Forecasting the Weakest Link: The Driver of the Sales and Operations Planning (S& OP) Process is the Sales Forecast. It is Also, In Many Cases, The Weakest Link, Writes Tony Dear (Forecasting & Planning‪)‬

There is a fundamental difference between weather forecasting and sales forecasting. The weatherman is only interested in obtaining the best possible estimate of future conditions. If his boss wants a sunny weekend because he is going sailing, it tends to have little influence on the weather forecaster. It's not quite like this in sales forecasting. I do not know of any sales forecasting person who firms up his forecast without at least some reference to the budget. In fact, it is not at all uncommon when there is a trend of decreasing sales for the forecaster to forecast up in direct contradiction of this trend. We have seen formal systems - mostly spreadsheets - when there is a simple forecast calculation: subtract the sales so far this year from the budget and split the remainder throughout the rest of the year. We have always thought that a more appropriate starting point for a forecast is to use an algorithm to pick up the sales trend and extrapolate it into the future. This raises a fundamental issue in sales forecasting. Are the forecasts a tool for motivating the sales force to greater endeavours or a method of obtaining the best possible estimate of future sales? In many situations a realistic forecast (that is, one that is the best estimate of the future) is not necessarily an acceptable one (that is, one that meets the budget). If our interest is S&OP, then the realistic forecast is the one we want. If we drive our S&OP process from acceptable forecasts, then we can easily end up with overstock - in addition to missing the budget! This is a balancing act because we cannot deny the importance of the motivational force of working to the budget. We have found that there are two things that help: