Any company conducting true Integrated Business Planning (IBP) will have a single consensus forecast across all functions: sales forecasting and budgeting, commercial planning, revenue management, and trade promotion management. This is often referred to as a ‘one number forecast’. The goal of this ‘one number forecast’ is to have a single set of numbers driving the business, and to have complete buy-in from all business stakeholders.
Why is this so important?
It’s important because if all business units are collaborating to ONE trusted number. As a result they are able to make better strategic decisions, and often save the company millions by doing so. I’ve personally seen companies report million dollar savings within 12 months of implementing the Blueshift ONE IBP Solution.
What challenges do companies face when implementing a one number forecast?
Having a ‘one number forecast,’ and multiple teams collaborating towards it, can be a difficult process to manage. If companies do not allocate ownership effectively, the repercussions could cause frustrations for your team, your customers, and your bottom line.
In most businesses, it is common for finance to ‘own’ the forecast, with the responsibility for delivery lying firmly with sales. Whilst this may seem a logical procedure, the likelihood of failure is high, as miscommunication between the teams combined with a lack of direct accountability almost always stands in the way of success.
Another common and unrealistic assumption is that the forecast should meet the budget. This assumption is dangerous for any organisation because the forecast budget is not created from actual, realistic goals, but rather a back-solved number. With ever-changing market conditions, budget figures quickly become outdated, irrelevant and in some cases, completely unachievable. It is for this reason that it has become more important than ever to challenge the norm by changing the way forecasts are viewed, owned and interpreted.
So, when practicing IBP, which department is best placed to own the forecast?
Put simply, the answer is the sales department, but most do not realise that they own it!
The sales department should own the ‘ONE number’ – with the demand team assisting in putting the forecast together. The sales team are by far the most equipped department for holding the forecast responsibility as they are in charge of the sales function and thus understand the conditions that impact sales. They know the best action to take when reacting to market changes, as they are the team that best understands the mechanics and environmental conditions for each product that impact sales. For example, an airline would not allocate responsibility of forecasting a flight’s estimated time of arrival (ETA) to their accountant, instead the Pilot would own the ETA as they are the individual who controls the plane and understand the conditions that could impact the ETA. Make sense?
All these factors, unique to the sales team, will help accurately predict how the forecast will shape up in the future period. Ideally, the sales department’s Key Performance Indicators (KPI) should be focussed around this number too. Moreover, if the sales team set and own the forecast, this added responsibility operates as a motivational tool – the sales team will be accountable if the forecast is not reached, therefore they are empowered to achieve the best results. This prevents any over optimistic predictions within the forecast and helps achieve a realistic perspective for all areas of the business.
However, passing the responsibility of forecasting entirely to sales can come as quite a shock for many businesses, going completely against the grain. In such situations, it will be critical to explore changes in the culture of the organisation, so that this approach becomes embedded into the organisation and viewed as accepted procedure going forward.
In our experience, companies who fully understand that sales should own the forecast implement IBP successfully and always drive tangible bottom line gains within the first year. The primary benefit comes from visibility and the capability to make proactive strategic decisions. Once the sales team embrace their ownership of the Integrated Business Planning forecast, a ONE solution will be achieved – helping drive your consumer goods business to long term success.
Want to find out more about successful IBP implementation? Request a consultation with one of our Integrated Business Planning experts.