Sales and Distribution Management

Topic: Sales Forecasting

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Sales forecasting examples:1) Asian Paints2) Coca-Cola

Sales Forecasting process.Importance of Sales forecasting.Errors in sales forecasting.

Methods of Sales forecasting

Elements of good sales forecasting.Factors affecting internal an external factors.

Advantages and Disadvantages of Sales Forecasting

IntroductionMeaningForms of Forecast

Group Members and Flow of presentation

DEFINITION OF SALES FORECASTING

• According to Henry Fayol,

“To foresee, means both, to

assess the future and

make provisions for it.”

Forms of Forecast

Long Term

Medium Term

Short Term Forecast

Period: 3-6 months

Medium term Forecast

Period: 6mnths-2years

Long Term Forecasting

Period: 3-5years

External Factors Affecting Sales

External Factors

Seasonality of the

business

State of the economy

Direct And Indirect

Competition

Political Events

Styles Or Fashions

Consumer Earnings

Population Changes

Weather

Productivity changes

Internal Factors Affecting Sales

Internal Factors

Labor Problems

Credit Policy Changes

Sales Motivation

Plans

Inventory Changes

Working Capital

Shortages

Price Changes

Change in Distribution

method

Productivity Capacity Changes

New Product

Lines

Elements Of a Good Forecast

Timely Reliable Accurate

Meaningful Written Easy to Use

Cash FlowTrackingPurchasingPlanning

Lack of Sales HistoryDifficulty Forecasting the Industry and CompetitionTendency to Be OptimisticConsumer Behaviour is Hard to PredictManagement Inflexibility

Advantages Disadvantages

Explanation Advantages• Cash FlowKnowing whether your revenues are likely to grow or shrink in coming months keeps you from spending at a time when you should be conserving cash to survive a recession.

• TrackingHaving a tradition of forecasting sales on a quarterly, semi-annual or annual basis not only helps you plan your business, it also increases your corporate knowledge base. When changes in the economy arise, you can always go back to your previous forecasts for hints on what has and has not worked in the past.

• PurchasingBuying too much or too little inventory can be a business disaster. By forecasting your sales, you will have a better idea of how much to buy and whether it will be advisable to add additional investment in marketing to take advantage of improving economic conditions.

• PlanningHaving a good idea of future revenues and where they will be generated in your business allows you to plan the best way to take advantage of future changes in the economy. Uncertainty is a roadblock to besting your competition by expanding at just the right moment.

Disadvantages• Lack of Sales HistorySales forecast are based upon what the company has been able to achieve in the past. Early stage companies do not have significant revenue history to rely on. They may be anticipating rapid growth, but forecasting exactly what the growth rate might be is difficult.

• Difficulty Forecasting the Industry and CompetitionIndustry conditions and the competitive environment both affect a company's sales potential. You must forecast how you believe the industry will grow in the next year and whether competition will become more intense. Both of these factors are in flux.

• Tendency to Be OptimisticYou should always involve the members of your sales staff in the forecasting process. They are in close contact with your customers and have a good feel for how the business environment is now and is likely to be next year.

• Consumer Behaviour is Hard to PredictA small-business owner and his marketing staff are never absolutely certain their marketing message will resonate with the target customers, or whether they have chosen the best media to deliver the message. This uncertainly leads to both revenue surprises and disappointments. Ultimately, the customers wield the power.

• Management InflexibilityThe effectiveness of the sales forecasting process can be limited by the inflexibility of the company owner, if you view the sales targets as set in stone. If significant negative variances to forecast occur, some owners don't adjust them but instead try to motivate the sales staff to work harder.

METHODS OF SALES FORECASTING

• Methods of sales forecasting vary from simple judgement or subjective assessment to ratio analysis to more sophisticated statistical or quantitative techniques. Generally speaking, the longer the periods, the more rigorous or quantitative should be the methods.

• Various methods of sales forecasting can be broadly divided into two categories:

• A. Qualitative techniques• B. Quantitative techniques

METHODS OF SALES FORECASTING

A. QUALITATIVE TECHNIQUES

1. Expert opinions2. Delphi techniques

3.Consumer survey methods4.Sales force estimate

5. Sales hierarchy estimate

B. QUANTATIVE TECHNIQUES

1.Moving average2.Sales ratio method

3.Market share projection4.Regression analysis

Qualitative techniques

• Qualitative techniques are essentially judgemental or subjective techniques based on the personal assessment of sales managers, industry experts or consultants. Companies use one or more of five qualitative methods.

1. Expert Opinion2. Delphi Techniques3. Consumer Survey Method4. Sales Force Estimate

Quantitative techniques

• Quantitative techniques of sales forecasts are statistical or mathematical methods and are mostly based on time series analysis. The methods from simple extrapolation of past trends to more sophisticated regression analysis and computer models. We discuss here four methods which are more commonly used :

1. Moving Averages2. Sales Ratio Method3. Market Share Projection4. Regression Analysis

SALES FORECASTING PROCESS

Setting goals for forecasti

ng

Gathering data

Analysis of data

Choosing best model

for forecasti

ng

Forecasting

Evaluation of

forecasting

outcome

IMPORTANCE OF SALES FORECASTING

• Companies that implement accurate sales forecasting processes realize important benefits such as:

Optimized cash flow

Knowing when and how much to buy

In depth knowledge of customer and the product they order

The ability to identify the pattern or trend of sales

Determine the value of a business above the value of its current assets

Ability to determine the expected return on investment

ERRORS IN SALES FORECASTING• Possible reasons for errors in forecasting:-

Flaws in data used in forecasting process

Insufficient data

Unpredictable economic and socio-political environment

Non realistic and inaccurate assumptions

Technical and technological changes

Shifts in economic structure

Administrative errors

Examples

Combination of top down and bottom up approach.

Forecasts based on factors such as: Historical data Economic Parameters Seasonal Variations Festivals, ceremonies etc. Weekly reviews to adjust monthly forecasts

Forecast are region wise, they are further broken down into cities, towns and villages by sales managers

CSD(carbonated soft drink) Market share division

Coca Cola (3300 products)Including Diet-cola, Sprite and Fanta over 300 countries)

43.3% Pepsi (Diet-Pepsi, Mountain Dew and 7up) 29.9% Dr. Pepper Snapple Group 10.3% Total

83.5%

Sales declining

2009 9.4 billion cases

2008 2%

2007 3%

2006

2005

• In the middle of the decade consumers began shifting away from CSD and started purchasing products that are healthier.

• Tea, bottled water and other non-carbonated beverages have been gaining market share from the CSD producers.

Sales forecasting

of Asian Paints

Process

Decisional level

Manufacturing

Delivery

Process Forecasting• Annual Retail audit conducted at dealer & Territory level

• All products are accounted.

• Audit gives the dealers actual potential & approximated turnover

• Competitor turnover is also recorded.

Forecasting at Decisional Level• Regional level forecasting involving the Depot managers, RM & DM.

• GM Involved in discussions.

• Company level focus products identified.

• Discussions based on regional level CAGR(compound annual growth rate) for past 5 years.

• This data gives the trend of sales at a product category level.

Manufacturing Forecast• Forecasting activity carried out also by production.

• “ i3” software – highly sophisticated, simplifying the activity.

• 5 yrs. data considered & a forecast created by the software.

• Also movement of SKU’s(Stock keeping unit) at depots, regions considered in this activity

• Deliberations between production & sales.

• Trends may give a different forecast against plans forwarded by sales.

• A midpoint reached & production planning for the year is loaded onto the system.

• Sales has an option of minor modifications in production for each month.

• This activity reduces the chances of dead stock.

Delivery Forecasting• Once the forecasts are finalized, activities are planned to deliver the

figures.

• E.g. : for 2009/10- 1st half of the year will be slow. This period will focus at influencer & consumer activities.

• Shop meets for low end painters.

• Contractor meets & training programmed for influencers. • In-shop selling activities (all show casing & educating on new & focus

products use & properties)

Conclusion

Sales forecasting is a key element in conducting business. The realism that good forecasting provides can help in develop and improving strategic plans by increasing knowledge of the marketplace. The forecast that sales force provides is the source of information that allows you to manage virtually all aspects of your business.

• http://www.gavinpsmith.com/2012-sales-forecast-analysis-coca-cola/

• https://en.wikipedia.org/wiki/Top-down_and_bottom-up_design

• https://en.wikipedia.org/wiki/Top-down_and_bottom-up_de