Reuters Events | Pharma

Thought leadership and innovation for the Pharmaceutical Industry

Every month Fred the Forecaster, Colin the Controller and Stan from Supply get together to sort out a forecasting problem

By Alec Finney on Dec 8, 2009

Every month Fred the Forecaster, Colin the Controller and Stan from Supply get together to sort out a forecasting problem

This month.

 

The Senior Managers Monthly Forecasting Report

 

 

Fred:    Right we have a big challenge here todayand a big opportunity. This months Senior Managers meeting ended in what you might call disarray but was probably closer to an unseemly brawl.

 

Colin:   .That must have been about the non-appearance of donuts as part of the cost cutting exercise.

 

Fred:      Well, not entirely. It was about their monthly sales performance report which, as Im sure you know, has three pages on performance against plan; one from Marketing Analytics, one from Finance and one from Supply Chain.

 

Colin:     What was the problem?

 

Fred:       Well, put simply all the numbers were different. 

 

Stan:       Yes but they always are.

 

Fred:        Well, the new CEO was not too amused with this.  He couldnt tell if we were ahead of the game (Marketing), behind the game (Finance) or just about spot on (Supply Chain).

 

Colin:        Well, the symmetry is appealing

 

Fred:          From the minutes the CEO has asked for, and I quote

 

One consistent report than will tell me how our business is performing against our sales forecasts and functional targets.

 

 

As a result Ive agreed with the senior team that we will look at the questions they want answers to and then look at ways of designing the reports to answer these questions. We agreed that these are the questions we will address.  In terms of sales forecasts:

 

• Where do we think sales are heading?

 

• Will we meet our sales targets?

 

• To what extent are we playing catch up?

 

 

 

 Colin:    OK.  Lets start with     Where do we think sales are heading?

 

 

Stan:      Well lets start with the new statistical forecasting software we have.  I like it it lets us see seasonality, choose from a basket of extrapolation modelsand change the amount of back historyandwell lots more.

 

Colin:      Thats a great marker.  So, one component here is the Best Statistical Projection.  (BSP)

 

Fred:        Yes, but our product managers modify these forecasts to account for any changes in the market new entrants, higher competitive pressures, more/less sales force effort. They add Marketing Intelligence

 

Colin:      So we have now have a forecast that is the Best Statistical Projection + Marketing Intelligence. Lets call that the Most Likely Forecast.  (MLF)

 

It would be good to monitor accuracy against both the BSF and the MLF then we will see just how much value the Market Intelligence component adds to the BSF.

 

Fred :    OK .     Whats the next key question?

 

Colin     Will we meet our sales targets?

 

Fred    Its tempting to use the same sort of accuracy indexes here as we use in indicating forecast accuracy but Im not sure that makes sense.

 

Stan:    Youre right. All the senior guys need to know here is how much above and below the numbers we are monthly and cumulatively.

 

Colin:    There is another way of showing progress its called a Z Chart. The monthly sales are recorded along the x axis and the cumulative sales form (hopefully) a growth diagonal. Finally we have the Moving Annual Total across the top. At the end of the year it forms.

 

Stan:     Let me guess the letter Z. but, I do see, it also shows where we are at any time of the year and whether we are on track against formal sales targets.

 

Fred:      Next question

 

To what extent are we playing catch up?

 

Colin:      If things are not going too well in the first half of the year we hear that theres a lot of time to catch up.  However as that time reduces the change in performance that has to be engineered rapidly increases. I vote we put an index of Change in sales growth over remaining year necessary to achieve target

 

Fred:       It might have to have a snappier title.

 

Colin:       All right, how a bout Catch Up Index then.  But what it will tell the team is that from (say) September onwards In order to achieve the budget we will have to engineer a 70% increase in sales growth.

 

Fred:         That should focus minds a bit.  In summary we have a report that shows how where we see sales going, where we need them to go and if necessary how hard we need to work to get on target.  And its all transparent.

 

Colin:   Good stuff.

 

Stan:   You know I havent contributed much to this because Ive been a bit preoccupied trying to work out a similar report for the Executive Sales and Operating Panel.  My problem, I think, is that I have three variables forecasts, stock-dollars and customer services levels, and optimising across three variables is tricky.

 

Fred:  Why dont we go for that at next months meeting?

 

Stan:   Great idea.

 

Fred:   You know once we mesh the ES&OP outputs with the financial performance reports we will be getting dangerously close to an Integrated Forecasting and Planning environment.

 

Colin:   Who would have thought it?

 

Fred:   See you guys next month!!

 

Alec Finney Rivershill Consultancy December 8^th 2009

 

www.rivershill.com        alec@rivershill.com