Sales forecasting has two primary purposes: revenue forecasting and volume forecasting to drive supply chain planning. Accurate volume forecasts lead to significant benefits including 15% less inventory, 17% higher on-time delivery, and 35% shorter cash-to-cash cycles. A 5% increase in forecast accuracy can increase on-time delivery by 2% and a 3% increase in accuracy can increase profit margins by 2%. Increasing forecast accuracy from 40% to 60% can potentially increase profits by millions of dollars depending on the size of the business.

1. Importance of Sales
Forecasting
June 12, 2012
Stephen Crane
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2. Sales Forecasting Has Two Primary Purposes
 Revenue Forecasting
– Budgets, sales plans, and gross profit forecasts
 Volume Forecasting (Demand Planning)
– To drive the supply chain to meet customer demand with optimal
use of company resources
– Drives supply chain plans such as capacity planning, inventory
levels, production planning, procurement planning, and raw
material forecasts for Purchasing
– Volume forecast drives S&OP process
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3. Benchmarking Results
 S&OP (demand forecasting) is the most critical element to
drive supply chain benefits
 Demand planning and Supply planning are the largest profit
drivers
 Supply chain benefits normally fall into the range of 3-5% of
sales revenue
Source: STCR/Air Products and Chemicals
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4. Benefits of Accurate Volume Forecasts
Increasing Forecast Accuracy Increases Service & Profitability
 Companies that are best at demand forecasting average;
– 15% less inventory
– 17% higher OTIF delivery performance
– 35% shorter cash-to-cash cycle times (Days)
(Receivables + Inventory – Payables)
– 1/10 the stockouts of their peers
 5% increase in forecast accuracy increases delivery performance to
customer request date by 2%
 3% increase in forecast accuracy increases profit margin by 2%
Source: AMR Research
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5. Benefits of Accurate Volume Forecasts
Increasing Forecast Accuracy Decreases Inventory
Increasing Forecast
120 Accuracy from 40% to
60% would reduce
inventory by ~$30 million
Inventory Days of Sale
100
80
60
40
20
0
20% 30% 40% 50% 60% 70% 80% 90% 100%
Forecast Accuracy at SKU Location
Source: Aberdeen Group 2008
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6. Best-In-Class Forecast Accuracy
 Companies with Best-In-Class forecast accuracy carry less inventory and
have higher gross margins
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7. What’s The Bottom Line Impact?
 5% increase in forecast accuracy increases service performance by 2%
 Increasing forecast accuracy decreases costs by 2-5% of Sales
 3% increase in forecast accuracy increases Profit Margin by 2%
(Assumes Forecast Accuracy Increases from 40% to 60% globally)
Size of Business Profit Potential
$300 Million $6–15 Million
$500 Million $10–25 Million
$1 Billion $20–50 Million
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