You are currently browsing the category archive for the ‘Supply Chain Performance’ category.
In today’s highly competitive sales environment, where success depends on meeting the specific needs of buyers, an accurate and timely sales forecast is a critical tool for optimizing business outcomes. I discussed this as part of our 2014 research agenda for sales, noting that linking the forecast to commissions, quotas and territories is a requirement for success. We recently completed new benchmark research on sales forecasting to ascertain the state of the processes and technology sales organizations use. This research continues to find less than adequate efforts by organizations to improve their sales forecasting process and insufficient information about the full revenue potential from accounts and customers.
Each of our benchmark research studies generates a Performance Index that assesses organizations’ performance in a specific process and how well people use information and technology. Our latest sales forecasting research places fewer than one in five (18%) organizations at the highest Innovative level of the four by which we measure sales forecast performance and increasingly larger percentages at each of the succeeding lower levels; more than one-third (35%) rank at the lowest Tactical level. The largest organizations by both number of employees and annual revenue perform better than smaller ones. We find that organizations do see the importance of sales forecasting: More than half (55%) said that it is very important, and another one-third (34%) said it is important. But execution is another matter: More than half (53%) are not satisfied with their current sales forecasting process, and two-thirds (64%) of those that said forecasting is very important also said they are not satisfied with the process.
Why are people most dissatisfied? The most common complaints about how sales forecasting works are that the process is not reliable (for 57%), data is not accurate (50%) and the process is too slow (50%). But those seeking to address these complaints encounter barriers that obstruct improvement; those most commonly cited by organizations not satisfied with the current process of creating forecasts are lack of resources (84%), no executive support (79%), no suitable software (77%) and lack of awareness (75%). All of these findings indicate room for improvement across the people, process, information and technology dimensions of performance.
Dissatisfaction correlates with low confidence in the sales forecast and the information in it; 44 percent lack confidence, which is even more disturbing when we remember that the information from the forecast is essential for managing not just the process but all of sales operations. Similarly issues with accuracy of information also correspond to lower levels of confidence: Fewer than one-third (29%) of participants said that their forecasts are more than 80 percent accurate; that is a lower number than in our previous research. One way to improve accuracy is to tie performance rewards to it, but we find that not many (29%) organizations reward sales forecast accuracy. However, those that do this are more confident by a large margin in the quality of the information than those that don’t (61% vs. 37%). Thus we recommend the use of rewards as a way to improve the accuracy of sales forecasts. A related element is timeliness, and the research finds that often the sales forecast takes too long to generate: One-third (35%) of organizations take three weeks or longer to generate a sales forecast, more than one-fourth (27%) take a week or two, and the fewest (24%) take less than a week. The time spent to process a forecast can impact the frequency of sales forecasting and hence its usefulness. This sluggishness often is related to inadequate technology to process and generate information for review and metrics to guide improvement. Almost half (44%) of sales organizations acknowledged that they have impediments that motivate management to contemplate further investment in sales technology.
Speaking of technology, only two in five (40%) of the organizations participating in this research use dedicated tools for sales forecasting. Most that do are new to the technology; three in 10 have been using it for more than a year, and 10 percent more began in the last year. Those that use dedicated sales forecasting technology told us it is helpful: More than one-fifth (22%) said it has improved significantly the outcomes of sales activities and processes, and half (51%) indicated it has improved them slightly. The largest organizations have been using dedicated software longest among company sizes. Less than one-fifth of participants said they have no plans to deploy dedicated software. Asked why, most (58%) said they do not know, which indicates a lack of awareness of the technology and its advantages. One-fourth more (24%) said deploying it would not have a positive impact on business, which indicates a lack of understanding of its benefits. We found similar uncertainty elsewhere. Fewer organizations are confident in their ability to select and use sales forecasting technology (35%) than are only somewhat confident (40%); at the extremes, slightly more are not confident (14%) than are very confident (12%). Organizations that reward forecast accuracy also are more often satisfied with their sales forecasting technology (79% vs. 44%), which indicates maturity in understanding the full potential of technology investments. Yet many organizations use spreadsheets for sales forecasting even though more than half (59%) admitted that reliance on them undermines efficiency and only 24 percent said they are accurate and timely.
This research also finds much indecision about making changes to improve the process or the technology for sales forecasting. A larger percentage of sales organizations said they are not planning to change their process (41%) than said they will change it (32%); more than one-quarter (27%) do not know whether they will change the process. The most common drivers for changing the forecasting process are a business improvement initiative (for 65%) and a drive to improve the quality of business processes (60%), followed by increased operational efficiency and cost savings (48%) and improved sales and revenue generation (47%). All of these are good reasons, but we think that commitment to sales excellence and maximizing the number and value of sales should be enough to justify investments and efforts at continuous improvement. Dedicated applications can contribute to more accurate sales forecasts, but we find that many organizations aren’t prepared to implement them or do not understand why they should. For organizations that are planning to change vendors for technology, the most common reason is to speed up the forecasting process (54%); fully half of this group is not satisfied with the current product’s functionality. The current research found organizations are dissatisfied with their tools because data gets outdated quickly, which indicates lack of integration of data and tardy processing of forecasts.
We conclude that many organizations should make a deeper commitment to sales forecasting; the research shows that those that do invest and improve are reaping the rewards in increased sales. We add that improving accuracy and participation should be rewarded and that up-to-date sales pipeline information should be processed into a periodic sales forecast that should be readily available. The whole point of a sales forecast is to measure performance of sales activities, and that should be aligned to the quotas assigned to the sales force across territories. Also important is the capability to examine the forecast by customer, product and geography to determine where more management is required and where coaching and instrumental changes to the sales methods used to drive the best execution through improvement to the efficiency and results. The sales forecast also impacts other key process, such as the financial plan, the demand plan for operations including customer service and field service, and manufacturing and distribution. It is critical for streamlining the overall business plan. Sales forecasting should be a well-managed, collaborative process with capable technology to support it, and not just running a report from the SFA that summarizes the current state of activities and lacks the analytics and collaboration required to operate the process. Having a commitment to improve the process and information requires technology that is designed to support it and finding ways for gaining more participation and interaction through collaboration and mobile technology.
I urge every organization that has issues in its sales forecast to conduct a self-examination with an eye on how to improve it.
CEO & Chief Research Officer
FinancialForce recently introduced FinancialForce ERP, a family of cloud-based software designed to support a variety of customer-centric businesses such as professional services organizations or companies that specialize in business and industrial distribution. Many of these types of businesses are midsize or small (having 50 to 1,000 employees) and can benefit from the integration of FinancialForce’s accounting, professional services automation, human capital management (HCM) and supply chain management (SCM) software. The company added the last two capabilities at the end of 2013 with the acquisitions of Vana Workforce and Less Software, respectively, which I commented on. Like FinancialForce’s, their software runs on the Salesforce1 platform, which means that integration of these elements was straightforward. It also enables companies that use or are planning to use salesforce.com for sales and customer service to simplify integration of those with the operational and back-office software, by enabling single sign-on, end-to-end process management and a single data source for reporting and analysis. This integration can significantly reduce or even eliminate the need to re-enter information into systems or to use spreadsheets, documents and email to manage processes. With all of the data available in a single system, creating reports and automating their distribution becomes easier. All of this, in turn, should cut the amount of time and effort spent on administrative and clerical functions and enhance the productivity of the organization.
From its inception, FinancialForce has had a two-pronged market strategy. Like all ERP vendors, it offers a suite of back-office functionality, but it also offers the option of buying separate component applications that address specific needs. Because all of the code within its suite is running on a single platform in the cloud, FinancialForce can offer an interoperable set of capabilities that can be purchased as a single application or in components. In the latter case, its sales order processing module can be used to bridge the salesforce.com cloud-based sales process to the user company’s on-premises ERP system. This enables companies to replace desktop spreadsheets or paper forms to pass order information from one system to the next – a time-consuming and error-prone process. The unified approach also makes it possible for buyers to acquire a full suite in stages, which may be more appropriate for their needs and budgets. FinancialForce’s recent acquisitions and their integration into the single offering takes the strategy a step further. Companies can buy additional component pieces (HCM and supply chain) that operate on the Salesforce1 platform. Moreover, FinancialForce now has a more comprehensive suite for two types of businesses, professional services organizations (PSOs) and distribution companies.
The recent release of FinancialForce ERP was designed to put additional emphasis on the suite offering. As an ERP suite, FinancialForce is suited for a variety of businesses, but two in particular are worth highlighting. One is PSOs (consultancies and the like) as well as stand-alone professional services organizations within a large corporation that need systems to manage their operations effectively yet interoperate with the parent company’s core ERP system. The integration of the accounting and human resources capabilities with professional services automation (PSA) software provides a way of simplifying the management of day-to-day operations while substantially reducing the administrative burden for record-keeping, accounting and compliance. These sorts of businesses are well-served by an integrated suite of capabilities that automate and manage the sales, staffing and project management elements of their operations, while increasing the efficiency, timeliness and accuracy with which they perform critical tasks such as customer billing. Once a professional services company expands past a handful of billing individuals, the administrative burden on the senior members of the firm can be anything from a nagging distraction that saps their productivity to a time-sink that diminishes revenues. The right software enables them to scale their business without having to make corresponding investments in administrative personnel. Human capital management is especially important for PSOs since people are the core of their business model. Applications like Vana Workforce have the potential to improve the effectiveness with which a PSO handles its members. For small to midsize consultancies, however, the use of human capital analytics is especially important for improving efficiency and productivity, as our research has shown.
The other type is business and industrial distribution companies. These tend to be sales-oriented and, as such, might already be salesforce.com customers. In addition to the financial management functions, FinancialForce ERP provides necessary capabilities that support some of the supply chain management aspects of their sales processes, including configure, price and quote (CPQ) to maximize revenues as well as efficient and accurate order fulfillment, and contract, inventory and supplier management. Note, however, that although FinancialForce calls this part of its offering SCM, the software does not have the full set of supply chain functionality offered by established vendors in this field.
Since FinancialForce ERP is a cloud-based application, it’s suited to the needs of companies that have outgrown small business accounting software packages and can benefit from having the ability to connect sales, marketing and customer service capabilities with their back-office functions. Many companies with 50 to 500 employees still use basic financial software packages because they hesitate to make the investment in an on-premises accounting package and the IT staff they would need to support it. But they are foregoing the operational and management benefits they could have by using more capable software that doesn’t require a large up-front commitment and ongoing reliance on staff to support an IT system. The Salesforce1 platform also incorporates Chatter, messaging software that facilitates collaboration in context among employees.
Companies with 50 to 1,000 employees, especially those in professional services and distribution, that have a fragmented collection of software for sales, accounting, order and inventory management, and HCM, should consider FinancialForce to address their needs. This is especially true for midsize companies that have outgrown their entry-level accounting packages and are held back by their limited analysis and reporting capabilities.
Robert Kugel – SVP Research