Author Archives: Tim Gray

Focus on forecasting

Where to begin?

I was recently asked , in the context of forecasting, “what should a new CEO look at in their first 180 days?”

While we are still new to a business, and before we know the given answers for why things are done, we often see opportunities with surprising clarity. Ranking and assessing which are the golden opportunities, while you are still new, is challenging but well worth the effort

Dissecting your forecasting in meaningful ways will enhance your visibility of your customers as well as your sales processes.

Reviewing your forecasts will greatly increase your understanding of the risks and opportunities within these revenue streams

Continual monitoring of these revenue streams will ensure that you are prepared to manage risks and exploit opportunities as they arise.

So my answer to this question would be “Interrogate your forecasted revenue streams in enough detail to see risks and opportunities as they arise”

The challenge then becomes, how do you interrogate your revenue streams when you are new to the business?

 

Scenario

I was recently invited to review a business that sold 11,500 SKUs across four major brands. They had a dozen distribution centres, selling to 8 regions across Australasia. Their supply foot print included 2 manufacturing sites here in Australia and 3 in Asia.

They had 2,500 retail sales customers, and a team of 24 key account and sales managers.

The challenge for me was determining how to view the Sales history and forecasting data, to quickly and clearly understand what was happening to this business.

 

Quick Fix 

There are entirely too many customers to analyse meaningfully, even when just focusing on the major customers.

On closer inspection, there were many ship to customers, that belonged to the same retail chains. We introduced a notional national customer hierarchy.

Even after doing this, there were still some 1000 entries under the national customer category (Many stores did not belong to large chains, but they still had their own national customer entry)

In order to give us a manageable amount of customer groups, we reassigned the lowest volume national customers to a “Small Retail” group.

By adjusting the cut off of who was in and out of the “Small Retail” group, we got down to 15 National Customer groups (Approx 70% of all sales)

This for me is a manageable number of major accounts to review.

The 8 Regions and 4 Brands were other slices of the same sales revenue picture.

In order to qualify if the forecasts were sensible, we needed to compare what had recently sold, vs forecast and budget for the same period, and then use that to confirm the forward forecasts.

We constructed a Forecast vs Actual template that had three distinct regions

• Sales by National Customer group
• Sales by Region
• Sales by Brand.

Against each entry we displayed

Last quarters actuals vs Last Quarters Budget vs Last Quarters forecast

Next quarters fcast vs Next Quarters Budget, and full FYR projections

This formatting highlighted where there were inconsistent trends.

I distributed these to the sales managers, and requested commentary where there was significant movement in either the previous period to plan or future periods to plan.

This summary document (without comments) fit onto a single A4 page, and with comments spanned just a few pages.

Having taken the time to segregate and format these revenue streams, and armed with the commentary of the sales managers I was in a strong position to discuss the validity of the forecasts being presented.

By discussing and challenging these forecasts with the sales managers, other layers of insights started quickly coming into focus.

 

Top TIPS

1. Ensure you have enough resolution in your sales forecasts to see risks and opportunities as they arise
2. Look for the exceptions, what has changed since last month, and why
3. Challenge your teams forecasts, this will improve your understanding of your team and your customers
remember: What interests you will fascinate your employees. If you pay attention to your team’s forecasts, they will do their best to improve them.

Where to begin? I was recently asked , in the context of forecasting, “what should a new CEO look at in their first 180 days?” While we are still new to a business, and before we know the given answers for why things are done, we often see opportunities with […]

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Is your business poised, as ready to seize opportunities as it is to dodge issues before they strike?

Charles Darwin noted it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. While the eminent Naturalist was observing evolution in the animal kingdom, I submit that this quote is equally applicable to our business world.

In business being the first to react to an emerging opportunity which can translate to enormous financial gain. Being slow to respond to a softening market can create enormous pressure on cash flow and has seen many businesses go the way of the Dodo.

The first 6 months of 2011 has been a time when almost every Australian manufacturer will have felt a major disruption to their supply chain. Whether, it has been floods in Queensland, earthquakes in New Zealand, tsunamis in Japan, volcanoes in Chile or armed conflicts closing the Suez canal, disruptions to domestic and global supply chains have been immense.

It is time to reflect how your company has performed during this period. Did it navigate its’ way through these difficult challenges or did you have to wait for the water to recede to see the consequences?

If, it is the latter, then you have experienced a gap in your business planning capabilities. Those who navigated through the challenges had scenario management capability. To define scenario management; it is the ability to change your consumption forecasts, production capacity, inventory levels and customer service levels with full visibility of the consequences on your operational and working capital costs. Having the financial consequences of multiple scenarios gives your decision making capability real clarity when your business environment changes over night.

Let us use the example of the Christchurch earthquake and assume you have a manufacturing site there. Also, you have other manufacturing sites in the Australia and New Zealand region. You get the news late afternoon of the disaster. What are the questions do you need answered?

Is your factory affected? Is it destroyed? Is it structurally sound? Does it have essential services? When will you get them? How have your customers been affected? Which ones and are they still operating or when will they be? How are your employees affected? Have you got inventory in the warehouse in Christchurch? Is the stock destroyed or can you get it?

Some of these questions may take weeks to get an answer, but you now have to make decisions which will have huge impacts on your profitably. This is where scenario management comes in. You can quickly use logic to distill a number of scenarios from those questions above that will assist you manage your business most profitably. If you can do the scenarios in a day or two you will have trigger points for your decision making process as facts come to light over the coming weeks and months. The benefit is that you will have a full understanding of the detailed costs involved at each of the trigger points. Although you have suffered a disaster, you are now enabled to proactively manage the business through this difficult time. This is proactive management that can add percent points to your EBITDA.

VISY PET Beverages Christchurch used Prophit Systems software to navigate this particular example.

Charles Darwin noted it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. While the eminent Naturalist was observing evolution in the animal kingdom, I submit that this quote is equally applicable to our […]

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The ‘Internet of Things’ and Supply Chain Solutions

Whichever way you look at it, there is a dramatic shift underway. The physical world is evolving into an information system that sees day-to-day objects communicating and analysing their own environments. This shift enables the physical world to analyse its own complexity and to respond to the data it generates.

The Internet of Things (IoT), or the Internet of Everything (as Gartner calls it) is either here or to be expected shortly, depending on which experts you follow or who’s blog you’re reading.

Gartner forecasts a 30-fold increase in devices that are connected to the Internet by the end of this decade – this equates to 26 billion units, each generating masses of data. This information will have a major impact on the nature and volume of information available to supply chain managers and operators.

We feel the real opportunity for supply chain management lies in two main areas. The first is real time tracking of supply chain execution. The second, and the aspect of the IoT that we are closely keeping an eye on is demand forecasting and predictive planning.

Currently an overwhelming majority of demand forecasting is based on historic data. Although this method has some shortcomings in terms of accuracy on a day-to-day level, it delivers a view of the world that everyone knows to be slightly flawed but can be compensated for (at a cost).

The major opportunities come sharply into focus, when there are massive and sudden shifts within an industry that have not been predicted.

A great example of this type of disruption was when SARS caused a major upheaval in the electronics supply chain on a global level. Australia, which ironically had no diagnosed cases of SARS, suffered an estimates $1 billion loss the economy as a consequence of this outbreak.

What the IoT now allows is for more variables to influence the manner in which a supply chain operates. Human and market behaviours are now able to play a role in a company’s planning and forecasting. The connectivity amongst people, places, objects and company systems allows for analysis, tracking and supply chain optimisation in real time.

While the world is excited by what the IoT will deliver, something that is less often discussed is how current supply chain solutions and their capabilities will have to adapt to accommodate the volume of data that will become available. Where current data processing can be compared to water running from a garden hose, through a funnel into a bucket, the data sets that will potentially be delivered by the IoT could resemble water gushing from a fire hydrant – basically pulverising the funnel and crushing the bucket.

IoT is the opportunity for supply chain to take the lead within an organisation.

As a supply chain solutions provider we are working with our most forward thinking clients to jointly find this path. Our focus is to have our clients constantly refine their supply chain’s networks in order to adapt quickly to new inputs and new events as the information becomes available.

With advanced analytics we are able to capture relevant data, glean insights into any repercussions and find the best course of action.

We believe the next stage in this IoT evolution is the funnelling of the outputs of these analytics. It is becoming necessary to identify and stream those actions that can be executed autonomously , those that can wait for the next review cycle and those that warrant immediate attention and escalation for possible intervention.

Whichever way you look at it, there is a dramatic shift underway. The physical world is evolving into an information system that sees day-to-day objects communicating and analysing their own environments. This shift enables the physical world to analyse its own complexity and to respond to the data it generates. […]

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