Sunday, April 10, 2011

Simple Yet Powerful Analytics

Last month we did a PoC(Proof Of Concept) for one of the manufacturing organizations in India. During PoC, we found out that their sales revenue was declining in southern region whereas sales revenue was increasing at good pace in other regions of the country. The common sense says that the sales team was not very effective in Southern region. However, when we did analysis, we found out that there were more number of stock outs at dealers  in southern region compared to other regions. This is because of under forecasting of the products done for the southern region. If they would have done correct forecasting of products for south region then they would have gain market share in that region. We were surprised to learn from them that they do manual forecasting of products for a region based on gut feeling of regional sales team.

It is very critical for organizations to do accurate hierarchical sales forecasting at multiple levels(Products  & Geography). Over forecasting will result in excess inventory and higher inventory carrying cost whereas under forecasting will result lost sales opportunity. Today, many organizations in India are doing manual sales forecasting. Manual forecasts quite often results into either excess inventory or stock outs.  In case of excess inventory, you end up offering higher discounts to your dealers or customers. This will directly impact your margins and profitability. In case of stock outs, you lose out sales opportunities.

Sales forecasting is not as simple as it sounds. It requires usage of high end statistical forecasting solutions. If you do not have it yet then start looking for such solutions. It will help you add competitive advantage over your competition.     

2 comments:

  1. Hello Sir,

    This is very useful even for a student learning SAS and not only for real environment departments and people handling the same. This is throwing light directly on the importance of Analytics in most critical areas like sales. Very useful write-up Sir.

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  2. I think we cant completely liberate LOB thoughts to analytic s/Stats due to the fact that some patterns are new emergence and stats algos dont understand that, its a combination of Gut and algos that helps in decision making and not just a software output

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