by Andy
March 30, 2010
For the last two weeks I was a guest professor at Georgia State University presenting insights on Business to Business marketing as well as leading a discussion about forecasting – its importance and methods used.
What became apparent, at least to me, were the endless amounts of formulas, models and analyses used today to forecast tomorrow. Old classics like straight-line extrapolation to regression to an assortment of other econometrics and analytic models. Some were heavily data based while others were qualitative requiring a multitude of assumptions. Some models were better aligned with internet-based consumption patterns while others were for traditional brick and mortar purchase realities. Qualitative models were better suited for new product introductions. All were right, accurate and valuable with more forecasting formulas sure to follow.
One thing all models had in common was the final purchase – the raw number projections at the end of the supply chain ultimately forecasting whether the entire industry was to flourish or wither? From there, individual players backed-out the production levels required to supply their customers within the broader chain.
The sad truth is that an individual company rarely has a significant impact on the broader category. It might have a significant impact within its competitive sub-category set, but not on the entire industry. That ship is just too big. Plus, those at the end of the chain (the final link to the end-user) usually wield the most influence. Just ask the Big Three in Detroit. They assemble and sell the final product built from a host of industries and supply chains that are final-linked to them. If their forecasts are off, sub-industries go off-track as well.
While companies are traditionally measured against others within their specific category, it’s the role they play beyond their sub-category that creates competitive advantage. Providing assistance and vision to the whole creates positive intracategory deference to the individual company. Stating it another way, don’t be totally dependent on the prevailing wind. Do what you can to create the wind you need to succeed. Those rising above vendor status to relevant player do a better job of influencing business weather patterns.
Category interdependence is business reality. No man is an island (John Donne). Category influence is critical to individual success. Are you linked-in?
Forecasting can particulaly tricky if you subcontract: if forecast isn’t high enough- you don’t get price breaks. If forecast is too high, and demand doesn’t match– not only do you not get re-orders in a timely manner, your ROI takes a huge hit as “inventory is the enemy” with regard to tying up capital. On the other hand, without inventory– you have nothing to sell. Hence the constant search for the proper forecast.
With regard to retailers, they weild more power every week. SKU rationalization, slotting fees, their latest “profitability enhancement program” aka give me more trade dollars if you want me to even think of taking this in. Retailers really only responding to two things:
1) Innovation. Bring something they can’t knock off with Private Label
2) Massive marketing support programs. Consumers must be able to find the item in the retailers shelf set if the dollars creating pressure are there.
If a packaged goods marketer doesn’t have one or both of these working for them and their brand, you’d best revise the forecast down!
Forecasting can particulaly tricky if you subcontract: if forecast isn’t high enough- you don’t get price breaks. If forecast is too high, and demand doesn’t match– not only do you not get re-orders in a timely manner, your ROI takes a huge hit as “inventory is the enemy” with regard to tying up capital. On the other hand, without inventory– you have nothing to sell. Hence the constant search for the proper forecast.
With regard to retailers, they weild more power every week. SKU rationalization, slotting fees, their latest “profitability enhancement program” aka give me more trade dollars if you want me to even think of taking this in. Retailers really only responding to two things:
1) Innovation. Bring something they can’t knock off with Private Label
2) Massive marketing support programs. Consumers must be able to find the item in the retailers shelf set if the dollars creating pressure are there.
If a packaged goods marketer doesn’t have one or both of these working for them and their brand, you’d best revise the forecast down!
These business models and formulas are fascinating to me. I find evidenced based analysis quite compelling. But, in the end, I agree it’s up to the enterprise to create its own wind necessary for success. What’s the old saying? “The harder I worked, the luckier I got.” Elevating to relevant player status really will help create that wind. The kind of wind you always want at your back.
These business models and formulas are fascinating to me. I find evidenced based analysis quite compelling. But, in the end, I agree it’s up to the enterprise to create its own wind necessary for success. What’s the old saying? “The harder I worked, the luckier I got.” Elevating to relevant player status really will help create that wind. The kind of wind you always want at your back.
While economic models can be complex and may seem narrowly focused, their application can occur in unexpected places. For example, Economist and Mathematician Rudolf Kalman worked on a new and complex model for business interaction in the 1960s in an attempt to predict supply chain requirements. In a visit to the NASA Ames Research Center in Palo Alto (my post grad research site) he saw the applicability of his idea to controling the trajectory of multi-stage rockets. From that humble beginning, the Apollo navagation computer was born. So, you could say that an economic model put the USA on the moon.
While economic models can be complex and may seem narrowly focused, their application can occur in unexpected places. For example, Economist and Mathematician Rudolf Kalman worked on a new and complex model for business interaction in the 1960s in an attempt to predict supply chain requirements. In a visit to the NASA Ames Research Center in Palo Alto (my post grad research site) he saw the applicability of his idea to controling the trajectory of multi-stage rockets. From that humble beginning, the Apollo navagation computer was born. So, you could say that an economic model put the USA on the moon.
These business models and formulas are fascinating to me. I find evidenced based analysis quite compelling. But, in the end, I agree it’s up to the enterprise to create its own wind necessary for success. What’s the old saying? “The harder I worked, the luckier I got.” Elevating to relevant player status really will help create that wind. The kind of wind you always want at your back.
These business models and formulas are fascinating to me. I find evidenced based analysis quite compelling. But, in the end, I agree it’s up to the enterprise to create its own wind necessary for success. What’s the old saying? “The harder I worked, the luckier I got.” Elevating to relevant player status really will help create that wind. The kind of wind you always want at your back.