was the editor
of the third, fourth, and fifth editions of
the APICS Dictionary of Production and
Inventory Control Terminology.
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
rare times when the forecast was close.
And oh yes, we had stock outs like crazy.
The sales department didn’t like us and the
plants didn’t like us; no matter how hard we
worked, we couldn’t make them appreciate
us.
Being an unabashed optimist, I was sure
there had to be a better way. I searched for
forecasting tools and discovered, among
other things, an interesting piece of software
from IBM, called IMPACT (Inventory
Management Planning and Control
Technique). The heart of it was a new—at
least to me—approach to sales forecasting
called “exponential smoothing.” In addition
to linear projections, it had capabilities
for forecasting seasonal items, for items
trending up or down, and for seasonal items
with a trend component. It was exciting; we
had the potential and the opportunity to do
really good things!
By the time I had a chance to put the tool
to practice, I moved to another company,
this one in the pharmaceutical business.
There we had:
• Far fewer SKUs (about 400 as compared
to 10,000),
• A relatively non-seasonal business, and
• Encouragement from senior manage-
ment to get the tools we needed to do
the job.
We implemented exponential smoothing,
and it worked. It did quite a bit of good,
but I remember thinking how much more
impact (no pun intended) it would have if
I had used it for my former employer, the
sporting goods company. Their need was so
much greater, and my former co-workers
told me they still had not acquired any
tools.
At that time, I was working on an MBA.
I wrote my MBA thesis on statistical
forecasting where I demonstrated that
exponential smoothing was superior to
a number of other techniques currently
in use. I sent a copy to my friends at the
sporting goods company hoping they would
“get religion” but, no surprise, nothing
happened. For many companies back in
those days, the Dark Ages remained quite
dark.
FAST FORWARD TO THE
1980S
Over the next twenty years, the
forecasting field developed nicely. Interest
in forecasting grew and more and better
forecasting techniques emerged. The Journal
of Business Forecasting was founded and
the sales forecasting function became an
accepted part of the corporate landscape—
particularly in companies making products
sold to consumers: food, hardware, health
and beauty aids, pharmaceuticals, and, of
course, athletic goods.
In general, there was a lot more
forecasting going on, but some companies
found that they could and should forecast
less. This sub-trend involved the principle
of “independent versus dependent”
demand. It was articulated by a guy named
Joe Orlicky, who held a doctorate from an
eastern European university and who had
managed to get out of Czechoslovakia
shortly before the Russian tanks rolled in.
Joe said that:
Demand for component items used to
make a product is dependent on the
production schedule of the product
and, thus, it should not be forecasted.
Production schedules can be lumpy
because production often occurs in
batches and lot sizes. For example, a
finished product may have fairly stable
demand of about ten per week like this
one:
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
Finished Product Demand:
10 10 10 10 10 10 10
If, however, the production of that
product may occur in batches of, let’s
say, 30, then:
Production Schedule:
30 30 30
The demand for components to support
this schedule will also be lumpy.
Demand for Components:
30 30 30
Items with lumpy demand are much
harder to forecast, and thus the future
requirements for dependent demand items
should not be forecasted; instead, they
should be calculated from the production
schedule of the product. The demand for
finished products is independent because it
comes from outside the company and thus
must be forecasted. (This is not always true
in today’s environment of collaborative
forecasting and planning. However, it was
pretty much the rule back in those days.)
Some items, service parts for example,
were subject to both independent demand
(from outside the company) and dependent
demand if the item were still actively
used in production. In those cases, both
forecasting for the independent demand and
requirements generation for the dependent
demand needed to be computed and then
combined into one view of the total demand
so that replenishment can be properly
planned.
When I first heard this, it hit me like a
ton of bricks. I thought, “Of course! It’s
obvious. Why didn’t I think of that? That’s
probably why I’ve been having trouble
getting exponential smoothing and IMPACT
to work on raw materials and packaging.”
The result: we stopped misapplying the
forecasting tool. We pursued a requirements
generation approach, which yielded very
good results, and we focused our forecasting
efforts solely on finished products, resulting
in further improvements.
And so we learned and things got better.
But in many companies, forecasting
still remained a difficult, thankless, and
unrewarding task. It remained a point of
contention between the commercial side
of the business (Sales and Marketing) and
the operations side of business (Production,
Distribution, and Purchasing), as we referred
to these functions back in those days. A
colleague of mine once said, “Ninety-five
percent of all marketing-manufacturing
relationships are adversarial.”
FORECASTING AS A POINT
OF CONTENTION
Why was forecasting such a contentious
issue? Why is it still contentious in many
companies? What is it about the process
that makes it so? Well, many of you already
know why, but for those of you who don’t,
remember that:
1. Forecasts are always wrong. Yes, this
is a truism and not literally accurate,
but it’s certainly a valid point. Except
for those rare, random occasions when
they’re right on the mark, the forecasts
will be wrong to one degree or another.
This presents a wide-open opportunity
for finger pointing.
2. If the forecasts are too low, they can
cause stock outs. That’s not good
because the customers can’t get what
they ordered. The Sales and Marketing
folks are unhappy and so are the plants
because they’re forced into a scramble
mode and unplanned overtime.
3. If the forecasts are too high, inventories
build and their related carrying costs
rise. Cash flow takes a hit. Layoffs are
possible.
4. Multiple forecasts often abound. Sales/
Marketing has its set of forecasts,
Operations has one of its own, and so
does Finance and Accounting because
they don’t believe the other guys’
numbers. The three sets of forecasts
never agree, engendering debates
over whose is right. When the period
is over, one of the three forecasts will
17
 probably be less wrong than the others,
presenting another fine finger-pointing
opportunity.
5. Forecast accuracy metrics can present
problems. This is often due to lack of
understanding. “How accurate should
the forecast be?” is a question that I’ve
heard dozens (hundreds) of times over
the years. After I wince, my response
is, “Compared to what?” People close
to the forecasting process understand
that often much of the forecast error
is inherent in the variability in the
time series data. The more variability
in the demand data, the larger will
be the error. Others often don’t
understand.
6. The end use of forecasts is often
uncertain. I’ve heard more than a few
forecasters say, “This forecasting fire
drill is a lot of work and we do it every
month but I really don’t know why. I
don’t think the guys in Purchasing and
Production read them. They just make
and buy what they want.”
And the beat goes on. Unfortunately,
what we’ve just seen here is still the norm
in many companies, and that’s too bad. The
good news is that it doesn’t have to be this
way, as many companies have discovered
after they implemented Sales & Operations
Planning.
THE EMERGENCE OF SALES
& OPERATIONS PLANNING
It’s been said that Sales & Operations
Planning (S&OP) is the best thing that ever
happened to sales forecasting. Let’s first
look at what S&OP is and then consider
how it helps solve some of those chronic
forecasting problems that we’ve just seen.
Here’s a workable definition, a bit lengthy
perhaps but it touches all the bases.
Sales & Operations Planning is a decision-
making process that helps companies to:
• Keep demand and supply in balance,
• Align volume and mix, and
18
• Integrate operational plans and financial
plans.
The executive portion of S&OP occurs on
a monthly cycle and displays information
in both units and dollars. S&OP is cross-
functional, involving General Management,
Sales, Operations, Finance, and Product
Development. It occurs at multiple levels
within the company, up to and including
the executive in charge of the business
unit, e.g., division president, business unit
general manager, or the CEO of a smaller
corporation. S&OP links the company’s
Strategic Plans and financial plans to its
detailed plans for master scheduling and
scheduling for plants, suppliers, contract
manufacturers, and logistics. It can be used
to run the business on a week-to-week,
day-to-day, and hour-to-hour basis. If used
properly, S&OP enables the company’s
managers to view the business holistically,
and gives them a window into the future.
THE FOUR FUNDAMENTALS
Figure 1 shows the four fundamentals
upon which Sales & Operations Planning is
built: demand, supply, volume, and mix. In
Economics 101, we learned about demand
and supply, but a few words of explanation
may be in order regarding the differences
between volume and mix.
Volume refers to the big picture:
aggregated groupings such as product
families, major resources, finished goods
inventory, and customer order backlog. Its
focus is at the aggregate level as well as
on strategy, policy, and risk. The volume
question is, in effect, “how much.” Within
S&OP, volume planning is done on a
monthly cycle, with provisions for mid-
cycle adjustments should the demand or
supply picture shift sharply.
Mix is much more detailed and specific.
It deals with individual products, SKUs, and
customer orders. The questions it asks are
“which ones, when, and in what sequence.”
Mix planning is tactical, and focuses on
execution. It can occur weekly, daily, and
often hourly.
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
Two of the important tasks of S&OP
are balance demand and supply and align
volume and the mix. To understand how
it does this, we need to examine Figure
2, which shows the four fundamentals
together with the tools within S&OP:
Executive S&OP, Forecasting and Demand
Management, Supply (Capacity) Planning,
and the Master Schedule, which balance
demand and supply at the mix level. In
addition, other mix tools are employed:
plant scheduling, supplier scheduling,
logistics planning, and so forth.
The third major task for Sales &
Operations Planning is to integrate
operational planning and financial planning.
In almost all successful S&OP processes,
the base planning is done in units and then
translated into dollars:
• Sales—at average selling price,
• Gross profit—at average margins,
• Production—at standard cost, and
• Inventory levels—at standard cost.
Since Executive S&OP occurs on a
monthly basis, this financial view of the
sales and operations plans can result in a
rolling monthly check, and possible update,
on the annual business plan.
THE MONTHLY CYCLE FOR
EXECUTIVE S&OP
The standard cycle for Executive S&OP
occurs in five primary steps:
1. Data Gathering and Updating: Collec-
tion and collation of actual results,
generation of the new statistical
forecast, and so forth.
2. The Demand-Planning Phase: Forecast
updates, new product requirements,
creation of the consensus forecast
approved by the Senior Sales and
Marketing Executive(s). The primary
responsibility for this phase is held by
Sales and Marketing, and secondarily
by Finance and Product Development.

FIGURE 1
THE FOUR FUNDAMENTALS
Volume
Demand
Mix
3. The Supply-Planning Phase: The
generation of a new operations plan
that reflects forecast changes and
inventory shifts, and the identification
of key capacity problems. The primary
responsibility for this phase is held by
Operations, and secondarily by Finance
and Product Development.
4. The Pre-Meeting: Reconciliation of
the demand plan and the supply plan,
decision-making regarding how to
rebalance demand and supply where
necessary, development of alternative
scenarios where appropriate, and
formulation of recommendations and
agenda for the executive meeting. The
primary responsibility for this phase
is held by managers from Sales and
Marketing, Operations, Finance, and
Product Development.
5. The Executive Meeting: Decisions on
items where the pre-meeting team was
unable to (perhaps due to spending
limits or lack of consensus); evaluate
the new sales and operations plan
against the company’s strategy, policy,
and risk parameters; and relate the
dollarized version of the S&OP to the
business plan and make appropriate
changes where necessary. The primary
responsibility for this phase is held
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
the right to challenge any numbers. For
example, if some operations people think
the forecast is too high or too low, their job
is to question that forecast. They must be
given a hearing. If they’re able to sway the
group to their opinion, fine. If the group
•How Much?
elects not to agree, at least the dissenters
•Rates
had their say. Their job then is to support
•The Big Picture the consensus plan that has emerged. S&OP
•Families does not require unanimity; it does require
consensus. Once the plan is agreed upon, it
Supply
becomes everyone’s marching orders.
HOW S&OP SOLVES THE
•Which Ones? CLASSIC FORECASTING
•Timing/Sequence PROBLEMS
•The Details
•Products, SKUs Let’s now revisit some of the forecasting
problems described earlier:
FIGURE 2
THE TOOLS WITHIN SALES & OPERATIONS PLANNING
Executive S&OP
Volume
Forecasting & Demand Supply Supply
Demand (Capacity)
Management
Planning
Mix
Master Scheduling; Plant, Supplier,
and Logistics Scheduling
by Executive Management, up to and 1. The forecast is always wrong. Yes, the
including the leader of the business forecast will still be wrong, but it will
unit, and secondarily by key members probably be less wrong than otherwise,
of the pre-meeting team. due to the cross-functional nature of
the S&OP process. Some companies
If you’re thinking that S&OP is a highly focus—perhaps too much—on forecast
cross-functional process, you’re right. In accuracy and not enough on the
addition, one of the “ground rules” in each supply side of the business. Enhanced
of steps 2 through 5 is that anyone has flexibility at the plants, the suppliers,
19
 and the contract manufacturers, often
stemming from a Lean Manufacturing
initiative, can yield huge benefits in
overcoming the problems stemming
from inaccurate forecasts.
Further, in S&OP, developing the
forecast is a shared responsibility; the
mindset becomes “we’re all in this
together.” Okay, so the forecast is
wrong; it always is. Let’s try to get it
less wrong next time. In my experience,
forecast error almost invariably
decreases following the successful
implementation of S&OP. One reason
for this is that the negative energy often
present in the conventional environment
becomes positive energy; that is, people
become cooperative and harmonious
in the S&OP environment. When the
quality of the forecasts improves, so
does teamwork. The president of a major
U.S. pharmaceutical manufacturer that
pioneered S&OP stated that the process
helped his staff—the Vice Presidents
of Marketing and Sales, Operations,
Finance—“...view the business through
my glasses,” i.e., they viewed the
enterprise more holistically as opposed
to a set of independent functions and
fiefdoms.
2. Multiple forecasts often abound. Not
with S&OP. One of the primary outputs
of the Executive S&OP process is one
agreed-upon sales forecast, in both
units and dollars. Sales and Marketing
own it, as do Operations and Finance.
The whole business is run with one
set of numbers. (Many publicly traded
companies operate with two sets of
forecasts: a “safe” forecast for external
communication to Wall Street and
others and a “stretch” forecast for
internal use. In this case, I’m talking
about the internal forecast; for that
there is one—and only one—set of
forecast numbers.)
The supply chain vice president of a
major consumer goods manufacturer
claimed that the single-number
forecast was made possible only by the
implementation of S&OP. Furthermore,
20
it enabled his company to make mid-
period responses to demand shifts more
quickly and more effectively. This was
because they could make changes to an
already agreed-upon plan, rather than
spending time debating whose forecast
was the best.
3. Forecast accuracy metrics can present
problems. The worse kind of forecast
error is bias, yielding a cumulative build-
up (plus or minus) over time because
the errors are almost always in the same
direction. Thus metrics, such as RSFE
(Running Sum of Forecast Errors), are
considered by many to be far more
important than those based on standard
deviation or mean absolute deviation.
Executive S&OP often focuses on
cumulative error, which highlights bias.
My colleague, Bob Stahl, states that a
biased forecast is one that is “wrong on
purpose.” What he means is that bias
usually is caused by the underlying
issues of the forecasting process, such
as how people are compensated and
recognized for their performance,
as well as mixed messages coming
from management. Fixing bias is a
management problem and S&OP
highlights those problems.
4. The end use of the forecast is often
uncertain. Not so with S&OP. It’s clear
to all involved that the forecast is the
primary input into the process. Because
of that, it is very important, and from it
flow plans for production, purchasing,
contract manufacturing, and logistics.
No longer is forecasting an exercise in
futility. Rather it’s a highly important—
perhaps the most important—part of the
decision-making processes by which a
business is being managed. The CEO of
a major spirits manufacturer, following
a very important Executive S&OP
meeting, said to me, “Tom, when I
think back to before we had S&OP, I
wonder how we were able to run the
business without it.”
In addition to the above, other elements
of Sales & Operations Planning can make
the forecasting process better and easier:
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
1. Less forecasting at the detail level.
With S&OP in place, the forecasting
workload can often be reduced.
The volume forecasts and plans in
Executive S&OP extend into the future
for 18 months or more; but for the mix
forecasts, it’s not necessary for forecasts
to go that far. Detailed forecasts service
a shorter horizon, often in the range of
three weeks and three months—which
is necessary to plan for specific products
and components. Many effective S&OP
users believe it’s no longer necessary to
forecast very far into the future at the
item level because the volume forecasts
and plans give them all the forward
visibility they need; in addition, they’re
more valid.
2. Effective control over abnormal de-
mand. Demand is considered abnormal
when it is large, unexpected, and has
not been considered in the forecasting
process. It often comes from new
customers whose usual supplier
has a major problem in their plant,
perhaps due to fire, flood, or hurricane.
The dual challenge is to protect the
existing customers while, if possible,
accommodating the new one. This may
be an opportunity to begin a lasting
relationship. I believe that many of
the complaints about “inaccurate
forecasts” stem from the lack of
effective decision-making processes
for abnormal demand.
3. Available to Promise (ATP). This tool
relates incoming orders to currently
available inventory and to future
inventory, as expressed in production
and procurement schedules. The fore-
cast drives the production schedules
and those schedules control ATP. Its
effective use can help a company reach
very high levels of on-time shipments
to customers. Here also S&OP makes
the forecasting job more effective and
less contentious.
The above results are largely in the realm
of process and procedure. In addition, the
operational benefits to a company can
be highly significant. They come in two
forms.
1. Hard benefits:
• Higher customer service (order fill);
• More stable supply rates for
production, procurement, and con-
tract manufacturers, which result in
higher productivity;
• Lower finished goods inventories;
• Shorter customer order backlogs;
and
• More rapid and more controlled new
product introduction.
2. Soft benefits:
• Enhanced teamwork within the
executive team;
• Enhanced teamwork within the
operating levels of the business;
• Better decisions with less effort and
time, yielding better results;
• Better financial plans that are
developed with less effort and time
and are aligned with the operational
plans;
• More valid and greater accountability
for results;
• Better control of the business through
one set of numbers, and greater
alignment of units and dollars; and
• A window into the future by being
able to see potential problems (e.g.,
imbalances in demand/supply)
soon enough to prevent them from
becoming actual problems.
Therefore, S&OP has done much good for
many companies. But one might ask what
the future will hold. Will S&OP remain
static, or will it change over time?
THE FUTURE OF SALES &
OPERATIONS PLANNING
As supply chain management becomes
more widely accepted, and as more and
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
more supply chains extend to half a world
away, S&OP will increasingly be viewed
as essential to harmonize the entire supply
chain. S&OP sits at the pivot point, at the
center of the supply chain. This is where
the demand/supply balance needs to occur.
(See Figure 3)
S&OP will change with time. As
complexity and the rate of change increase
across the industrial landscape, the need for
S&OP will become more powerful. S&OP
will become more effective and more
useful to the executives and managers of
manufacturing enterprises. As it is currently
constituted, S&OP lacks the following
important capabilities:
• Rapid and comprehensive simulation
capabilities,
• Seamless linkage between aggregate
plans and detailed plans,
• Enhanced financial integration,
• Support for Sarbanes-Oxley and other
requirements for regulatory compliance,
and
• Combining data from disparate sources
for decision-making.
However, there is some good news.
FIGURE 3
BALANCING THE SUPPLY CHAIN
Your
Customers’
Customers Your
Customers Your
Company
Transportation
Sales &
Operations
Planning
Software support is becoming available.
We’re starting to see the onset of software
that is capable of doing the kinds of things
described above. It can’t come too soon.
American industry is ready for these kinds
of tools.
In 1999, I made a prediction: within 10
years, here’s how S&OP will look in leading
companies:
Imagine that you’ve successfully
implemented Sales & Operations
Planning (S&OP) in your company.
Your top management team is meeting
once a month to authorize sales and
operations plans that will harmonize
demand and supply and integrate those
plans with the financials. In an Executive
S&OP meeting, while discussing a
product family that contains a highly
significant new product launch, the
president raises a question:
I’m starting to get some input that
our competition may be working on a
similar product. If we can move up our
new product launch by six weeks, I’m
certain we can get to the market first.
Can we do that? And, if so, what else
might be impacted?
(Continued on page 36)
Your
Suppliers’
Your Suppliers
Suppliers
Transportation
21
 However, fundamental questions remain.
Do these additional participants add any
value by making the forecast better? Or
do they just let more bias and politics
infiltrate what should be an objective and
scientific process?
Structured judgment techniques will
enhance standard collaboration by provid-
ing feedback on process participants,
identifying sources of chronic bias, and
allowing for bias corrections. Simply adding
more opportunities for people to “touch”
a forecast may make it worse more often
than making it better. Forecasting software
will need to incorporate the tracking of
process steps and participants, identifying
the “value added” by these efforts in terms
of improved accuracy and reduced bias.
The result will be a “lean” forecasting
process that has been stripped of all wasted
activities, providing a forecast that is as
good as one can reasonably expect it to be,
as efficiently as possible.
CONCLUSIONS
While data, software, and forecasting
methods will continue to improve, what
is less clear is how much forecast error
will ultimately be reduced. There are two
contrary forces going on right now. The
tools to forecast are getting better, but the
demand patterns to be forecast are frequently
getting worse! Smooth, long-running, and
repeating patterns can be forecast quite well
with simple techniques. Wild, erratic, highly
volatile, and short life cycle patterns, with
longer lead times, are inherently difficult
to forecast—even with the most powerful
techniques. Unfortunately, the trend is for
business forecasters to have to deal with
more of these latter types of series. The
“forecastability” of a demand pattern then
becomes a more important consideration
than the means we use to forecast it.
Demand will always have an essentially
random component. While our software
may be able to extract the level, trend,
seasonality, and even a long-term cyclical
component from historical demand, there
will always remain some element of “noise”
(randomness). Ultimately, it is the amount
36
of noise in the demand that determines the
upper limit of its forecastability.
In short, we have better data, computers,
software, and statistical methods than ever
before, and these will continue to improve.
These improvements let us take on even
more difficult forecasting challenges, on a
scale that would never have been considered
without the advent of large-scale automated
techniques. The only sure way to eliminate
forecast error is to eliminate the need to
forecast—by perfecting the flexibility and
responsiveness of our demand fulfillment
capabilities. Until that happens, those of us
in “the world’s second oldest profession”
should have a busy and exciting future. ■
(mike.gilliland@sas.com & michael.leonard@sas.com)
FORECASTING AND S&OP
PLANNING ...
(Continued from page 21)
Here you’re projecting the S&OP
display for this product family onto
a large screen from your PC, which
contains all of the relevant demand,
supply, and financial data. You ask for a
brief time-out while you run simulations
using your S&OP simulation software.
Within a few minutes, you have these
answers:
1. Plan A is feasible and has the lowest
cost but it will require getting certain
material from a supplier who has had
quality and delivery problems in the
past, which is not a good thing for a
new product launch.
2. Plan B is also feasible and has moderate
costs, but will cause some shortages on
products 234 and 345.
3. Plan C can work and has the lowest
total cost, but will cause serious stock
outs across much of the product line,
because of capacity constraints in
fabrication.
Armed with these facts, the Executive
S&OP Team is well equipped to make
THE JOURNAL OF BUSINESS FORECASTING, SPRING 2006
the right decision. They’ll most likely
select Plan B because it’s feasible, it
has only slight negative impact, and
it accelerates the new product launch.
Now the CFO raises another issue.
Since we’ve picked Plan B, we’ll be
moving the new product in from next
quarter into this quarter. To do that,
we will be pushing out production of
established products into next quarter.
I have to give an earnings projection to
Wall Street before long, so what should
I tell them?
You reply:
Ellen, here are the Revenue and Gross
Margin deltas between the current plan
and Plan B. They don’t appear to be
drastically different, but you’ll probably
want to take them into account when
you generate your earnings call.
The phrase “top management war room”
comes to my mind. In this context, we
have seen Sales & Operations Planning use
simulation software running at the speed
of light, allowing rapid development of
alternative scenarios and at the same time
support major demand/supply and financial
decisions with facts, not guesses, in a top
management setting. I’m looking forward
to the day when this type of capability is
widespread. Industry needs these kinds of
capabilities. It’s ready for them and they’re
now available. It’s no longer a question of
“if,” but merely “when.”
Today, our superb sales forecasting
processes are doing great things when
married to S&OP. And it will only get better
in the future. ■
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