As many of us are thinking about summer vacations, there is much research into geographic options, best ways to get there, budget, weather, timing, and other things that go into planning a trip. In the same way, before we ever start building a sales plan, there is planning to be done. As we work with our clients to build the mountain on a mountain, we have recognized a significant opportunity to create a plan. Over the next several articles, we will discuss pieces of the planning process we believe are critical in helping to achieve mutual goals, delivering positive growth, and building mountains on mountains.

One of the first pieces of the planning process to discuss is forecasting. For many, this starts with a forward look of what unit volume will be for the short, medium, and/or long term.  More on the choice and mix of terms/duration later.  As the oft-stated phrase goes, "You can't drive a car looking in the rearview mirror more than you look in the windshield." In principle, this is absolutely true; just like a car, we all plan businesses as primarily forward-moving entities. But just as the family vacation, before you can go forward in a car, one generally finds the need to plan. Do I have enough gas? Can I find gas when I will need it, how is the oil, how about the tires, etc.? In the same way, at Paradygm, we value the measuring of our current position against where we want to end. In other words, a forward look into the business requires us to consider current status (manufacturing capacity, input availability, timing, staging, bandwidth, etc.) as well as recent impactful events (seasonality, raw material costs and availability, change in item count, shifts in demand, etc.).

Seasonality

We consider how the most recent season performed versus the prior season. From a variation perspective, did the season result in an outlier performance result?  Was it hotter, colder, wetter, early, late, etc.?  What caused the season to impact the numbers the way it did, and how likely is next year's season to be similar?

Input Cost and Availability

How did raw material cost and availability affect the historical data?  Were there constraints put on the business due to outside forces such as supply chain challenges resulting from raw material availability?  How did that impact the business performance, and how likely is it to continue or repeat going forward?

Mix Changes

How did changes in items affect the historical rates? In many cases, external changes can exert an impact on the internal business. A competitor's new item introduction, lack of manufacturing capacity, and item discontinuance can impact the performance of one's program/products even though there were no actual changes to your program. For many in the industry, variations of this played a role in 2020 and into 2021.  Understanding what happened, quantifying it, and turning it into a material number is valuable input into the process.

Consumer Shifts

Like activities taken up during quarantine, what fundamental shifts have occurred within the consumer psyche and how did that impact purchase decisions? Are these shifts sustainable?  How did the acceleration of buying online and picking up in-store or buying online and shipping to home impact a product group's performance? 

Before we start helping clients plan for the future, we try to ensure alignment exists on multiple axes surrounding the historical data that delivered us to our present situation. Defining the impacts to the baseline and the levers that we can influence to create positive change in the future has been a great way for us to become experts in our client's business and help connect the dots between manufacturers and customers. In continuing to connect these dots through forecasting, we also attempt to link the forecasting process throughout our clients' Finance, Sales, Manufacturing, Purchasing/Procurement, Logistics/Distribution, and Marketing teams.

Finance

Understanding receivables and how that will impact cash flow and investments in the organization are important to the finance function.  Also, aiding the Finance team in understanding the confidence level in the forecast is a key component. As in the above discussion, seasonality plays a significant role here as the business's trendline becomes clearer through the forecasting process.

Sales

Many of us have participated in budgeting conversations. In our experience, there are two types of budgeting, a bottoms-up budget and a tops-down budget .  The best budgeting processes seem to be a blend of a little of both.  Forecasting plays a huge role in helping to contribute to the bottoms-up budget by helping to understand what the future demand and resulting sales will be. As we help our clients set sales revenue plans for next year, forecasting is a key data point in these considerations.  In this way, we feel the best way we can sometimes support the process is to operate as a category captain or category manager.

Manufacturing

As mentioned earlier, the supply of raw material and understanding how to best purchase raw materials to keep the WIP and finished inventory to a minimum is another component forecasting typically informs.  An organization's ability to deliver the best cost to its customers while managing margin dollars and rates is affected by its ability to manage inventory while hitting fill rates or its customers. Having a reliable forecast plays a significant role in this.

Purchasing/Procurement

Just upstream from Manufacturing is the Purchasing/Procurement team's need for a viable forecast. In the last six months, all of us have likely experienced the breakdown in supply chains that we previously took for granted.  Being able to forecast future needs is as much an art as it is a science.  In providing data-driven forecast data, our clients can blend the art of some of the topics above into a forecast they can purchase on.

Logistics/Distribution

In an age where labor is no longer a foregone conclusion in the supply chain, providing as clear a vision of the future for the Logistics/Distribution team is another function that forecasting can inform. Being able to help Logistics/Distribution understand what safety stock will be required and how that will convert into cubic feet of space to plan needs is an important consideration within an organization. Additionally, building a labor plan that matches possible peaks and valleys of demand is another component of an organization performing to customer expectations.

Marketing

Additionally, helping Marketing understand what new products will be available in the marketplace and when and where is another valuable piece of information forecasting can provide.  Helping the Marketing team understand when and where to focus investments helps customers achieve the best sales plan and consumers understand what is available to them and where to buy.

As mentioned before, setting off on a summer vacation without preplanning is something most of us would never consider.  Whether it is how you are going to get there, what you will do while you are there, or how you will get back, there is much to consider when planning.  In the same way, we see it just as, if not more, critical to forecast where our client's business is headed and how to make corrections if the plan comes in higher or lower. During the height of Covid-19, many of you can attest to the challenges of being below or above plan. Starting with a forecast gives everyone, manufacturer and customer, a good data point to go back when measuring performance. We'd be happy to discuss how we can help your business plan for the future; feel free to reach out to start the conversation today.

Paradygm hopes everyone has a great summer as we all attempt to get back a little bit of what we lost last year! Be safe and tell the ones you are with how much you love them!