Improving the reliability of sales forecasting


The need for improving the reliability of the sales forecasts can never be overemphasized. The efficiency of the marketing operations of a firm depends directly on the extent of reliability of its sales forecasts.

Forecasts can be improved by combining methods

The forecaster can improve his forecast by opting for a combination of methods. Since no one method is perfect or foolproof, it is generally advantageous to try out a combination. Using more than one method would give a better insight into the situation. Crosschecking between one method and the other would minimize the risks involved in the forecast and improve reliability. Combinations will also help the forecaster to probe deeply the reasons for the variations between the forecasts arrived at by different methods. This will eventually enable the forecaster to arrive at a more accurate and reliable forecast. Conversely, if the results arrived at by the different methods converge the confidence in the forecasts is enhanced to that extent.

Depending totally on a single method or on one category of methods has certain pitfalls. For example, if the firm depends totally on the jury method, it exposes itself to one type of bias. For, the jury method relies heavily on the judgment of persons who are not experts in forecasting and who normally do not employ any elaborate database in working out their forecasts. It will be advantageous to supplement this method with one of the statistical methods.

The different methods of forecasting are not mutually competitive, nor mutually exclusive. Quite often, they supplement one another and can be easily used in conjunction. The forecaster can choose one method from the statistical/analytical group and one method from the non-statistical group and compare the forecasts; he can also use two different methods from the same group and compare the position. For example, in consumer products, both the jury method and the sales force composite method can be tried and the variations between the two forecasts studied. Such an approach may lead to a more reliable forecast. For, even though both the jury method and the sales force composite method belong to- the category of judgment methods, they have complementary merits and demerits. Whereas the jury method is a ‘break-down’ method, the sales force composite method is a ‘build-up’ method.

The jury method involves working out, in the first instance, forecast for the company as a whole, and then breaking it into parts territory-wise, channel-wise, salesman-wise, and month-wise; the sales force composite method involves the reverse procedure. When both the methods are employed, the accuracy of the forecast is improved through comparison and through an analysis of why significant variances occur in the two methods. And when an analytical or quantitative method is also used in addition to the above two, the comparison becomes complete.

An efficient marketing information System (MIS) is a must

The problem in this regard seems to arise mainly on account of the absence of adequate, timely, relevant and reliable marketing information/data. Marketing information is central to sales forecasting. Since a large number of factors, such as changes in economic and business conditions, changes in the market potential, changes in competition and changes in the programs of the firm influence the sales of a firm, sales of a firm, sales forecasting requires a database relating to all these factors. The nature of data required may, of course, vary depending on the product, market and environmental characteristics, and the degree of complexity of the forecasting method employed. But all firms do require a variety of both internal and external data/marketing information for carrying out the forecasting job.

Forecasts must be broken down by Territories and Time spans

For sales forecasts to be meaningful and useful to those who operate the marketing system at different levels, they must be broken down over smaller territories and shorter time spans. It is natural for any firm to work out in the first instance, the forecast for the corporation as a whole and for the year as a whole. This forecast has to be split up over the marketing regions and areas of the company and ultimately, over each sales territory.

If the forecast stops with the corporate level, it will not have any use for those running the marketing system at different levels. For

example, a national level or regional level estimate of company sales can only appear as a formidable number to the individual salesman working in his small sales territory in a remote corner of the country; a forecast relating to his territory alone can serve him as an intimate pathfinder. The forecasts have thus to be broken down into smaller geographical territories. Similarly, they must be broken down over shorter time spans each season, each quarter, each month and each fortnight as well.