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It pays to insist on better sales forecasts.

One of marketing's toughest assignments right now is to come up with an accurate sales forecast for next year. Economists seems to vacillate from week to week on whether or not we are pulling out of the recession.

And the key numbers don't seem to be helping us very much. Consumer confidence is up, then it's down. Unemployment claims fall one month, then rise sharply the next. If our key customers were bullish last month they now seem to have turned into bears.

However, sales forecasting is serious business. it must be done as accurately as possible, since it establishes a blueprint for the foundry's operations in the coming year. Forecasting's accuracy depends on how we allocate capital resources. it will be the template for working capital needs, personnel requirements, production schedules and even raw materials inventories. Substantial errors on either the up or the down side can cost you big bucks.

If the sales forecast is so critical, then why are so many just slapped together? The primary reason is that not enough importance is given by top management on doing a first-class job in this area.

Another is that too much forecasting employs bottom-up techniques: relying to a great degree on the foundry's sales history rather than on an objective analysis of ongoing market factors that affect the forecast. Lastly, marketing people may be inclined to be too conservative, figuring they are better off by exceeding the forecast than coming up short.

In the real world, most sales forecasts should represent a consensus opinion, with substantial input from financial, operations and top management, as well as marketing. Relying too heavily on the opinion of any one individual, however, can be dangerous and can lead to the kind of gross error we often see when the top man modifies the numbers to suit his own perspective. A much better approach is the face-to-face meet in where everyone can share and have a chance to justify their opinions. If a general consensus is reached, there will be a better chance of your forecast being on target.

Information Services

Of vital importance to the forecasting process are external and internal information inputs. External sources are those impacting the foundry from outside its scope of activity, for example: economic forces affecting your customers, their particular industry and the economy in general. Published government data, trade journals, bank publications, news media, forecasting services and trade associations are good sources for providing indications of how external business trends will impact your sales.

But forecast data from customers should be approached with considerable caution. While customers are an excellent source of information about their company and their industry, they normally provide grossly inaccurate forecasts of their casting requirements.

When you ask customers for information to be used in sales forecasting, it is important to include a believability factor. Not that they will tell outright lies, but many companies, in an effort to be helpful, do a quick research job, or perhaps they are not capable of giving you the in formation you requested. The best way to validate this information is to relate it to other companies in the same general industry-those with the same general plans and outlook.

The right kind of external information can pinpoint which markets are growing, decaying, have good sales potential for you, and the ones that are reaching saturation.

Since internal information can be valuable in your forecasting efforts, you must set up a good system to collect and evaluate your most important sales forecast data. For comprehensive sales forecasting, this should include:

* sales by type of casting, by years,

compared with sales of the total in - dustry, and of your competitors;

* sales by type of casting, by each geographic


* sales by type of casting, by customer

and customer industry. Ideally, this

information should be classified by


* sales by type of casting through each

channel of distribution, (reps. vs. direct


* sales to new customers vs. those to

repeat customers, classified by salesperson

and geographic location;

* sales analysis showing customers'

buying combinations or related castings

and those buying single types;

* size of sale per order received or per


* ratio of sales volume to sales calls;

* ratio of orders to quotations;

* sales ranked by percent of contribution

or marginal income.

In reviewing your forecast, it is a good idea to take a look at the accuracy of previous forecasts-not necessarily to point out substantial error, but to determine what events occurred to cause the variances. Perhaps there will be useful lessons here that can be applied to the current forecast.

While it is satisfying to be right on the money with a pinpoint forecast at the end of the year, it might be more practical to develop three forecast figures: high, expected and low. This provides an important strategic planning tool because it establishes some outer limits to the forecast. if you take this approach, you may also want to assign probabilities to all three figures and, from these, determine a weighted average.

An accurate sales forecast is a valuable management tool, a good blueprint for action. Insist that your sales and marketing people do their homework and not just pick numbers out of the air. Better sales forecasting can make an important contribution to your bottom line.
COPYRIGHT 1991 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Marketing
Author:Warden, T. Jerry
Publication:Modern Casting
Article Type:Column
Date:Oct 1, 1991
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