Sales Forecasting

Mergers & Acquisitions and Sales Forecasting

When it comes to forecasting strategic acquisitions the need for containment can often result in an organisation’s planning functions not being directly involved in the processes. Initial scoping and feasibility is done at high level, and then project teams dive into risk assessments and due diligence functions.

At what point should the plans of these acquisitions be included into an existing planning system?

Scenario

Recently a Prophit Systems’ client successfully acquired a segment of a competitors business, thereby increasing their market share. To keep the details confidential, only a handful of people were involved in the financial modelling, and due diligence process.

When details of the acquisition became public knowledge the information provided was sparse and only available from the company’s senior management team. This created a number of costly problems that could have been easily avoided.

When Prophit Systems was asked to get involved, the client had realised that the sales figures that they had expected were not materialising.

In order to understand the cause of this discrepancy our team needed to compare the detailed sales to the expected sales. Unfortunately, the sales forecasting only existed at consolidated levels in balance sheets. The vendor had not provided detailed sales forecasts but rather historic sales figures.

To gain insight into where the problems were occurring, we built a forecast based on the historic sales. This forecast was detailed to the SKU, location and customer (SKULC) level. Having this level of granularity enabled us to slice the forecast vs. actual comparisons by item, by customer and by location to identify where underperformance was occurring.

It quickly became evident that the underperformance was localised to one account manager and another significant customer. Once the source of the issue was identified the Sales Manager was able to get to the root cause of the problems, and take appropriate action.

Now armed with a detailed forecast the Sales Manager was able to rapidly understand how the new business was performing, and where the hot spots were. Having a consolidated forecast of their finished goods requirements, they were also able to construct accurate projections of their raw material requirements.

The company’s acquisition also saw its total product volume increase by some 40%, and this led to an increase in the overall raw material required by the new-look business. Having detailed information about the consolidated material requirements our team leveraged this information to instigate a round of raw material price negotiations between the company and its suppliers.

Lessons Learnt

  1. Obtain detailed forecasts as early as possible in your M&A transactions.
    You will need this to build management targets, to help the transition and to facilitate the speed uptake of the management issues
  2. Use these forecasts to chart your progress, and manage the transition of incorporating the new business. This is a risky time, where clients may jump ship. You need to manage the transition carefully.
  3. Your raw material volume discounts thanks to the increased volume demand in an acquisition can be significant. The sooner the data is available to the various teams within the supply chain the earlier these discounts can be brought to bear.

When it comes to forecasting strategic acquisitions the need for containment can often result in an organisation’s planning functions not being directly involved in the processes. Initial scoping and feasibility is done at high level, and then project teams dive into risk assessments and due diligence functions. At what point […]

Read More...
Supply Chain Ship

Do you understand the weaknesses in your supply chain?

As a SCM solutions provider we understand that there are an infinite number of variables that influence a supply chain’s efficacy. This fact can make identifying the true culprit of a supply chain failure incredibly difficult. In many cases when there is a catastrophic failure within a supply chain managers tend to look for direct cause and this in most cases will be identified as one or two outside forces that were beyond their control. However, what these witch hunts fail to do is look at the bigger picture and identify all the factors that contributed to a supply chain disruption.

In John Manners-Bell’s book, Supply Chain Risk, he draws parallels between the Swiss Cheese Model and supply chain management. The Swiss Cheese Model was developed by academics in the risk analysis field. The gist of the model is that factors contributing to everyday operating procedures can be present for long periods of time without showing any symptoms of contributing to a potential adverse effect. It is only once a specific set of these dormant factors come together that operating conditions will see upheaval.

“All organisations have latent conditions – on their own they do not result in catastrophic failure.  However, what is required is an ‘active failure’ which, when these latent conditions align across a network or organisation triggers a disastrous event.”

John goes on to provide an example which most people managing supply chains can relate to.

Imagine a carrier carrying key components to a factory is late with its delivery. Consequently, the factory has to shut down or 24 hours, which sees millions of dollars of production lost. The most obvious culprit to this scenario is the carrier itself.

However, what if the company in question whose factory is standing dormant waiting for the parts was actively pursuing leaner manufacturing, which in turn, had seen a minimisation of inventory and safety stock? What if procurement had also minimised their cost by sourcing parts from a foreign-based supplier and an earlier shipment had been rejected due to a failed quality inspection?

What if when appointing the new supplier the new lead-times had not been accurately accounted for and the potential for something going wrong along the new delivery route hadn’t been factored into planning and forecasting models?

Now all of a sudden the carrier (and the driver responsible for the delivery who was subsequently ‘let go’) aren’t solely responsible for the loss in revenue. In this case management and the relevant systems need to own a lion’s share of the responsibility for the failure.

This reality plays a major role in how we at Prophit Systems develop and implement our offering. We focus on making the input of variables as easy and error free as possible, while making sure that triggers are in place that will alert managers of any potential future anomalies that could impact any part of the supply chain. Furthermore, our reporting tools are designed to deliver transparent insights so that the combination of factors that led to a negative outcome can be identified and addressed.

As a SCM solutions provider we understand that there are an infinite number of variables that influence a supply chain’s efficacy. This fact can make identifying the true culprit of a supply chain failure incredibly difficult. In many cases when there is a catastrophic failure within a supply chain managers […]

Read More...