Sales Forecast “Game Playing”‐ Why It’s Bad, and What You Can Do About It John E. Mello, Ph.D. The Arkansas State University [email protected] 1
Sales Forecast “Game Playing”‐Why It’s Bad, and What You Can Do
About It
John E. Mello, Ph.D.The Arkansas State University
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Presentation Outline
• Research background.• Discussion of various game playing forms in forecasting.
• Conditions that foster sales forecasting game playing.
• Specific impacts of game playing on demand and supply integration.
• Thoughts on how game playing can be reduced.
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Research Background
• Data obtained from forecasting audits conducted by researchers from the University of Tennessee at 10 companies.
• “Game playing” subject identified as a common issue among participating companies.
• Current research draws connections between game playing activities and problems they cause for matching demand and supply.
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Information Flow• Demand information in the form of customer orders and sales forecasts provides supply chains with data necessary to determining how much material to order, what and how much product to make, when to make it, and where to distribute it once it’s produced.
• Since most manufacturers “make‐to‐stock,” sales forecasts are critical because product is made and warehoused in anticipation of actual orders.
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Impact of Forecasts On Supply Chains
• Distribution requirements planning (DRP) establishes replenishment of products in distribution centers based on forecasted sales and current inventories.
• Production plans, including plant capacity and line schedules, are based on these distribution plans.
• In turn, materials requirements planning (MRP) and procurement activities are driven by production plans.
• These activities are replicated upstream through the various tiers of the supply chain, potentially affecting hundreds of companies.
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Impact of Forecasts On Supply Chains• Because sales forecasts drive so many activities in the supply chain, any actions that taint the accuracy of forecasts are going to have far‐reaching effects on how well the supply chain meets customer demand.
• Attempts to integrate demand and supply, such as through S&OP, will be unsuccessful because demand will not match forecasts.
• One of the ways that sales forecasts are distorted is when individuals, groups, or companies “play games” with sales forecasts.
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What Does “Game Playing” Mean?
• The term “gaming” refers to behavior appearing to be beneficial to the organization but that is actually dysfunctional (Jaworski and MacInnis 1989).
• In the context of sales forecasting, “game playing” occurs when forecasts are created or changed by companies, groups, or individuals who have ulterior motives behind their actions.
• These motives are self‐serving and frustrate attempts to arrive at an accurate forecast.
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What Kind of Games Get Played?• Enforcing• Filtering• Hedging• Sandbagging• Second Guessing• Spinning• Withholding• Customer games
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Sales Forecasting Games
• Enforcing‐Maintaining a higher forecast than actually anticipated in order to keep forecasts in line with the sales or financial goals of the organization, such as “making the quarter.” Used when “taking the number down is not acceptable.”
• Filtering‐ Changing forecasts to reflect the amount of product actually available for sales in a given period. Used to mask capacity or production issues in a company.
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Sales Forecasting Games• Hedging‐ Overestimating sales in order to secure additional product or production capacity. Used so that “the factory will have stuff when I want it.” This game may be played by salespersons or customers, especially when capacity is tight or for new products. Mark Moon calls this the “I need to make sure they make enough, so I’ll forecast a lot” game.
• Sandbagging‐ Underestimating sales in order to set expectations lower than actual anticipated demand. Used in a “good news” company culture, or to set sales quotas low in order to ensure they are exceeded. Mark Moon calls this the “My forecast will affect my quota game.”
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Sales Forecasting Games• Second Guessing‐ Changing forecasts based on instinct or "gut feelings" about future sales. Used when an individual or group mistrusts the forecast, or has an “I know best” attitude. This can happen at multiple levels of an organization.
• Spinning‐Manipulating forecasts to obtain the most favorable reaction from individuals or departments in the organization. Used to “control the news cycle.”
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Sales Forecasting Games
• Withholding‐ Refusal to share current information concerning sales with other members of the organization. Used when news is either good or bad.
• Examples: Withholding news about increasing sales to maintain current quotas. Withholding news about decreasing sales to postpone the “screaming session with the boss.”
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Customer Games
• Over‐forecasting‐ A form of hedging. Used when products from a supplier are in short supply or on allocation. Mark Moon calls this the “I’ll forecast high so I’ll get what I need”game.
• Under‐forecasting‐ Used when customer associates forecasts with firm orders and does not want to over‐order the product.
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Customer Games
• Withholding‐ Not sharing promotional plans or inventory policy changes with suppliers. Indicates lack of trust between companies in a supply chain.
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Games And The Conditions That Foster Them
Reward Structure
Lack of Accountability
Conflicting Goals
Lack of Incentives
Supply Structure
Lack of Production Flexibility
Long Lead Times
Games Filtering
Hedging
Second Guessing
Customer Games
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Games Enforcing Hedging Sandbagging Second Guessing Spinning WithholdingCustomer Games
Games And The Conditions That Foster Them
Forecast Process
Business Plan Driving Forecast
Sales Quotas Based on Forecast
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Games Enforcing
Sandbagging
Spinning
Withholding
Games And Their Potential Outcomes
Games
Hedging Sandbagging Second Guessing SpinningWithholding
Customer Games
Overforecasting
Underforecasting
Withholding
Intra‐Firm Issues
Lack of Trust
Lack of Cooperation
Silo Thinking
Inter‐Firm Issues
Lack of Trust
Lack of Commitment
Service Failures
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Games Enforcing Hedging Sandbagging Second Guessing Withholding Customer Games
Higher Costs
Excess Inventory
Expediting
Labor
Confusion What to produce? How Much Capacity? How Much Inventory? Where to Put It? How Much Space? How Much Transport?
Games And Their Potential Outcomes
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Games
Hedging Sandbagging Second Guessing Spinning Withholding
Thoughts On How To Reduce Gameplaying
• Develop a corporate mindset based on the concept of Demand and Supply Integration (DSI).
• DSI is “a single process to engage all functions in creating aligned, forward‐looking plans and make decisions that will optimize resources and achieve a balanced set of organizational goals” (Moon 2013).
• This mindset means that no function, or company will optimize its own gain to the detriment of other functions or companies (“sub‐optimization”).
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Thoughts On How To Reduce Gameplaying
• Change the reward structure:‐ Tie compensation to forecast accuracy.‐ Unify goals between supply and demand functions to eliminate sub‐optimization.‐ Provide incentives to customers to forecast more accurately, and share demand information to reduce uncertainty.
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Thoughts On How To Reduce Gameplaying
• Change the supply structure:‐ Build more flexibility into production capabilities, reducing the need to play games with supply.‐ Reduce supplier lead times, which reduces uncertainty.‐ Drive as much uncertainty as possible out of the supply chain through information technology and exchange. These reduce the need to over‐forecast.
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Thoughts On How To Reduce Gameplaying
• Change the forecasting process:‐ Initiate an S&OP process or improve the one you have.‐ Extend the S&OP process toward a “collaborative forecasting process” with suppliers and customers.‐Move to a “one number” forecast that cannot be changed without executive approval.‐ Separate sales forecasting from sales goals and quotas.‐Make the process as transparent as possible.
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Summary
• Forecasting “game playing” takes many forms.• Certain conditions in organizations set up environments conducive to game playing.
• Gameplaying has negative consequences in a supply chain.
• Changes to the reward structure, supply structure, and forecasting process can help reduce game playing.
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Questions or Comments?
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ReferencesFawcett, S. E., Ellram, L. M., and Ogden, J. A. (2007). Supply Chain
Management: From Vision to Implementation, Saddle River, N.J.:Pearson/Prentice Hall.
Jaworski, Bernard J. and Deborah J. MacInnis (1989), "Marketing Jobs and Management Controls: Toward a Framework," Journal of Marketing Research, No. 26 (November), 406‐419.
Mello, John E. (2009) “The Impact of Sales Forecast Game Playing on Supply Chains,” Foresight: The International Journal of Applied Forecasting, Issue 13, (Spring), p.p.13‐22.
Mello, John E. (2013). “Collaborative Forecasting: Beyond S&OP,”Foresight: The International Journal of Applied Forecasting, (Spring ), Issue 28, p.p.26‐31.
Moon, Mark A. (2013). Demand and Supply Integration: The Key to World‐Class Demand Forecasting, Upper Saddle River, N.J.: FT Press.
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