forecasting basics
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Forecasting basics for sales forecasting. Sorry that the animations no longer work.TRANSCRIPT
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 1
Forecasting BasicsSales forecasting
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 3
Agenda
• Why forecast and what constitutes a ”good” forecast?
• Aggregering and Reconciling a forecast (the power of the greater number)
• Choosing Algorithm, is one Algorithm enough?• Seasonal patterns, what do we include, what do
we remove• The Sales Organisations influence on forecast and
forecast influence on Sales Organisations
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 4
Why forecast and what constitutes a ”good” forecast?
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 5
Why forecast?
• Long lead times / planning horizons– Minimize risk– Minimize cost (Inventory and sales space
utilization)• Find trends• Models are closer to the truth
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 6
“It is better to be vaguely right than exactly wrong”
“Even in reasoning upon some subjects, it is a mistake to aim at an unattainable precision. It is better to be vaguely right than exactly wrong. In the criticism of manners, of fine art, or of literature, in politics, religion and moral philosophy, what we are anxious to say is often far from clear to ourselves; and it is better to indicate our meaning approximately, or as we feel about it, than to convey a false meaning, or to lose the warmth and colour that are the life of such reflections.”
Logic: Deductive and Inductiveby Carveth Read, M.A.
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 7
What makes forecasting a challenge?
– If we sell one article a year, in what week will we sell that article?– We sell twice as much this week than we forecasted, will we sell twice
as much next week or none?– We have an article in red and we change the colour to black, how
many more/less will we sell?– We introduce a totally new range, never sold at my company before,
what is the potential?– The article has been in the range for 10 years, how many will we sell
next year.
Sales forecasting means to deal with uncertainties surrounding a product!
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 8
Forecast principlesThe further away we need to predict the more unlikeley it is that our prediction will come true.
Time
Probability
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 9
Forecast principles
Probability
This also applies to quantity. The more we can sell or the bigger the base of our prediction is, the more secure our forecast is.
Volume
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 10
What is sales forecasting?
It’s about looking at:
Occurrences –pastAssumptions – future
By looking at the past we can create a model for the futureWe add our assumptions and produce is the BEST possible estimation with the information we have at present.
vs
Forecasting is not as much art as science.
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 11
Forecast Accuracy or Inaccuracy
Forecast Stability
Vs
Forecast accuracy is a criticle measurement, but you should not create instability in the
supply chain chasing accuracy.
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 12
Support for forecastsForecast exceptions
0 5 10 15 20 25 30 350
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Qty per week
ForecastError
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 13
Support for forecasts
Tracking Signal
0 5 10 15 20 25 30 35
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
Over Forecast
Under Forecast
Forecast exceptions
Qty per week
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 14
The power of the greater number
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The power of the greater number
PrincipleStructure with multiple levels
AggregateHistory is aggregated from lower level to higher level
ForecastForecast created on all levels
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 16
NALevel 3
Level1
Level 2
Aggregate
Sum Sum
Sum
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NALevel 3
Level1
Level 2
Generate Forecast
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NA
% Share
% Share % Share
Level 3
Level1
Level 2
Reconcile
NA
% Share
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 19
Why Aggregate/Reconcile
• It eliminates the small errors (shortages and sporatic events)
• It provides the model with more information, some models don’t work correctly with zero input.
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 20
Choosing Algorithm, is one Algorithm enough?
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Selecting Algorithm
LumpyTrend
Serial correlation
What does your history look like?
Håkan Bernhardsson, CRM COMPETENCE
Short History
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 22
Is one Algorithm enough?
Complexity Precision
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 23
Seasonal patterns, what do we include, what do we remove?
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Sales Pattern
History Forecast
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Sales Pattern
History Forecast
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Example
Vaguely right or exactly wrong?
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The Sales Organisations and Sales Forecasts
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Sales Organizations influence on forecasts
Only the sales organisation can influence the sales of a product, thus change the outcome of your forecast and the history base for future forecasts.A clear sales strategy supports improved forecast quality.
“The best way to predict your future is to create it!”– Abraham Lincoln.
2023-04-13 Håkan Bernhardsson, CRM COMPETENCE 29
Forecast influence on Sales Organisations
• Forecasts have less Bias than sales people• If nothing is changed, the forecast is superior
any other method of prediction • If a forecast is one piece of the budget, the
sum of all forecasts should be the total budget => Sell to the forecast and you will reach your budget.
