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  • CFO Magazine

The Plight Before Christmas

Companies have learned some useful lessons about demand planning, but will improved forecasting techniques guarantee happy holidays?

Now, Slone says, OfficeMax layers a bevy of external factors into its sales forecasts, everything from “competitive entry/exit” (what happens to demand when a Staples or Best Buy enters or exits a local market) to weather patterns. The company even employs a “hurricane algorithm,” which it uses to gauge how many bottles of water, flashlights, or batteries people will buy in advance of, or after, a storm.

So what do such methods tell Slone about his company’s prospects for Christmas, which is a key selling season for office products? “Overall, we’re cautiously pessimistic,” he says, noting that the company’s business is highly correlated to the nation’s employment numbers. “We’re not planning for a huge resurgence.”

In that, he doesn’t appear to be alone.

David M. Katz is New York bureau chief at CFO.

A Demand-Planning Action Plan

In these volatile times, it’s hard for companies to get a reliable read on what to expect from their customers and how to deal with rapid shifts in demand. Here are four steps that supply-chain experts say are essential to coping with a fast-changing economic landscape:

1. Ditch the long-range forecasts. Rely on rolling forecasts as a corrective to old outlooks that are likely already stale.

2. Avoid gut feeling. Previously, many executives acted on forecasts based on historical sales trends, which were then “adjusted” according to the “judgment” of sales executives. That’s a recipe for error. By all means, use the assumptions of experienced managers as a starting point. But be sure to test their hypotheses with rigorous research.

3. Go granular. Don’t settle for aggregate forecasts of the fortunes of the entire corporation. Seek data breakdowns by geography, product, and means of distribution (sales via catalog, online, or store, for instance).

4. Launch an S.O.P. “Sales and operating planning” committees are hot in demand-planning circles right now — and rightly so. Composed of executives from both inventory and sales, they can provide collective intelligence to finance executives and add more depth to forecasts of customer behavior. — D.M.K.

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