Standardizing ForecastingBy Armentano Raco | Posted 2009-11-13 Email Print
By integrating its forecasts with its budgeting process, Grandi Salumifici Italiani has been able to produce more accurate, timely sales forecasts.
With the new process, forecasting is more standardized, the staff is more focused on meeting deadlines and our margin of error has been reduced. Whoever makes the estimate now sees new items automatically highlighted or can view items listed in decreasing order of importance. This is critical because newly introduced items might need more attention than traditional sellers. In addition, items that consume a larger percentage of the marketing budget, cost more to manufacture or have slimmer margins may need more attention than other products.
We are also able to create what-if scenarios. For instance, if the price of a key raw ingredient goes up, we can mine our data to determine how much product will sell at a higher price—ensuring that we don’t under- or overproduce. We can also look at how different product sizes sell in existing markets to get a better idea of what size package to recommend to retailers who are adding one of our products.
One of the goals we’ve set for our forecasting is to reduce the incidence of slow-moving products from 2 percent to 1 percent, since having to sell products at low prices when they get near their expiration date results in losses. We are making progress on this, having reduced slow-moving products from 2 percent to 1.7 percent in just the first six months of using the solution.
At the same time, we also don’t want to understock and be “out of stock” more than 3 percent of the time. With our forecasting solution, we’re working to reduce that to 2 percent or 1 percent.
We use the Financial Management tool in conjunction with the forecasting tool. While the forecasting tool builds from the bottom up, the Financial Management tool can build a budget from the top down—helping us make decisions about which products to support with additional funds.
The forecasters use the budget to help the sales team understand how much they have to sell—and at what price—to make budget. Information becomes transparent, to the point that a self-teaching process is created, and the forecaster continuously sharpens his or her forecasting skills.
Although we haven’t yet completed our full investment return analysis of this project, it appears to be successful. Since a major purpose was to save money on missed deliveries and wasted foods, the fact that we were able to reduce costs in those areas is a distinct advantage. In addition, indicators such as reduced errors and fewer out-of-stock situations show that the project has been beneficial for us.
We think these solutions will prove just as useful in the future. Whether we’re expanding into the overseas market or purchasing other small companies, we are well-positioned to grow into the next decade.
Armentano Raco is the trade marketing manager for Grandi Salumifici Italiani, a packaged meat company based in Modena, Italy.