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Importance of Sales forecasting

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Importance of Sales forecasting

  1. 1. Importance of Sales Forecasting June 12, 2012 Stephen Crane|1
  2. 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 |2
  3. 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 |3
  4. 4. Benefits of Accurate Volume ForecastsIncreasing 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 |4
  5. 5. Benefits of Accurate Volume ForecastsIncreasing 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 |5
  6. 6. Best-In-Class Forecast Accuracy Companies with Best-In-Class forecast accuracy carry less inventory and have higher gross margins |6
  7. 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 |7

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