J o u r n a l o f

Business Forecasting
2 0 1 3 | f a l l V o l u m e 3 2 | I s s u e 3

4 
How to Use What-If
Analysis in Sales and
Operations Planning
Sujit K. Singh and Jane B. Lee

15 S&OP: An Opportunity 22 Forecasting 28 Sales & Operations

to Lead from the Challenges of the Planning: Sales’ Insight
Middle Spare Parts Industry in the Planning Process
John Hobby and Amy Jaeger Michael Morris Andrew S. McCall
Supp ly C h a i n
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 J o u r n a l o f

Business ForecastinG
Volume 32 Issue 3 | fall 2013

3
Chaman L. Jain
Editor-in-Chief Answers to Your
Evangelos O. Simos Forecasting Questions
Editor, International Economic Affairs

4
U. Rani
Business Manager How to Use What-If Analysis in Sales
Judy Chan and Operations Planning
Graphic Designer
By Sujit K. Singh and Jane B. Lee
Manuscripts Invited

15
Submit manuscript to:
Dr. Chaman L. Jain S&OP: An Opportunity to Lead
Tobin College of Business
St. John’s University, Jamaica, N.Y. 11439 from the Middle
jainc@stjohns.edu By John Hobby and Amy Jaeger
Subscription Information

18
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for subscription, and other Supply’s Demand-Shaping Roles
correspondence should be
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addressed to:

22
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ID No: 11-263-2688 Sales & Operations Planning:
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Sales’ Insight in the Planning Process
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© Copyright 2013

34
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2 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
Answers to Your
Forecasting Questions
[ Q ] What is the difference in a demand planner’s role when
working for a distributor as opposed to working for a man­u­
facturer? Also, from a job perspective, which one is better?
[ A ] There is not much difference between the two. In each case, the
demand planner has to forecast and manage the demand. To balance
supply and demand, the demand planner, in each case, needs to do
demand sensing and demand shaping. Although demand planners
of distribution and manufacturing companies operate from a
different hierarchy of supply chain, their eyes are mostly focused
on the end-consumers, because in the end what matters is how
much consumers are pulling. Gone are the days when markets were
supply-driven, and when manufacturers and distributors influenced
their customer demand by offering one incentive or another. They
have realized now that building inventory at the customer level
won’t help if the end-consumers are not buying. So, what is needed
is to influence the demand of end-consumers (not customers). As for
the job perspective, I am not sure which one is better. I imagine each
one has to be paid a competitive salary to keep the demand planner
on board.
[ Q ] Our company is currently paying more attention to the
operational planning than to the strategic planning. Over
the last 10 years or so, it has trimmed down significantly
the strategic planning staff, and expanded the operational
planning staff. Is this a good strategy? Don’t you think what is
most important is to hit the long-term target?
[ A ] Both are important. We cannot achieve our long-term target
without an operational plan. Keep in mind: we don’t have perfect
knowledge. We cannot develop a plan about promotions, the
number of new products to be launched, and a pricing strategy
that can guarantee we will hit our strategic target, which may be
one year away. Although we don’t have perfect knowledge, we
are not completely ignorant either. We have partial knowledge. We
know something, though not precisely, about how an increase or
decrease in promotion, price, and number of products launched
affect sales. Therefore, it is better to prepare an operational plan, say,
of next month, which is consistent with our strategic goal, and then
implement it. If it does not produce the result expected, we have the
opportunity to re-plan it for the following month. This way we keep
on planning and re-planning. By doing this, we have a better chance
of hitting our strategic goal.
[ Q ] I am from the academia. I want to know if judgment adds
any real value to a forecast. We often see judgment as a way of
biasing the forecast.
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 3
[ A ] On the surface, it appears that judgment adds a bias to a
forecast. But, unbiased judgmental overlay over statistical forecasts
from people with a domain knowledge helps. One, there are certain
things that have bearing on a forecast but cannot be quantified.
Let us say you sell candy. Next year there will be a Boy Scout
national meeting in your town. About one million boys and girls
are expected to attend. You know it will increase the sales of your
candy, but there is no statistical way of quantifying by how much.
Therefore, you need to add something intuitively to the statistical
forecast. Two, some information has a bearing on sales, but was
not available at the time forecast was prepared. A case in point is
of Menu Food, a manufacturer of dog and cat food, which in 2007
had to recall 60 million containers of “Cut and Gravy” food because
of contamination. When its competitor, Evanger’s Dog and Cat
Food, learned, it knew its sales would be much more than what was
originally forecasted. So, Evanger intuitively raised its forecast, which
is logical and understandable. Three, no matter how sophisticated
the software or model you use to prepare forecasts is, when you see
the computer printout, you will find that some forecasts don’t make
sense. Some are too low, and others are too high. Based on your
experience, it will never happen. So you adjust them intuitively to
make them somewhat realistic. Four, no one has all the knowledge.
In the consensus forecasting meeting, someone may bring in a piece
of information that is logical and convincing, and has a bearing on
the forecast but was not accounted for. So, the forecast has to be
adjusted. I remember a case when I presented a statistical forecast in
the consensus forecasting meeting of one company, the production
manager said that he had added a second shift so he could, once
again, provide customized steel doors in two weeks, instead of the
present situation of four weeks. The company used to provide these
doors in two weeks, but because of a recent increase in demand
resulting from one of the competitors going out of business, it could
not do it. At that point, the company used to use shipment data to
prepare forecasts. When the salesperson heard about the second
shift, he said now the number has to be increased, because with
only one shift, he never accepted the order if anyone asked for a
door in two weeks because he knew it could not be done. The un-
accepted orders were never recorded anywhere; as such, they were
not reflected in the shipment history. So, the un-biased judgmental
overlay over statistical forecasts helps, not worsen forecasts.
Happy Forecasting!
Chaman L. Jain, Editor
St. John’s University | jainc@stjohns.edu
How to Use What-If
and Operations Pla
By Sujit K. Singh and Jane B. Lee

E x ecutive S ummary | In uncertain markets, what-if analysis is a must for demand and supply planning. The
authors show how to use it by discussing a number of case studies, and the way to determine their impact. To make
the most of this analysis, one has to go beyond standard technologies and use the one that is specific to this type of
analysis.

S ujit K . S ingh | Mr. Singh is the Chief Operating Officer of Arkieva that specializes in a software system
for forecasting, S&OP solutions, production planning, inventory management, and what-if analysis. He has done
work for a number of large companies in different industries. He is certified CFPIM and CSCP by APICS.

J ane B . L ee | Ms. Lee is the Executive Director at Arkieva. She has wide experience in forecasting, planning,
and S&OP implementation. Prior to that, she worked for 20 years at DuPont where she created and led the global
S&OP process for the polymer division. In a consulting capacity, she has worked for numerous companies in
paper, mining, chemical, glass, film, food processing, optical fiber, and semiconductor industries.

S upply chain planning is no longer just a once-a-month exercise. In this demand-driven market, it is
critical for both Demand and Supply Planners to stay on their toes at all times, and monitor not only
“actual” versus plan, but also market changes that may require immediate action. This article discusses issues
involved in what-if planning, and how to use it.

4 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
Analysis in Sales
nning
what-if scenarios
Whether short or long term, all
plans deal with the future, and thus
have a great deal of uncertainty around
them. Even if sophisticated techniques
are employed to develop a plan,
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 5
uncertainty will prevail. It is, therefore,
important to embrace uncertainty
and incorporate it into a plan. A good
planner (or a planning team) realizes
that every plan is based on certain
assumptions. Plans are more likely
to be wrong than right in predicting
the future. As such, planners build a
plan based on a range around a final
number. As long as the final number
stays within that range, it is a good
plan. If it is outside the range, it will
require re-planning. At this point, it is
important to identify issues that will
make the plan invalid, and develop a
new one for both demand and supply.
What-Ifs During Normal Business
Environment: Most plans assume
stable conditions; meaning business
conditions of tomorrow will remain
similar to what we are experiencing
today. No game-changing event will
occur. This is a reasonable assumption,
but often, underlying parameters
change. For example, a big government
contract could go to a customer on the
East Coast instead of to one on the
West Coast, thereby causing a change
in the supply plan. Or, a machine
may breakdown, requiring a long
shut down for maintenance. Good
planners prepare themselves for these
possible scenarios by running what-if
calculations.
Challenges to the Status Quo:
The changing market dynamics may
challenge the status quo. A firm might
have always made a product at a certain
facility. Another facility could be used
but requires certification from the
customer or some changes in the design
of a part. Just because a given facility has
never made this particular product does
not mean that it cannot or should not
do it. A good planner evaluates different
what-ifs to arrive at the best plan.
Black Swan Events: A fundamentally
different type of scenario planning
has the potential of being a game
changer. This type of scenario planning
evaluates conditions that cannot be
described as business as usual. The
causes for such a change could be
environmental, natural, regulatory, or
geopolitical. While most good planners
run scenarios of the type described
above, a great planner would also
consider doing what-ifs on such black
swan events. Business decision makers
rely heavily on this type of analysis for
their strategic decisions.
This big-picture type of scenario can
6 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
impact both the demand and the supply
side of the equation. For example, if
a hurricane hits the eastern seaboard
of the United States, some supply is
interrupted, and so is demand. This is
different from the scenarios described
earlier because they only deal with
either demand or supply. It is critical
for the planner to understand all the
potential impacts of scenarios such as
raw material availability, operational
status, and/or customer impact.
SKILL SET
The ability to deal with these
scenarios depends not only on the
skill set of an individual, but also on
the tools at their command. A good
planner develops first a list of likely
what-ifs based on the experience, as
well as input received from colleagues
and experts in the area, and then
evaluates them on the basis of the
following criteria:
1. Is this change significant or just a blip
on the radar screen? If significant,
what-if planning may be needed.
2. Would this change impact at
the same level, or manifest itself
at couple of levels down the
hierarchy? For example, a given
change may impact the availability
of raw material as well as the
network capacity.
3. Would this change affect the whole
supply chain, or only the local area?
4. What kind of data/information is
needed to project its impact? A few
examples are:
a.  A customer is going out of
business, leading to a decrease
in demand.
b.  A competitor is going out of
business, leading to an increase
in demand.
c. A labor strike leads to a reduction
in available capacity.
5. Is the change so big that it
could modify the underlying
assumptions? For example, after
the 2011 earthquake and tsunami
in Japan, companies that had a
single source of supply for some of
their items from that area had to
re-think how they would meet the
demand in the future.
6. How can we make the corresponding
data change in the system? Which
tables need to be edited and how
can we do it effectively? How can we
make changes so that the master data
are not affected? For example, when
planners hear of a change in future
demand and “want” to run a what-if
analysis on it, they need to make an
appropriate change in the data in
the planning system so that future
requirements can be calculated
based on the changed demand. In
this case, they will need to know the
table that stores the demand data
in the database/software, perhaps
make a copy of it, and then change
the appropriate rows.
7. How can we evaluate the differences
and tradeoffs across scenarios once
calculations for the what-ifs have
been made?
8. How can we compute and compare
their effect on the bottom line to
determine the best one?
9. How can we establish trigger points
when the official plan has to be
replaced by another plan?
10. How can we bring scenarios and
their impact in a meaningful
way into an S&OP meeting or to
management for their review?
11. How can we translate the results
into action? For example, if a
scenario were on future capacity
reduction (say because of an
anticipated labor strike), then the
corresponding action would be to
start the inventory buildup at some
 A Tried and Proven Tool
To Find Your Way
Supply chain forecasting is the starting point for all efforts to manage vital maufacturing
resources. It provides direction in what to produce, how to package it, and how to
move it to market. It helps to optimize inventory and manage raw materials. When
finding your way through the supply chain wilderness, a good software tool for
planning and forecasting is like a great compass.

To learn more, visit us at www.arkieva.com

 CPF Exam Date | March 8, 2014

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Forecasting Boot Camp:
Understanding Forecasting Software From the Ground Up
R adisson H otel Chicago O’H are | March 6–7, 2014

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Manager of Planning
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tel: +1.516.504.7576 | fax: +1.516.498.2029 | email: info@ibf.org | www.ibf.org 

 point. A planner who has done this
particular what-if in advance will be
ready to do the inventory buildup if
and when the anticipated capacity
reduction is confirmed.
The person who has the requisite
knowledge as well as the tools to
work with will do well with the what-if
analysis. Figure 1 shows the steps to be
followed for this type of analysis.
Enabling software
To evaluate different scenarios
requires enabling software. The
software should have the following
capabilities:
1. The ability and the features needed
to create a model of the business so
that appropriate calculations can
be carried out.
2. The ability to conduct the analysis
without disturbing the master data;
sometimes referred to as a sandbox
environment.
3. Has a configurable model structure
that allows quick changes in the
Figure 1 | Scenario Decision Process
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 9
model to react to a changing event.
4. Can store multiple scenarios along
with underlying assumptions.
5. Has the ability to compare and
evaluate different scenarios in a
meaningful way.
6. Can monetize the impact of
different scenarios.
7. Can report the results in a meaning­­ful
way to management. Management
often needs a graphical view for
quick understanding of different
scenarios and their impact.
8. The ability to replace the official
scenario with a particular what-
if scenario. This could happen
when a particular what-if scenario
evaluated becomes a reality. For
example, a particular high-demand
scenario becomes reality when
orders come in. In that case, it may
be desirable to replace the official
scenario with it.
Spreadsheet-based tools often fall
short of these capabilities. A supply
chain planning tool, based in DBMS
(Database Management Systems),
usually performs these functions well.
IT USUALLY STARTS
WITH DEMAND
What-if scenarios are needed when
changes have to be made in demand
planning. Every planner knows that a
forecast is not just a number, but also a
range around it. Implicitly or explicitly,
a planner can establish some degree of
variations around the forecast that can
be considered normal “noise.” (This is,
after all, one of the reasons for keeping
safety stock.) Starting with demand,
however, does not mean ending there.
Often demand-related questions
eventually lead to supply-related
questions. Let’s examine the impact of
several instances of changes in demand
on the plan using what-if scenarios
in cases 1-3. Case 4 and 5 deal with
changes in supply. Case 6 deals with
a natural event and highlights how a
planner can add value by preparing the
business for a possible future event by
conducting timely what-if analysis.
Table 1 | When Forecast Significantly Exceeds the Actual (Report of a Certain SKU/Location through 1-15-2013)
Total Total Customer Total Orders Total Orders
Original Customer’s Actual as Total SKU/ Forecast as % of MTD + OPEN MTD + OPEN Percent
Customer’s Orders % Over the Location SKU/Location for SKU/ as a % of of Month
Customer SKU Forecast MTD + OPEN Forecast Forecast Forecast Location Forecast Completed
Ajax Co., Product
45 60 33.3% 645 7.0% 340 53% 48%
Fort Fox, Missouri 1
Hartman’s, Product
345 380 10.1% 414 83.3% 410 99% 48%
Clinton, Ohio 2

original forecast for the month and not the demand planner will know, for
CASE NO. 1 the netted version. Finally, such a report example, that “shipments plus open
EXCESS OF DEMAND should clearly indicate how far into the orders” generally are, by mid-month,

OVER SUPPLY month we are as a percentage (Percent

of Month Completed). In the example
ahead of the “Percent of Month
Completed” for this business. Provided
Demand for a given SKU/location/ below, this comes to 48% (=15/31). The that the inventory position for Product
customer is higher than expected. report would look something like Table 1. 1 at Fort Fox is okay, the demand
Hitting the forecast at a SKU/location/ Table 1 shows that even though planner would treat this variation as
customer level month by month is the Ajax’s actual is 33.3% above its “noise” within the expected range, and
practically impossible, so the planner forecast, its forecast represents only 7% thus no action is necessary.
may decide that anything more than, of the total forecast of the SKU at Fort Hartman, on the other hand,
say, 10% above the forecast at a SKU/ Fox, Missouri. Currently, based on the provides over 83.3% of the demand
location/customer level should be last two columns, orders are running for Product 2 at Clinton, Ohio. Demand
considered an exception. But a 10% a bit ahead of “Percent of Month for this SKU halfway through the
increase in demand of a customer who Completed.” In many businesses, this month is already 99% of the forecast.
takes only 1% of the monthly demand might be perfectly fine as orders are This situation requires investigation to
for a SKU/location is not as significant usually placed with some lead time, determine whether or not re-planning
as a similar increase for one who takes say by about five days. In such a case, is needed. To investigate this further,
more than half of the demand. For
this reason, the percentage of the Table 2 | Detailed Report of Forecasts and Actuals
total SKU/location volume should
Previous Open Open
be taken into account. Let’s look at a Product 2 4 Month Current Orders: Orders:
Clinton, Ohio Month –2 Month –1 Average Month Month +1 Month +2
sample report that provides enough
Total Forecast 410 392 399 414 396 420
information to make a decision.
Total Actual 414 388 398 410 250 20
Suppose we flag every SKU/ Actual Minus Forecast 4 -4 -1 -4 -146 -400
location/customer order that is 110% Hartman’s
or more of its forecast. A report Forecast 345 345 345 345 345 345
should give the following information: Actual/Month to date/Open 350 340 343 380 250
Remaining -5 5 -2 -35 95
customer’s forecast for a SKU/
Customer 2
Location, actual as a percent over the Forecast 35 35 35 35 35 35
forecast as of today, total forecast for a Actual/Month to date/Open 35 35 35
SKU/location, customer’s forecast as a Remaining 0 0 0 35 35 35
percentage of total forecast for a SKU/ Customer 3
location, and total shipped orders in Forecast 10 12 9 14 16 20
Actual/Month to date/Open 9 13 10 10
current month as of today (also known
Remaining 1 -1 -1 4 16 20
as current month to date or MTD) as a Customer 4
percentage of total forecast for a SKU/ Forecast 20 0 10 20 0 20
location as well as any open orders (or Actual/Month to date/Open 20 0 10 20 20
OPEN). A forecast is included as the Remaining 0 0 0 0 0 0

10 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
the Demand Planner should be able to
call up a report like Table 2 at any time.
The columns in this report represent
two months before the current month,
one month before the current month,
the average demand for the last four
months prior to the current month,
the current month, next month, and
the month after that.
For the current month, the rows
labeled Actual/Month to Date/Open
include both month to date shipments
and open orders (all demand for the
current month); for the future months,
this row represents open orders (as
there is no month to date shipments
in future months at this time). Note
that Forecast in all cases is the total—
not net—forecast for the month.
“Remaining” rows are Forecast minus
Actual; a negative “remaining” amount
means demand has exceeded forecast,
while a positive remaining amount
means the amount of orders are
still expected for current and future
months.
As can be seen, a wealth of
information has been conveyed by
this report. For example, Customer
4 is expected to place an order of 20
units every other month. Customer2,
on the other hand, places an order of
35 units every month, but it has not
yet placed an order for the current and
the following months. The increase
in Hartman’s order by 35 units in the
current month means that Hartman
may wind up using the inventory
intended to meet Customer 2’s
forecast. This may require the Demand
Planner to consult with the Supply
Planner. Depending on what sort of
production cycle the product is in
and how much safety stock is kept,
it may be necessary to increase this
month’s production in order to meet
the expected order for an additional
35 units, or to transship the product
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 11
from another location, or to buy
more from an outside vendor. These
alternatives need to be evaluated.
Even if there is adequate inventory
to cover the additional 35 units this
month, more investigation is required.
The Demand Planner may ask the sales
rep to call Hartman to find out if this
is a permanent increase in demand or
merely a onetime advance in timing of
an order, which normally would have
come in the next month. The answer
will influence both forecasts and safety
stock calculations.
If it is a permanent increase in
demand, then a supply-side what-if
analysis may be necessary to determine
the best way to meet this increase in
demand. Do we have capacity to make
the additional quantity? Do we have
to move production to a different
location? If we are tight on capacity,
do we have an option of increasing
production of either this or another
product competing for the capacity?
What is the most cost-effective way of
handling this? A properly conducted
what-if analysis will provide the
answer.
Case no. 2
A new product
IS selling much
faster than
expected
Forecasts for new product
introductions are educated guesses at
best. When orders exceed the forecast
significantly, the demand planner
must evaluate different assumptions
about continued growth rates. At the
same time, the demand planner must
consider whether the new product
will partially or fully cannibalize the
existing product. The new forecast(s)
should then be passed on to the
Supply Planner for supply planning
runs. Here the Demand Planner must
be careful not to assume that a one-for-
one replacement is a given. It is quite
possible that the new product may
run at a very different rate (perhaps
takes more or less time to produce)
or require some special equipment
or raw materials not needed by the
product it will replace. If overall
capacity is fairly tight, an accelerated
new product sales rate is more likely to
require what-if planning than a slight
increase in sale of an existing product.
CASE NO. 3
TAKING MORE NEW
BUSINESS FOR A
CERTAIN PRODUCT
Very often a question is brought
to the attention of a Demand Planner
by a product line manager or sales
manager, which is this: what to do
with spare capacity? In that case,
taking on new business for a given
product would not present any
problem. Before answering this
question however, a Demand Planner
must consider all the ramifications. It
may be possible the product being
considered for production expansion
may be produced at a specific plant
that is already at or near capacity. For
the sake of discussion, let’s assume that
the business as a whole is operating at
or near capacity. This raises a series of
questions:
1. If we take more new business of
Product Y, which products do we
need to cut back?
2. What is the bottom-line tradeoff in
terms of profitability?
3. If we cut back the production of
a certain product, would we lose
 business only of that product
or also of whatever else those
customers buy from us?
Question number three can only
be answered on the basis of market
knowledge and business intelligence.
A true optimization model with
appropriate prioritization of products
and profitability is needed to answer
the first two questions. Simple tools
that are rule based (such as a home
grown tool in Excel) might not be able
to evaluate the tradeoffs properly.
CASE NO. 4
MANAGING A PLANT
SHUTDOWN FOR
MAINTENANCE
Issues impacting supply can also
necessitate what-if planning. Let’s look
at some examples.
In Case No. 4, planned shutdowns
generally require a buildup of inventory
ahead of time to cover demand
during the shutdown, particularly if
the shutdown is expected to be for a
longer period. Two types of inventory
must be considered:
1. Products that can be made only at
the facility that is to be shut down.
In that case, there is no alternative
source of supply, and then an
inventory buildup is imperative.
How far in advance that buildup
must start will depend upon
not only the demand for these
products but also on the available
“spare capacity.”
2. Products under consideration
may have an alternative source
of supply, which may be internal
(an alternate facility) or external;
each source may have its own
limitations. Alternate facilities
must have “spare capacity” to make
12 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
room for materials normally made
in the plant being shut down, and
for external sources, it is important
to determine whether or not
the outside source can meet the
demand in a timely fashion.
Like Case No. 3, the ability to
model the move of a shutdown will
be significantly limited unless there
is a sophisticated optimization model
that can identify product that can
be moved from one unit to another
or dropped altogether without a
significant penalty. Similarly, it is
critical to recognize that there is not
necessarily a one-to-one tradeoff
between facilities, because Product
1 may take twice as long to run on
alternate facility B as it does on primary
facility A, thereby causing an increase
in the overall cost.
Case No. 5
A key raw material
IS IN short supply
In some standard capacity models,
availability of raw materials may be
assumed rather than be modeled. In
reality, this is not the case. Therefore, a
substantial restructuring of the model
is required to account for the limitation
of a specific raw material. A properly
formulated model (optimization or
heuristics based), which explicitly states
raw material quantities available, can
reflect a shortage by merely changing
the appropriate table that holds these
data. (Most modern software will hold
such data in tables that are kept in a
database.) It may show how much of a
certain amount of raw material will be
available in a given month. It could also
show whether alternative bills of material
(or alternative recipes) could provide
a way around the shortage by using a
different recipe that does not require
the raw material that is in short supply.
Alternatively, if the raw material will not
be available from the usual supplier,
then alternate suppliers, quantities, and
prices have to be incorporated in to the
model. Once again, an optimization or
rule-based model structured for this
purpose can easily do this job, as well
as indicate the additional cost of using
alternate suppliers.
While the cases above have dealt
primarily with issues internal to one’s
own business and production facilities,
an experienced planner may also look
into other potential problems that are
beyond anyone’s control. If they occur,
they could prove disastrous.
Case NO. 6
A Shipping
lane becomes
unavailable
Let us now look at a business that
ships grain by barge from various ports
along the upper Mississippi to New
Orleans for export. Suppose that in late
2011, a planner had enough foresight
to recognize that a drought might close
down most or all barge traffic along
the Mississippi in mid-2012 because
of record low water. This is the sort of
“out of the box” thinking that can prove
invaluable if planning is done early
enough to allow the business to develop
a plan that takes into account this worst-
case scenario. The transportation section
of an optimization model is generally
set up in tables containing information
such as:
1. Mode(s) of transportation available
from A to B.
2. Capacity of each mode of trans­
portation available in each model­
ing period.
3. Transit time from A to B for each
 transportation mode.
In order to model a closure on the
Mississippi, the planner may make the
following changes:
1. Ensure that railcars can be used for
transportation for each location
where shipping is currently done
by barge.
2. Set barge capacity to zero for each
such location for each anticipated
river closure period (month).
3. Set the available railcar capacity for
each current barge location/period
to a number large enough to
handle the normal barge volume.
Then the model will tell you the
exact railcar capacity you will need.
4. Set the appropriate transit time for
each ship-from starting location to
New Orleans for the rail car transit.
Note that many versions of this
problem/solution can be run by
varying the length of time of the low
water, and even the section of the
river that might be closed. In addition,
tanker trucks could be added as an
additional transportation mode from
some or all locations. Having run
these scenarios and making resulting
logistical arrangements in advance
could avoid a great deal of scrambling
and delay versus dealing with the
issue when it arises. If and when the
crisis strikes, a company that is well
prepared can take away market share
from the competition.
Which straw WILL
brEAk the camel’s
back?
One of the most vexing questions
about what-if planning is how many
changes can or should be modeled at
one time. Certain things are obvious.
When you have a whole new monthly
demand forecast, it is necessary to
14 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
model all those changes together.
Further, if you now know that a
shutdown will be moved from June to
July, it should be made a part of the
same modeling run.
Suppose further, within a month,
there have been several disruptive
changes in capacity. The management
wants to know how much sales it would
lose as a result. Also, it wants to know
how early we should start building up
inventory for a seasonal demand that
is anticipated to be heavier than usual.
How many scenarios must a planner
run to answer these questions?
This sort of conundrum is faced by
planners every day. There is no pat and
easy answer. But the planner needs to
explain to those asking the question
and/or to the S&OP team the reasons
for the output the planner produces.
While any optimization program makes
hundreds of thousands of decisions, the
planner still needs to be able to make
sense of the results to “laymen.”
In the situation outlined here,
the minimum scenario runs will be
two, though more may be required.
First, consider that the anticipated
disruption to the capacity is now
confirmed. The new (reduced) capacity
should, therefore, be incorporated
in all new scenarios. Further, let us
assume that the reduced capacity will
necessitate an inventory buildup if
the demand is as expected. Since the
business is anticipating the possibility
of a higher-than-usual demand, the
next set of questions will then be
twofold: when should the inventory
buildup begin if the heavier than
anticipated demand
a) Will not happen?
b) Will happen?
The answers to these two questions
will be provided via two scenario runs.
One scenario run will assume that the
business gets the extra demand and
determine when the inventory buildup
must start in that event, while a second
scenario run will determine when the
inventory buildup must start if the
business does not get the extra demand.
All sorts of permutations, however, may
require additional scenarios, including
when the new demand is expected to
begin, with what if any other demand
it will replace, and whether we will lose
the rest of those customers’ business
(see Case No. 3, question 3) beyond the
orders we cannot fill.
Bringing the
Change to the
S&OP
The role of the S&OP meeting is
to summarize alternatives, and then
seek the management’s approval.
This requires a concise report backed
by detail as needed and then quickly
taken to an offline meeting if too
much detail is required. For example,
the anticipation of low water in the
Mississippi months in the future might
be presented briefly in the S&OP, with
a separate meeting set up for those
who need more detail in order to make
decisions, and to set trigger points
(e.g., water levels at specific points) for
contingencies.
The only thing for sure in business is
change and uncertainty. If there were
no change, there would be no need
for planning beyond the back of an
envelope. Wherever what-if planning
is done, the results should be brought
into the S&OP process. How quickly
they should be brought to the attention
of S&OP depends on the immediacy of
the need for a change. Indeed, part of
the training of an S&OP coordinator/
planner is to know what is critical and
what can wait for the usual up-coming
monthly meeting. (info@ibf.org)
S&OP: An Opportunity
to Lead from the Middle
By John Hobby and Amy Jaeger

E x ecutive S ummary | Based on their experience, the authors describe in detail how to develop and implement
a robust S&OP process. To develop it, you need buy-in from upper management, support from all other stakeholders, clearly
defined goals and a plan to achieve them, and deadlines when the project will start rolling and begin yielding benefits. It is
a long, drawn-out process, but patience, persistence, and hard work will pay off in the end.

john hobby | Mr. Hobby is the Manager of Supply Chain Information Systems at Cirrus Logic where he
has worked for seven years. He has an additional eight years of experience as a master scheduler and buyer at
Freescale Semiconductor and Qualcomm. He is a Certified Production and Inventory Manager, Certified Purchasing
Manager, and Certified Professional Forecaster.

A my J aeger | Ms. Jaeger is a Senior Manager at Cirrus Logic where she has worked for 11 years. She manages
a team that is responsible for the company’s revenue tracking, monthly demand planning and S&OP, corporate
reporting, data warehouse systems, and business process improvement. She is also an adjunct professor at Texas
State University in the School of Business Management. She is a CPF.

T
he conception and implemen­
tation of a Sales and Operations
Planning (S&OP) process does
not always, and arguably should not
come from the executive management.
If your position places you at the mid-
level of your organization, stop waiting
for someone else to get it started.
Take the initiative and lead from the
position you are in. Being the driving
force behind an S&OP implementation
including project conceptualization,
process definition, and design and
project management can define you
as a change management leader. This
leadership experience sets you apart
from others and elevates you to the
next level. Plus, it looks great on a
resume.
Initiating the S&OP process makes
sense and seems straightforward,
but how does it actually happen?
How do you get it started and keep
it going? What does the journey look
like, and what kinds of problems can
you expect? One common theme we
experienced was the “unwritten rules”
around how and why things are done
and how they influence the current
process. Here is how we did it and
what we learned along the way.
• Identify the need. A basic under­
standing of S&OP is necessary to
execute this step. IBF and APICS are
good resources to start building
your knowledge. This step should
not be rushed. It requires you
to assess your current processes
and “unwritten rules” around the

Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 15
 areas that touch the S&OP process:
forecasting, revenue tracking
and projections, manufacturing,
and reporting to identify where
there is a need for change and
improvement.
• Identify executive manager ad­
vo­cate. Recruit a manager who
is a stakeholder in the process.
Executive management support
is necessary for an effective S&OP
implementation and for on-
going success. This could be your
manager or one who works closely
within the scope of S&OP. Share
what you have learned and why
S&OP is needed. The discussion
should include high-level findings,
a plan, and the value-add of S&OP
to your organization.
• Become an expert. Become an
expert on the fundamentals of S&OP
as well as benchmarking how other
companies similar to yours have
designed and implemented S&OP
successfully. If your company does
not currently have an S&OP process,
your best source of expertise is most
likely outside of your company.
Become an expert on your company’s
current processes. This means
getting out from behind your desk
and associating with people across
departments to gain the necessary
knowledge about how current
process are working and should be
working.
• Develop first pass strategic plan.
Combine the knowledge of your
company’s current processes re­
lated to S&OP, and then develop
a high-level plan that fits your
company. The plan should include
your vision, project goals, a path
to get there, and provides enough
details that clearly explain your
initiative. Be prepared to talk about
the vision and share your plan with
16 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
everyone who will listen.
• Get a partner. Identify and team
up someone at your company who
shares the same vision. This gives
you two things:
1. 
Someone with new ideas who
is willing to share the load and
can be counted on to “have
your back.” Ideally he or she has
qualities that complement rather
than duplicate your own.
2. 
The first of several converts to
your vision.
“Sharing your vision” does not just
mean catching someone in a hallway
conversation or showing him or
her your PowerPoint slide. It means
cooperatively developing your ideas as
you share with others. This is a difficult
and time consuming stage, and you
are very likely to encounter resistance
in different forms, and from numerous
places. Working through this resistance
requires having an open mind and being
receptive to ideas that significantly differ
from yours. It is probable that the final
solution will differ from your original
vision, which is okay. Remember, this is
not just about you.
Keeping the project scope aligned
with the vision will be challenging as
more people influence the process.
You are “leading from the middle,” so
continual evaluation of the project’s
direction is important to keep in line with
the vision and goals. Communicating
the vision, goals, and plan is the first
step in getting the project moving,
which requires a persistent and time
consuming effort. The order in which the
key groups are brought into the initiative
matters; they are listed below in order of
tactical importance.
Keep in mind that as people become
involved in the process, the strategic
plan will evolve. This is a good thing and
should be expected. The perspective
of different groups on how they will
benefit from S&OP will differ. You need
to be prepared to target each group with
defined benefits that apply to them. For
example, executive management will
be looking for inventory reductions and
customer satisfaction improvements,
while someone “in the trenches” is more
interested how their job will become
easier.
• Identify people who will influence
S&OP. These are the people who will
actively participate in the process
and influence it. You need them
because you do not know everything
and cannot educate everyone by
yourself. Get them interested and on
board, ask for ideas, and gain their
commitment to educate others. It is
vital to get different perspectives on
details of the current process, as well
as ideas for the new one. Encourage
your peers to challenge the process,
and help improve what you are
trying to do.
• Obtain management’s buy-in.
The S&OP initiative will not be
successful without the immediate
management’s buy-in; so work on
their concerns and incorporate
them into the plan. Their support
tells Executive Management and
lower levels of the organization
that they have confidence in your
ideas, and the project is valuable.
• Communicate the plan to Senior/
Executive Management. These are
the stakeholders. They do not need
or want to see all the details, so
communicate the plan to them at
a broader level. They are interested
in the bottom line. Why do we need
this? What value would it add?
What are the risks? How long will
it take? How much would it cost? If
you are not ready to answer these
questions, then you are not ready
to present your plan.
• Gain support from people in
 the trenches. Creating a viral
interest and enthusiasm for the
project is critical to its momentum
and forward progress. Identify
individuals who are and can be
leaders at their level. No one wants
to participate in a project they feel
is driven and influenced by upper
management with little to no
consideration given to their inputs
and efforts. The people “in the
trenches” will execute the process
day to day, and should be included
in all stages of development and
implementation.
Now that you have the support
of Executive Management and key
participants, it is time to start the
detailed planning and execution.
The planning stages begin with the
appointment of a Project Manager
and Core Team members by the
stakeholders. The Core Team is a cross-
functional team that works together
to drive each phase of the project, and
support the Project Manager. A Core
Team consists of mid-level managers
and subject matter experts, which
represent all departments that will
actively participate in the S&OP process.
It is important to make sure the right
departments are involved, otherwise
you are likely to have unanticipated
roadblocks down the road. Subject
matter experts are an asset, and should
be heavily utilized to design and
implement the new process.
• Kick-off meeting. This is the best
opportunity to motivate project
participants and establish a
common purpose toward com­
pleting the work. Present the
project vision, goals, plan, and
timeline along with expectations.
The meeting should include
Stakeholders, Core Team, and
individual contributors.
• Detailed planning. This stage
includes understanding the “as
is” process, developing the “to
be” process, and defining how to
get there. The key is to break the
deliverables into manageable
pieces with defined objectives
and a specific timeline. Establish
realistic deadlines and rely on your
Core Team and subject matter
experts to fit the pieces together.
• Execution. Implement the “to be”
process. Be prepared, things will
not go exactly as planned. As a
leader, your primary responsibility
is to cultivate flexibility and keep
focus on the end goal.
• Keep communicating with every­
one. “No news is good news” does
not apply here. Do not let the
enthusiasm wane when the actual
work begins. Consistent status
updates should continue until the
project is complete. This will help
spur the project’s forward momen­
tum and ensure it is a priority.
• Measure improvement. What is
not measured, never improves.
• Celebrate completion of the
project. When the project is
complete, celebrate with everyone.
Acknowledge all the people
that helped along the way and
recognize the effort and work that
was done.
Your particular journey to S&OP will
differ from the steps above. However,
the general path of expanding your
knowledge, assembling the right team
and leading all the way through to the end
of the project should result in a successful
S&OP implementation, and establish you
as a leader. (info@ibf.org)

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Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 17
Supply’s Demand-
Shaping Roles
By Larry Lapide

E x ecutive S ummary | This column deals with demand-shaping activities, the primary responsibility of
marketing and sales managers. However, while not responsible for demand-shaping per se, supply chain managers should
play two important roles. The first of these is ensuring that supply is in place to meet all anticipated future demand. The
second, often overlooked by these managers, is advocating that demand-shaping be done with supply in mind. The second
role involves a better alignment of demand with potential available supply, and is aimed at maximizing profitability, in
contrast to just maximizing revenues.

L arry L api d e | Dr. Lapide is a Lecturer at the University of Massachusetts, Boston and an MIT Research
Affiliate. He has extensive experience in industry, consulting, business research, and academia as well as a broad
range of forecasting, planning, and supply chain experiences. He was an industry forecaster for many years,
led supply chain consulting projects for clients across a variety of industries, and has researched supply chain
and forecasting software as an analyst. He is the recipient of the inaugural Lifetime Achievement in Business
Forecasting & Planning Award from the IBF. He welcomes comments on his columns at llapide@mit.edu.
(This is an ongoing column in the Journal, which is intended to give a brief view on a potential topic of interest to practitioners
of business forecasting. Suggestions on topics that you would like to see covered should be sent via e-mail to llapide@mit.edu)

A
lmost 25 years ago (during
my tenure) in the Marketing
Department of the Field Service
Division of Data General—a Fortune
500 mini-computer manufacturer—
our Finance organization decided
to conduct an analysis into the “real”
profitability of our service customers.
Finance routinely did profitability
analyses based on what accountants
term “Standard Cost Analyses.” However
these, especially prior to the advent
of today’s sophisticated financial
systems such as Enterprise Resource
Planning (ERP) systems, were difficult
to do and had serious shortcomings
when it came to estimating customer
and product-level costs. In those days,
the shortcomings included heavy and
expensive bookkeeping, delays in the
reporting of costs, and little to no tracking
of costs at the customer and product
level. Because of these shortcomings,
Finance knew that it would be a
long and arduous process to analyze
customer profitability. Unfortunately
for the Finance Department, it decided
to pilot the concept by analyzing our
largest customer.
This customer provided what is
termed “first-call and remote-support”
for its hundreds of computer users, and
then relied upon our division to follow-
up with the dispatching of field service
technicians to conduct remedial and
preventative maintenance services.
Of course, revenues generated by the
customer were easily gotten from
accounts payable records. Estimating
costs was the hardest part of the
profitability analysis. The customer’s
billings were heavily discounted to
compensate it for doing the first-call
and remote-support before calling
our technical staff. So the key issues

18 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 19
that needed to be addressed were how
much to discount for the activities the
customer performed and how much
discounting was volume-related.
Our Finance Department took an
untold number of months of hard work
to come up with a profitability estimate
that eventually (and unfortunately)
showed a loss on the customer. The
results were presented to the executive
management team with much fanfare,
yet the presentation went “over like a lead
balloon.” Rather than trying to address
whether or not there was any merit to
the pilot analysis and how it might be
improved, the executives dismissed it
as a worthless exercise because they
could never believe we were losing
money on our biggest account. Finance
immediately shut down any further
analysis of customer profitability.
Personally, I suspect the analysis
was reasonable, probably correct in its
assessment, and could have been revised
to make it more credible. However, the
fact that the initial estimate showed a
loss, no one wanted to face up to the fact
that our aggressive selling and marketing
efforts might lead to losing money on
any customers. (I surmise there are quite
a few suppliers that are losing money in
their business with Walmart, but would
never want to have to come to grips
with doing anything about it.) In fact, I
believe we were losing money on other
customers as well, because rarely did
anyone have to cost-justify negotiated
discounts. For the most part, discounts
were justified essentially on maintaining
and enhancing revenues, in contrast to
profits.
Maximizing revenue was the primary
goal of the commercial (i.e., marketing
and sales) departments of the division,
while service operations (i.e., the supply
side) were goaled on minimizing costs
and service part inventories, as well
as maximizing customer satisfaction.
20 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
As in most companies 20 years ago,
marketing and sales demand-creation
and demand-shaping decisions were
made in isolation, without much regard
to implications for supply operations.
Since joint supply-demand planning
processes, such as the Sales and
Operations Planning (S&OP) process,
were not prevalent, these demand-
side activities often disrupted supply
operations, making them less efficient.
DEMAND-SHAPING IS
A MARKETING AND
SALES RESPONSIBILITY
I have heard a lot of speakers
advocating demand-sensing and shaping
at many supply chain events—as I also
often encourage. They are referring to
these usually in the context of leveraging
various downstream demand signals,
such as historical point-of-sale (POS),
warehouse withdrawal, and distributor/
retailer inventory data, as well as plans.
Supply chain managers, however,
must wonder whether there is any
demand-shaping they can do. After all,
demand-shaping responsibilities are the
purview of managers in the marketing
and sales departments. They are the
ones who are held responsible by the
executive team for achieving revenue
goals. Their performance reviews, pay
raises, promotions, and job security are
predicated upon meeting and exceeding
revenue targets. Demand-side managers
use demand-shaping to make sure that
a company remains competitive and
enhances its market share.
While supply chain managers should
offer advice to demand-side managers,
they are not the ones who are directly
impacted should demand goals not be
met. That said, demand-side managers do
need help because sales and marketing
managers have more difficult goals to
meet. Certainly, having to sell 100 items is
riskier than having to make, store, or ship
100 items! While supply managers don’t
make final decisions regarding demand-
shaping activities, they have important
support roles to play. The most important
of which is ensuring that supply is available
to meet customer demand.
However, many supply chain managers
don’t recognize that they have a second
important role to play. They should be
advocates for “demand-shaping with
supply in mind,” ensuring that demand
decisions are not made in isolation of
supply issues. Aligning demand better
with supply eliminates waste and improves
service, and this leads to improved
profitability—in contrast to just enhancing
revenue. During S&OP meetings, supply-
side managers should make sure to vet
all sales and marketing plans in terms of
whether or not they align with potential
available supply and profitability targets.
SUPPORTING
COMPETITIVE
DEMAND-SHAPING
As taught in basic marketing courses,
marketing and sales activities and
decisions fall into four categories. These
are called the 4Ps of the marketing mix: 1)
Price, 2) Promotion, 3) Product, and 4) Place.
Marketing and sales managers leverage
these to compete in the marketplace.
Many supply chain managers, however,
feel that these competitive activities make
their job much harder and are responsible
for increased demand volatility and
uncertainty. For example, at most consumer
product goods (CPG) companies, these
“self-inflicted” demand variations are a
company’s dominant source of demand
variation. Supply chain managers favor
constancy in demand so they can buy
lots of materials and components to
take advantage of volume discounts, run
long production runs (i.e., make the same
product over and over again), and fill
up warehouses and load trucks with the
same types of goods. Nevertheless, these
managers need to support 4P competitive
activities in multiple ways.
The first P of Marketing (Price) involves
establishing and changing the pricing of
products. These activities cause significant
demand variation and uncertainty
depending upon the price elasticity of
products and competitive reactions.
Establishing the price for a new product
is most risky and leads to significant
uncertainty in demand. Revising the
price of an established product is less
risky, but still causes significant demand
variation. Supply chain managers need
to support pricing decisions, and the
demand variations and uncertainties
they lead to, in a variety of ways. These
include carrying buffer stocks of materials
and components, maintaining excess
manufacturing capacity, and keeping
safety stocks of finished goods.
The second P of Marketing (Promotion)
involves activities aimed at promoting and
selling products to potential customers.
As with pricing activities, these cause
significant demand variations and
uncertainties. Prior to a promotional
campaign, the primary role of supply
chain managers is to fill downstream
pipelines with product to cover the often
substantial uplift in expected demand.
The third P of marketing (Product)
involves establishing and changing the
portfolio of products being sold, such
as introducing new and reformulated
products and phasing out obsolete pro­
ducts. New product launches, especially,
have significant demand uncertainty and
are risky in ensuring product is available
to satisfy first-time buyers. Supply chain
managers need to execute launches
by initially filling downstream pipelines
with sufficient inventories, as well as
positioning new products at the points
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 21
of sale. As product launches progress,
supply needs to be replenished all along
the distribution pipelines, as well as at the
points of sale.
The fourth P of marketing (Place)
involves establishing distribution and sales
channels through which to make product
available for sale. Similar to new product
launching, opening a new channel
involves very significant demand variation
and uncertainty. It involves establishing
the ways products will flow through a
new pipeline as well as initially stuffing
and replenishing it with inventory. For
example, establishing an online Internet
sales channel often involves devising new
order fulfillment and supply strategies.
ADVOCATING
“DEMAND-SHAPING
WITH SUPPLY IN MIND”
The best example I know of a
supply chain group that advocated and
successfully implemented “demand-
shaping with supply in mind” is Dell
during its heyday. We researched its
practices during the first phase of the MIT
Supply Chain 2020 Project that involved
research into excellence. Every day a
team of Dell managers at a plant met
to discuss whether or not to revise the
merchandizing of products sold online
via the website. The team assessed the
inventories of components at the nearby
supplier warehouse. If they uncovered
components that had excessive
inventories, the team would alter the daily
list of specially promoted items to include
computer configurations that had these
components as part of them. In contrast
to this, if they uncovered components that
had inventory shortages, the team would
de-promote them. This meant pulling
them out of the daily list of specially
promoted items, raising their prices,
and increasing their delivery lead times.
Essentially the Dell team was running a
daily S&OP process.
Generally, “demand shaping with
supply in mind” involves identifying
supply issues and opportunities to sell,
which leads to a better alignment of
supply with selling efforts, and is aimed
at improving profitability. If there is an
excess of materials and components,
underutilized plants, or a surplus of
finished goods inventory, supply chain
managers should work with sales and
marketing managers to develop programs
aimed at taking advantage of these
excess-supply opportunities. However, if
there is a shortage of any type of supply,
then marketing and sales ought to change
their demand plans to not aggressively
sell products affected by them. If demand
exceeds supply for these shortages, supply
chain managers will have to execute
emergency procedures to meet the excess
demand, and this will be more costly and
less profitable. These include procedures
such as paying a higher (e.g.,“spot market”)
prices for procured materials, expediting
procurement orders, adding emergency/
overtime shifts at a production plant, and
expediting customer shipments.
In summary, supply chain managers
need to recognize that, in addition to their
primary role of making sure that sufficient
supply is in place to meet demand
generated by marketing and sales
activities, they also need to ensure that
anticipated demand is most profitably
aligned with potentially available supply.
This means that demand-shaping should
be done with supply in mind, in contrast
to independent of supply considerations.
Joint decision-making with demand-side
managers should be incorporated within
integrated supply-demand planning
processes, such as in the S&OP process.
Doing so will shift sales and marketing
goals from just maximizing revenue
towards maximizing profitability as well—
and that is a good thing! (info@ibf.org)
Forecasting Challenges
of the Spare Parts
Industry
By Michael Morris

E x ecutive S ummary | Forecasting the demand for spare parts is very much different from finished goods. The
author describes the unique problems that occur when forecasting spare parts, and how to best deal with them. He also
discusses SKU proliferation as well as the legal obligations that accompany forecasting spare parts.

M ichael M orris | Mr. Morris is currently the Manager of Inventory-Product Service and Parts at Yamaha
Corporation of America. Prior to his current role, he was the Manager of Inventory Control and Forecasting at
Yokohama Tire Corporation where he worked on the company’s forecasting process. Previous to that, he was
with Roland Corporation U.S. as an Inventory Control Manager as well as with Allegro Mfg., a Division of Conair,
as a Business Analyst. Mr. Morris has extensive experience in supply chain management and forecasting. His
credentials include APICS Certification in Supply Chain, Certification in Production and Inventory Management,
Six Sigma Green Belt Certification, IBF’s CPF Certification, along with a Professional Designation in Logistics and
Supply Chain Management from the American Society of Transportation and Logistics.

I
recently transitioned from a
finished goods management role
to the unique world of spare part
management. It has been a while since
I’ve had the opportunity to be involved
in spare part management. However,
a few years ago, I had the privilege of
developing a spare parts department
including the implementation of
their ERP software to manage the
entire supply chain. So needless to
say, I wasn’t a total stranger to the
undertaking. Of course, managing
spare parts inventory presents a
high level of complexity and certain
obstacles that are not so inherent in the
world of finished goods management.
The management of spare parts
inventory presents several imme­
diate problems that are unique to this
industry, including SKU proliferation,

22 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 23
 business
a n d Forec
B e s t P r a c t i c e

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legal obligations, and forecasting Table 1 | SKU Growth
difficulties.
SKU YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9

SKU Proliferation X-1 500 500 500 500 500 500 500 500 500

X-2 500 500 500 500 500 500 500

SKU proliferation is a very common
issue in the spare parts industry
because the quantity of overall SKUs
can easily surpass the resources
available to manage them. A company
may have hundreds if not thousands
of finished goods SKUs that it forecasts
regularly. But when it comes to spare
parts, the number of SKUs can easily
increase exponentially because each
finished good has a number of parts.
In the musical instrument/electronics
business, for example, one product
can easily have several hundred parts.
Substitutes, replacements, transitions,
revisions, and refurbished parts can
create a forecasting nightmare leading
to the dreaded forecaster’s migraine.
As the number of products has
proliferated in recent years, so have
their spare parts.
X-3 500 500 500 500 500
X-4 500 500 500
X-5 500
500 500 1,000 1,000 1,500 1,500 2,000 2,000 2,500
be supplied as long as the product item like a grand piano tends to stay
is being offered. In this scenario, the in families for a long time, so cost
company would have to supply 2,500 becomes almost irrelevant.
SKUs by year 9 (see Table 1).
Not only that, but the same part is Forecasting
frequently used in multiple products.
During its lifespan, that part can be
difficultieS
revised or upgraded, which then Typical forecasting strategies used
creates a new SKU. All these variables in finished goods do not always
feed the SKU proliferation and its apply well in spare part forecasting.
resulting inventory. Most suppliers A forecaster may regularly review “A”
would prefer to cease manufacturing items in the finished goods forecast,
the replacement part after the model but due to the vast number of spare
is discontinued. However, because part SKUs, such a review may not

LEGAL OBLIGATIONS of the seven-year legal requirement,

From a legal perspective, there are
also numerous legal requirements
governing spare parts that don’t
pertain to the typical finished goods.
For example, several states have
laws—“repair paths”—that require
the supplier to supply a replacement
part to repair a product, or supply the
consumer with a similar or better part
for up to seven years. If your current
finished goods inventory requires
50,000 replacement parts, then by
law their spare parts will have to be
supplied for up to seven years. As you
can imagine, this can balloon even the
best inventory systems.
Let’s assume that every two years
you introduce a new model, which
has 500 part SKUs. These SKUs must
it becomes part of the cost of doing
business. Additionally, manufacturers
would like to take advantage of the
economies of scale and produce
their total demand once rather than
over several years. Unfortunately,
it is extremely difficult to forecast
their total needs—“Last of Supply.”
Over producing results in dead stock;
conversely, under producing may
mean losing profit as you give away a
brand new model because you simply
couldn’t supply a 2-cent knob.
The “Last of Supply” forecast can
be tough to navigate as well. If the
finished good is fairly inexpensive,
say $50 retail, the consumer may
choose to purchase a new one instead
of attempting to repair the old one.
On the flip side, a more expensive
be possible. This could also affect
how they make adjustments to the
forecasts. Obviously, utilizing an ABC
classification for spares should help to
reduce the number of SKUs you would
actually invest your time in, especially
when you consider the immense cost
difference that may exist between “A”
and “C” parts. For example, some “A”
parts may cost upwards of hundreds
or thousands of dollars; in contrast,
some “C” items require at least five
or six decimal places just to show up
on the books. You may even consider
changing your “ABC” classification
percentage to more closely correspond
to the broad range of cost, and/or even
reduce your monthly “C” item forecast
review to quarterly.
Further, there are typically no
marketing strategies applied to spare

26 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
parts. There are no advertisements,
promotions, or incentives. There is
no need to hold an S&OP meeting
to fine-tune your forecast. Moreover,
it would be accurate to say that
you wouldn’t even want to affect
spare part demand with any kind of
marketing whatsoever.
The use of forecasting software will
make forecasting spares a much easier
proposition, again due to the vast
number of SKUs. Using spreadsheets
and pyramid methods to forecast
finished goods was pretty common
several years ago, and is still used by
some companies today. However, from
an efficiency standpoint, a company
would likely be reluctant to use
them for forecasting the demand of
hundreds and thousands of spare part
SKUs. Efficiency is the key to success.
Most companies in today’s markets
are not willing to pour resources into
managing spare parts. It’s simply
not a business priority; however, in
my opinion, forecasting software is
essential and non-negotiable. A team
of forecasters simply cannot compete
with the vast array of affordable
forecasting software packages available
today when dealing with the SKU count
that is essentially boundless.
New part forecasts can also hamper
your forecasting efforts. Modeling a
new finished good item after a like
item is fairly common and for the
most part can get you in the ballpark.
Spare part demand is a different
story though. It has to do primarily
with product failure as opposed to
history, marketing, or even promotion.
Moreover, a part may fail more often
in a newer model than in the older
one. Some items are replaced more
often simply due to their propensity
to be destroyed or simply lost, such as
is the case with most remote controls.
Further, spare part demand can change
radically in any direction during the
life cycle of the product. Production or
design changes can affect demand for
certain parts. Switching suppliers may
also increase or reduce failures, and
therefore demand.
Spare part forecasting and in­
ventory management is certainly
challenging and unique, and at times
difficult, but understanding what
you’re up against is critical to your
success. Knowing the differences
between spares and finished goods
will help you to generate better
forecasting solutions. (info@ibf.org)

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Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 27
Sales & Operations
Planning: Sales’ Insight
in the Planning Process
By Andrew S. McCall

E x ecutive S ummary | Sales input is the key to the success of an S&OP process. The author explains in detail
how to use it and why. To make the process robust, we need executive support, sales team engagement, leverage, and
accountability. The best way to leverage the input of Sales is to focus on the goals they are pursuing, and making transparent
their input as well as ensuring they are adding value.

A n d rew S . M c C all | Mr. McCall is the Sr. Director of Customer Management at Steelwedge Software
Company. Prior to that, he led the Sales & Operations Planning Practice at Plan4Demand. He has over 27
years of experience across number of industries including Food & Beverages, Consumer Packaged Goods,
Chemical, Paper & Forest Products, Footwear & Apparel, and Wholesale Distribution. As the S&OP solution
leader, he chairs the S&OP Leadership Exchange LinkedIn group, and runs monthly webinars on S&OP
practices. In a consulting capacity, he has worked for a number of companies including Pernod Riccard,
Diageo, Coopervision, Sun Products, Crown Imports, Jackson Family Wines, Stanley Black & Decker, and
Campbell Soup. Prior to joining Plan4Demand, he worked for Dole Foods, LAN Network Connections, Hufft
& Company, The Premier Group, and Aces International.

I
grew up in a complicated business
environment. I don’t mean to use
the term “grew up” in the way many
of us do when we talk about some of the
earliest experiences in our professional
careers. I mean actually growing up.
Some of my earliest memories were of
spending time in and around a family
friend’s blueberry and cranberry
packing business. There we had fields
to run around, ponds to swim in on hot
days, packing sheds where workers
struggled to get the fruit cleaned
and packaged for the market, and
endless offices to roam around trying
to find a room with an air conditioner.
When we look at consumer goods
companies today, most of us would
look at this environment as pretty
simple. As I started my professional
career, I thought of bigger companies
as being much more sophisticated
and complex; but as I gained more
experience, I learned to respect this
“simple” business for what it was—a
fully integrated planning environment.
What made it so complex? Here are a
few developments that did it.
Multiple Sales Channels:
• Fresh fruit to the market comprised
the best and most profitable fruit.
• Ingredients to bakeries and juice
companies.

28 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
• Local restaurants purchased bulk
fruit to include them in their menu.
• The frozen fruit company that
bought in bulk to freeze packages
to be used outside of the growing
and harvesting season.
High Variability in Supply Chain:
• Crop yields are tricky. How much
do you plant and how much will
the crop yield? Answers can vary
significantly from season to season.
• Buying fruit in excess of what you
could grow from other farmers and
the co-op to satisfy excess demand.
• How much product gets committed
to different sales channels also
varies from one year to the next.
Complicated Financial Environment:
• What are the mix/margin impli­
cations of the product mix decision?
• How much yield of saleable fresh
fruit product impacts the overall
selling price of all the different
categories?
• Grower payments, land procure­
ment, and acreage planted all
require an understanding of the
longer-term market and a financial
analysis process that can lead to be
the best choices.
At its core, the business was run by
four men. The owner, my father’s best
friend, handled the sales and customer
side of the business. His brother
managed the farms, other farmers,
trucks, and the harvest. The Packing
Shed foreman had the chore of getting
everything out of the trucks and into
whatever forms it was going to be sold
in, and then distributed to different
markets. The controller kept track of all
of the payments, invoices, and profits
as well as when to buy more land
versus when to add growers to the mix
for new supply sources.
This business was successful and
ultimately was sold to a very large
national firm and rolled up as “one of
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 29
many” regional operating units. In
the end, the business was never as
successful as it had been back when I
was roaming around it, and as I moved
on in life. Once in a while, over the
past 25 years of working in and around
supply chains and business operations,
some glimpse of those days pop up. I
distinctly remember that business
model and how it worked. About 10
years ago, I was working with a client,
and we were struggling. I decided to
try to recall some of the observations
I made as a kid, so I called my father’s
friend, well into his 80s at that point,
and asked if I could “pick his brain” a
little. We talked and reminisced, and
finally got around to talking about
some of what I’d seen, some of what I
ran into in the today’s world, and some
of his insights that could add some
value.
We went over many of the details,
and while these allowed me to
draw some parallels, most of them
were pretty technical and not the
“aha moment” I was looking for. As
we were wrapping up, almost as an
afterthought, he added, “You know,
I think, one of the things that the big
national company did not get right
was how we looked at the business
over the course of three growing
seasons.” So we dug in a little on that,
and it turned out that as a kid running
around, I didn’t realize that those four
men discussed the business in a way
that was different from today’s day-in
and day-out operations. I asked him to
describe it for me, and he outlined this
process for me:
• What will the market for those four
different types of sales be over the
course of the next three growing
seasons?
• How can we influence it?
• What do we need to do to make
sure we are prepared to meet those
needs?
• If we can do this, how much money
can we make?
• How much of that money would be
profit to the owners and growers,
and how much of that money
would be needed for re-investment
in land and cultivation?
• What can go wrong?
I asked him would it help doing
all that once a year, say, at the end
of a growing season. Did they have
a computer to track it? His answer
was simple: They tracked it between
his role in selling the fruit and the
controllers’ ledgers. They met every
month to discuss how they were
doing, and made adjustments to
the plan they’d agreed upon. And
there was the lightning bolt! To call
it an “aha moment” would be an
understatement. I had spent so much
time in the Supply Chain, and working
around that body of knowledge, I had
lost the “S” in my S&OP view.
While S&OP includes many, if not
all, of the key elements of business
planning, one of the core elements
of the entire process is arriving at a
credible demand forecast. We spend
huge amounts of time and money
working on this issue: Statistical
forecasting systems, demand sensing
and shaping technologies, labor
intensive planning processes, and the
development of metrics to measure
how well we are doing. But, in this
simple view of my earliest memories,
and in speaking with the man who
led this view, I had come across an
element that many of us know how
important it is. We had done a lot of
work on how to plan a business, which
is not easy. Don’t misunderstand me,
the efforts we have made in these
areas have great payoffs, but were we
using this as a way to add sales input
and knowledge to the process, or were
we using them to compensate for
information that was proving difficult
to get without the full engagement
of the sales team? This sets a new
course for how we start to think about
these challenges. How do we start to
drive involvement, engagement, and
accountability in that view? Is it worth
the effort?
SALES INVOLVeMENT
The sales involvement in the
S&OP process is must, but why is it
so difficult to “get” it? Think of the
pressure your sales organization is
under. It seems like the past decade
has constantly presented challenges,
including economic uncertainty, cus­
tomer pressures, rapid SKU growth,
pricing challenges, heavily promoted
products, and on and on. We’re pretty
lean these days, our expectations are
high, and the job of “Selling” isn’t as
easy as it used to be. Things have gotten
increasingly complicated on a number
of fronts. So, now we walk down the
hall and tell Sales—“You know what?
We need you to be much better at
forecasting the business environment.
All of this is well intentioned. This
input is critical to improving the
forecast we are developing, but are
we going about it in a way that allows
this team to really make contributions
based on their skills and focus? Or are
we building a process by expecting
them to be something they are not, or
what should they be? How many times
have we heard the quote, “I want them
out with customers, not sitting in the
office doing a forecast,” or “It’s very
hard to get them focus on volume,
when every incentive they have is
based on dollars.” In the eyes of the
sales team, these are valid points that
we need to address; thus, we need a
model that drives engagement. If we
30 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
fail to do this, we may hear another
familiar set of quotes: “That’s not my
number,” or “You are not using my
input anyway.”
At its core, we all keep trying to
push this practice because it’s a critical
set of inputs to the process:
• Our best forecasting models get
stronger when we integrate them
with judgmental data. Whether
this data directly changes our
forecasting models, or if we are
using the data to update the
forecast with current changes,
it becomes a key component in
reaching a consensus view of our
prediction. Imagine if we were
to use video game simulations
of football games to predict
the outcome, and place bets on
games. Would you be comfortable
using these outcomes to put your
money at risk if they do not include
things like injuries, demonstrated
performance, or the latest
understanding of conditions on the
field and how that matches up with
their capabilities? The same is true
here. Without current judgmental
data, we have an incomplete view.
• It is very difficult to drive the
accountability that a high per­
forming S&OP process thrives on
if we can’t align ownership and
inputs to the process.
• When the process does uncover
risks and opportunities, it is dif­
ficult to rally around gap-closing
activities if we all have different
views of the risk. We need a united
view of it to drive that action.
• We spend too much time debating
the validity of the data, instead
of developing action plans and
making decisions on the issues we
face.
So, with some backdrop from a
time when the process was simpler,
an understanding of some of the
obstacles in the way, and a general
agreement on why this is an important
issue to solve, we want to discuss a
multi-pronged approach to finding
a solution. While there is no “silver
bullet” to fix these issues, there are
three key areas to consider when you
are trying to work on driving a change.
EXECUTIVE
UNDERSTANDING
AND SUPPORT
While this seems pretty simple,
there are a few key drivers that you
need to address in order to secure
executive support. While much is made
of these points from a “critical success
factor” standpoint around the success
or failure of S&OP initiatives, we need
to create a more concrete foundation
so that the leadership team has a
playbook for what “support” means in
terms of the overall S&OP process, and
specifically what it means in terms of
getting and keeping the sales team
engaged. In order to do this, we need
to outline key points that the entire
executive team has to understand
in order to provide support to
each person in his or her areas of
responsibility.
The most senior sales executive in
the organization, as well as the CEO
and the rest of the executive team,
have to understand the following key
S&OP principles in order to drive the
support of the organization in the
process.
• Transparency: The process, data,
and decisions made need to be
visible to the sales team. This will
push the idea that the process is
seeking, and not putting out a
view that everyone will make their
numbers.
• Forward Visibility: How far out can
the planning discussion go and
add value to the plan? What are
the right planning horizons for the
business?
• Empowerment: Not only in terms of
decision making, but also in sharing
data and information surrounding
gaps, risk, and opportunity. There
are times when these get caught
up through a chain of command
before sharing, which slows down
the process.
• Process Adherence: If decisions
have to be made outside of the
S&OP process, it will limit the
adherence. If they have to be made
outside the process, make them
transparent. By developing a way
that makes it as simple as updating
a tracker and provides a status for
changes that happen outside the
process, it creates a way for the rest
of the team to understand that the
decisions that are being made use
the same guidelines as the rest of
the process.
The real key to these points is
that they must stand the test of
rough waters. Understanding by the
executive team is the key to making
the sales organization be engaged.
In many companies, this represents
a real shift in culture—too many
companies cling to the illusion of “plan
or quota attainment” too long, making
it more difficult to get gap closing
or risk mitigating strategies to play
out. The cultural shift lies in the sales
leadership team, and is embedded
with the idea that all plans have flaws
as well as risk. The sooner we get them
onto the table and into a transparent
discussion without being perceived
as poor performance, the sooner the
S&OP process can begin working on
solutions. If we leave this until the last
quarter, it will weaken its impact. The
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 31
issue almost always comes down to
price and channel stuffing in order to
shape demand in the very near term.
Another great example of this is
supporting the involvement of what
we need in terms of input to the
Consensus forecasting process. While
sales goals and metrics are normally
measured in dollars, they rarely
get down to the mix level of what
we’re going to be driving. The sales
leadership can start to drive some of
this type of thinking by working as
part of the Sales & Operations Planning
process to define things like “key or
strategic packages,” and Customer
Business Planning that incorporates
some elements of mix including
creating a linkage between promotion
activity, driving and shaping customer
mix, and focusing on specific product
volumes instead of using a large pool
of dollars spread out without a focus
on the specific elements of the plan.
SALES TEAM
ENGAGEMENT AND
INVOLVEMENT
Once we have developed an
understanding and a solid level of
executive support, the next critical
step becomes deciding on what
we need from our sales team in
terms of engagement in the S&OP
process, and how to define their
specific involvement in the consensus
forecasting activities so that they add
value. There are few key things we have
to do to cement the engagement and
involvement of the sales organization:
1. What input do we need to improve
our process?
2. For which time horizon does the
sales organization have the most
knowledge about our business?
3. What is the planning calendar that
we are trying to support, and how
should we align input so that it
enters the process at the best time?
Defining sales input for most
organizations is a real challenge. Most
of the time we are working on a rolling
forecast of 18, 24, or 30 months. At
the same time, sales teams are more
aligned with the business cycles to
which their goals are linked. These
are often quarterly or annual plans,
but their focus is on short buckets
of time. The real trick to getting the
right inputs is leveraging the areas of
business that they are already focused
on. Sometimes, there are mismatches
in that focus, which require executive
support to fix them. What we have
found is that the most successful in this
space comes with the following steps:
• Understand the time windows
that the sales plan is geared to. A
business that runs on key customer/
account planning might have a
good focus on annual volume,
whereas a more seasonal business
may have a focus on the next two
quarters. Trying to change this
focus is far more difficult than to
gear our input parameters towards
the same time frame.
• Outline the level at which the
sales team should focus when
considering customer and market
performance. If they have a top 10
strategic products list that makes
up 80% of their sales in a category,
align to that list instead of asking
for a bottom-up plan each month.
• Establish key assumption categories
that apply to your business, and
train the team on how to apply them
in terms of forecast changes and
how to classify them. For instance,
many businesses use Selling Days
in a Month, Organic Trend in their
market, New Product Introductions,
Promotions, and a catchall or
 “Other” category to drive a five-
point view of forecast change in a
waterfall. This really helps drive the
“net change” view of the plan each
month, instead of re-inventing the
wheel or inconsistently applying
assumptions.
• Establish a set of lenses or time-
based views that have different
focus points and understand where
the sales team can provide the best
input. If we determine that Sales
can provide input that is valuable
about accounts and their market
only in the first year of a 24-month
rolling forecast, then use the
statistical model to generate the
balance of the horizon with some
review and assumption updates
provided by the sales team.
• Evaluate forecast input quality.
Establish a way to provide feedback
on the input you are receiving
in terms of the overall forecast
accuracy. In some environments,
this is as simple as measuring
the statistical model accuracy; in
others, it becomes more difficult.
I can’t tell you the number of times I
have heard the objection—“I need my
sales people selling, not forecasting.”
Too often, this is because we don’t
define what we’re asking for and why.
By taking some extra steps here, we
can leverage some activities and tools
the sales force is already using, and
maybe even reduce the amount of
time we need them engaged in some
of these business planning activities.
But each company has nuances to
each of the points mentioned above;
customizing them for your business
model is the key to helping your sales
force to adopt them. Remember, the
“what’s in it for me” factor. They want
a process that helps them to achieve
their goals. Just being accurate or
just right won’t hold up next to
32 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
collaborative gap closing!
LEVERAGE AND
ACCOUNTABILITY
So we’ve discussed executive
support, and defined the right level
of engagement and involvement for
a sales team. Some final components
that we see as critical success
factors are leveraging the tools and
process in place today, and driving
accountability within the sales
organization for making the call. This
is a broad area, but it can be as simple
as a shared view of spreadsheets, and
as complicated as integrating CRM,
trade-spend, and client collaboration
tools with our S&OP data. As for
accountability, it will be helpful if we
can eliminate “That’s not my number”
syndrome. This does not always mean
that the number we get from the sales
organization sticks, but the view of
how we present it always has a path
back to that input. This view creates
some solid accountability surrounding
inputs. From a leverage perspective,
the key points that we need to drive
towards fall into two key categories:
1. Leverage the tools and data that
the sales organization is using
to manage the business. Even if
these don’t provide perfect data,
allowing them as a starting point will
leverage the work being done. The
S&OP process will gain acceptance
and momentum. There will be
an appetite to begin working to
improve the inputs that these tools
provide.
2. Leverage the data already in the
process. We talked about using
different timing views of inputs
as opposed to the role that the
statistical forecast plays in the
longer horizon. As an example,
imagine a process where the sales
team works on key item packages
over the first six months of the
plan, and reviews assumptions and
the statistical model forecast for
months 7 through 24. Once we are
trained and settled on the process,
the sales team will have three key
focus points:
– The month that just moved from
forecast to actual: What have
we learned? How does it impact
our assumptions? How was our
overall plan versus performance?
– As a forecast rolls forward and
has a new month added, month
6 moves into month 7, we’re now
changing the driver of that data
from the statistical model that
we used for the longer horizon
to a more detailed review and
balance of judgmental data. This
gives us a chance to understand
how well our assumptions in the
longer horizon are holding, and
how the linkage to the shorter-
term horizon is working.
– At the same time, the forecast
adds a new month—month 24.
This gets added to the far end
of the plan; we’re now creating
a new data point—sometimes
(end of quarter, end of year)
this is a critical review point;
other times it is just making
sure that it adds to the end of
the horizon and there isn’t a big
change in the data that we can’t
explain. What we need here is
to make sure that the difference
between the beginning and end
of our forecast has a reasonable
linkage to the new month added.
Normally, the sales team is just
reviewing to make sure this data
point is not out of alignment with
the rest of the rolling forecast.
One of the benefits of working
so far into the horizon is being
 able to see whether the shape of
the forecast makes sense.
From an accountability perspective,
what all of this creates is a path back
to the specific input that comes
from different points in the sales
organization. This can become a win/
win for everyone. This gives the sales
organization the ability to recognize its
inputs (even if the consensus process
has made changes to it), and gives the
forecasting team a way to measure
the value of the input. By segmenting
these points, we preserve the overall
components of forecast input, and
obtain the tools to continuously
improve these inputs. To summarize,
three key points to fostering an
environment of accountability are:
• Segment the inputs that the sales
team provides at each point in the
process, including assumptions,
new data, and changes so that the
sales team has visibility to their
inputs until the ultimate consensus
Write an Article for the JBF!
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Journal of Business Forecasting (JBF)
For information, contact our Chief Editor
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Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 33
number is reached.
• Establish a process that brings this
input to the table, compares it to
last month’s input, and provides a
clear way of applying the change
to the forecast.
• Measure the accuracy and bias of
these inputs at this level as well.
This will drive ownership and a
continuous improvement mindset.
•
Accountability is one of those
“critical success factors” that we
read so much about in the context
of success or failure of an S&OP
process. By creating a framework
that not only establishes it, but
also helps it grow over time, you
take some of the risk off the table.
A FEW CLOSING
POINTS
In the end, a high performing S&OP
process relies on the involvement of
cross functional groups and people
tel: +1.516.504.7576 | email: info@ibf.org
across the organization. Much
like the example of the Blueberry
& Cranberry operation, there are
inputs and trade-off decisions that
have to be made across the entire
spectrum of the operation. But,
there is a reason why this whole
concept starts with the “S,” most of
which can be traced back to how
well our organization reacts to a
credible demand forecast. Getting
this step on track can really help us
drive results. Keep in mind three key
points:
• Executive understanding and
support
• Sales team engagement and
involvement
• Leverage and accountability
If we use these as key principles,
and keep them front and center as we
put this process in place and work to
mature and optimize it, we are one
step closer to driving performance in
our process. (info@ibf.org)
| web: www.ibf.org
 In a Stagflation
INTERNATIONAL
ECONOMIC
OUTLOOK

Phase from
Lack of Private
Investment
By Evangelos Otto Simos, Ph.D.

Dr. Simos is Director of Forecasting at e-forecasting.com, a division of Infometrica’s Data Center, 65 Newmarket Road, Durham,
NH 03824, U.S.A., www.infometrica.com, eosimos@e-forecasting.com. This report does not purport to be a complete
description of global economic conditions and financial markets. Neither the Journal nor Infometrica, Inc. guarantee the
accuracy of the projections, nor do they warrant in any way that the use of information or data appearing herein will enhance
operational or investment performance of individuals or companies who use it. The views presented here are those of the
author, and in no way represent the views, analysis, or models of Infometrica, Inc. and any organization that the author may
be associated with.

I. Global Assessment and Outlook

Like private bubbles, government bubbles are subject to
correction. The twin-peaks of money and budget deficits,
created in the last five years, were expected to adversely
affect the global economy with one- to two-year lags, by
destabilizing consumer spending and capital expenditures
as well as reallocating holdings of assets. The reversal
process for these herculean policies, also called exit strategy,
has begun with fiscal consolidation from the United States to
Europe, Asia, and Latin American. After the zero interest rate
policies proved ineffective, they were followed by several
quantitative easing rounds, aka printing money, which were
partially used intentionally to correct banks’ balance sheets
and via financial investments in the stock market, without
inducing private capital expenditures, the engine of growth
and jobs.
Four years into a fragile and weak global recovery,
economic policies around the world have failed to stimulate
private investment amid uncertainties, anti-business fiscal
policies, and rigid labor markets. Economic growth at
potential levels is still not around the corner. The weak global

34 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
economic recovery is expected to continue over the short-run
forecast horizon as changes in capital expenditures take six to
eight quarters to fully be translated to incomes and jobs.
During 2008-2012, worldwide growth in investment
averaged 2.8%, compared with a long-term (1980-2007)
average growth of 3.4%. More important, investment in
the advanced economies in the last five years (2008-2012)
declined by an average rate of 2.1%, about twice below the
long-term (1980-2007) growth of 2.5%. During 2008-2012,
in the emerging and developing economies investment
jumped by an average of 6.9%, which is about 2% higher
than the 4.8% long-term (1980-2007) average investment
growth.
In the rest of 2013 and in 2014, the strength of the global
II. Short-Term Indicators and Forecasts
The baseline forecast incorporates major findings of the
World Economic Survey, which was conducted in the third
quarter of 2013 by the German Ifo Institute and the Paris-
based International Chamber of
Commerce. About 1,200 executives from 125 countries
have indicated that global economic activity stalled in the
current quarter but they expect a recovery over the next six
months. The major findings of the third quarter’s survey are
as follows:
• Worldwide, executives evaluated the current economic
situation, the third quarter of 2013, to be below
satisfactory levels, led by unsatisfactory levels of capital
expenditures. They found economic activity in their
countries in the third quarter of 2013 to be the same or
slightly below economic conditions in the third quarter
of 2012. Most importantly, executives are optimistic
regarding the future, expecting economic conditions in
the first quarter of 2014 to be above those prevailing in
the third quarter of 2013.
• On a regional basis, North America executives assessed
the current economic situation to be below satisfactory
levels although better than a year ago. Looking forward,
business experts from the United States and Canada
expect economic conditions to get better in the next
six months. In Asia, executives appraised the current
economic situation to be at satisfactory levels and
slightly better than a year ago; they were very optimistic
about the future, expecting economic activity in the next
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 35
economic upswing will be strongly linked to business
expenditures on capital goods. According to the findings
of the latest Ifo survey of business executives, capital
expenditures in the third quarter of this year were below
satisfactory levels worldwide, and in each per capita defined
income group, from high-income to middle-income and
low-income countries. Characteristically, executives from
both China and India assessed third quarter investment
spending plans in their respected countries to be below
those in the third quarter of 2012. Looking at the future,
business executives from around the world anticipate an
increase in capital expenditures over the next six months. In
the first quarter of 2014, capital expenditures are expected
to be higher than in the third quarter of 2013.
six months to be better than in the third quarter of 2013.
In Western Europe, executives’ appraisals of current
conditions were below satisfactory levels, even though
better than the economic activity they experienced in the
third quarter of 2012; expectations of European business
executives on future economic conditions signaled a
strong level of optimism providing some support that
the recession may end at the end of 2013.
• With respect to prices, survey participants expect
average worldwide inflation over the next two quarters
to accelerate.
• Looking at world trade, the business executives’ combined
expectations predict the volume of both exports and
imports to improve in the next two quarters compared
to trade volumes existing in the third quarter of 2013.
• Regarding financial markets, survey participants expect
short-term rates over the next two quarters to edge up
slightly from current levels; and long-term interest rates
are expected to rise from current levels.
Using the ‘soft data’ findings of the World Economic
Survey, a 125-country composite global business activity
index is constructed by e-forecasting to evaluate and
forecast the short-term worldwide business cycle. A reading
of 50, the flatline, is used as reference in evaluating the
wave of alternating booms and busts that mark the global
economy. In the third quarter of 2013, the e-forecasting.com
quarterly global business activity index posted a reading of
50, which is the same as in the previous quarter and nearly
Table 1 | Global Economic Growth and Inflation
Market Size Economic Growth Inflation
REGION 2012 GDP percent change in real GDP percent change in consumer prices
$PPP Billion 2012 2013 2014 2015 2012 2013 2014 2015
WORLD 76,905 3.0 2.6 3.1 3.3 3.6 3.8 4.4 4.5
EUROPEAN UNION (27) 16,093 -0.3 -0.2 1.0 1.6 2.6 2.0 2.3 2.3
Euro Area (17) 11,390 -0.6 -0.6 0.6 1.4 2.4 1.8 2.1 2.1
Austria 359 0.8 0.5 1.4 1.6 2.6 2.2 2.3 1.9
Belgium 420 -0.2 -0.1 0.7 1.3 2.6 1.5 2.0 1.2
Cyprus 24 -2.4 -7.0 -3.0 0.5 3.1 1.0 1.2 1.5
Estonia 29 3.2 2.1 2.9 3.4 4.2 3.4 3.0 2.5
Finland 197 -0.2 -0.8 1.0 1.5 3.2 2.6 2.5 2.0
France 2,254 0.0 0.2 0.6 1.5 2.0 1.3 2.0 2.1
Germany 3,197 0.9 0.4 1.4 1.5 2.1 1.9 2.2 2.0
Greece 277 -6.4 -5.5 -2.1 0.8 1.0 -0.5 0.0 1.3
Ireland 192 0.9 0.2 1.0 2.0 1.9 1.2 1.7 2.1
Italy 1,833 -2.4 -1.8 -0.2 1.1 3.3 1.8 2.2 2.4
Luxembourg 42 0.1 1.0 2.1 2.2 2.9 2.2 2.4 2.1
Malta 11 0.8 1.0 1.8 2.0 3.2 2.3 2.0 2.1
Netherlands 707 -1.3 -1.2 0.2 1.1 2.8 2.8 2.2 2.0
Portugal 247 -3.2 -2.5 0.2 1.6 2.8 0.7 1.9 2.2
Slovak Republic 132 2.0 0.7 2.2 2.6 3.7 2.3 2.5 2.1
Slovenia 58 -2.3 -2.6 0.2 1.3 2.6 2.3 2.1 2.0
Spain 1,411 -1.6 -1.7 0.4 1.1 2.4 2.0 2.5 2.6
Non-Euro Area (10) 4,702 0.5 0.9 1.9 2.2 3.0 2.5 2.6 2.6
Bulgaria 104 0.8 0.8 1.6 3.5 2.4 2.5 3.0 3.3
Czech Republic 287 -1.2 -0.7 1.6 2.4 3.3 1.9 2.2 2.5
Denmark 210 -0.6 0.3 1.3 1.5 2.4 1.5 2.0 2.0
Hungary 196 -1.7 0.4 1.7 1.5 5.7 2.4 2.8 3.0
Latvia 37 5.6 3.8 4.2 4.2 2.3 1.0 2.0 2.5
Lithuania 65 3.6 2.2 3.1 3.5 3.2 2.0 2.5 2.3
Poland 801 2.0 1.1 2.2 2.7 3.7 1.6 2.5 2.7
Romania 273 0.3 1.2 1.5 2.5 3.3 5.0 5.0 4.0
Sweden 393 1.2 1.3 2.1 2.3 0.9 1.2 2.1 2.6
United Kingdom 2,336 0.2 0.9 1.8 1.8 2.8 2.9 2.6 2.5
OTHER EUROPE 4,612 2.8 2.3 3.3 3.4 5.0 5.9 5.6 5.5
Norway 277 3.0 2.5 3.1 2.1 0.7 1.8 2.1 2.5
Russia 2,513 3.4 2.3 3.1 3.3 5.1 6.8 6.0 6.0
Switzerland 363 1.0 1.2 1.7 1.9 -0.7 0.2 0.8 1.5
Turkey 1,123 2.6 3.1 4.4 4.3 8.9 7.8 7.7 6.5
Ukraine 335 0.2 0.3 2.5 3.5 0.6 1.8 4.0 5.0
NORTH AMERICA 18,932 2.8 1.5 2.0 2.2 2.2 2.8 3.2 3.5
Canada 1,488 1.8 1.4 2.0 2.5 1.5 4.0 3.1 2.8
Mexico 1,759 3.9 2.6 4.1 3.3 4.1 4.0 5.0 5.5
United States 15,685 2.8 1.4 1.8 2.0 2.1 2.5 3.0 3.3
SOUTH AMERICA 4,651 2.5 2.5 2.9 3.5 7.0 8.8 9.0 9.6
Argentina 743 1.9 3.5 2.7 3.0 10.0 11.0 13.0 14.0
Brazil 2,356 0.9 1.9 2.5 3.3 5.4 6.2 6.5 7.0
Chile 321 5.5 4.2 4.5 4.6 3.0 2.0 3.5 3.9
Colombia 503 4.0 4.1 4.5 4.5 3.2 2.5 3.5 4.0
Peru 327 6.3 5.1 5.0 5.4 3.7 3.0 3.6 3.0
Venezuela 402 5.5 -2.0 0.5 1.6 21.1 39.0 33.0 36.0
ASIA & PACIFIC INDUSTRIAL 7,345 2.2 2.0 2.5 2.5 0.7 1.1 2.5 2.9
Australia 971 3.6 2.3 2.7 3.0 1.8 2.4 3.0 2.6
Japan 4,628 2.0 1.8 2.0 1.8 0.0 0.5 2.2 2.8
Korea 1,614 2.0 2.5 3.6 4.0 2.2 2.1 3.2 3.5
New Zealand 132 2.5 2.7 3.2 3.3 1.1 1.8 2.2 2.3
EMERGING ASIA 21,996 6.2 5.9 5.6 5.5 4.0 4.1 5.0 5.2
China 12,406 7.8 6.8 6.2 6.0 2.7 3.0 4.0 4.0
Hong Kong 369 1.4 2.7 3.1 3.0 4.1 4.5 5.0 4.5
India 4,684 4.0 5.0 5.1 5.2 7.5 6.5 7.5 8.0
Indonesia 1,217 6.2 5.6 5.4 5.1 4.3 7.2 7.0 8.0
Malaysia 498 5.6 4.5 5.0 5.0 1.7 2.4 3.2 4.0
Pakistan 515 3.7 6.0 3.5 3.1 11.0 9.0 11.0 10.5
Philippines 424 6.6 6.4 6.1 6.0 3.1 3.1 4.4 5.0
Singapore 327 1.3 2.7 2.9 3.0 4.6 3.5 4.0 4.0
Taiwan 903 1.3 2.3 2.7 3.3 1.9 1.8 2.5 3.0
Thailand 652 6.4 4.1 4.2 4.7 3.0 2.8 3.0 3.5
MIDDLE EAST & AFRICA 3,277 2.4 1.4 3.0 3.1 13.0 12.7 12.6 10.8
Egypt 540 2.2 0.5 1.5 2.0 8.6 7.5 12.0 14.0
Iran 999 -1.9 -1.5 1.5 2.0 30.6 30.0 27.0 20.6
Israel 249 3.1 3.7 3.5 3.6 1.7 2.0 2.2 2.4
Saudi Arabia 907 6.8 4.1 5.0 4.4 4.0 4.5 4.8 4.5
South Africa 582 2.5 2.0 3.5 3.4 5.7 6.5 7.0 6.0
The 60 countries in this table account for 93% of world’s estimated GDP expressed in PPPs in 2012.
Source: www.e-forecasting.com

36 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
 CHART 1
Chart 1 PREDICTING
| Predicting GlobalINDUSTRIAL
GLOBAL IndustrialACTIVITY
Activity
70 20
Global Activity Index, left scale
35 10
0 0
-35 -10
World Industrial Production, right scale
-70 -20
92 94 96 98 00 02 04 06 08 10 12 14
e-forecasting.com Index, change from previous year
IMF World Industrial Production, % change from previous year
CHART 2
two times the reading of 23 recorded in the third quarter
PREDICTING WORLD TRADE
in 2009, the lowest level of the index in the latest global
recession. It seems that the global recovery stalled since last
summer, as the index registered five consecutive quarters
with readings of 50 or lower.
e-forecasting’s global activity index tracks quarterly and
in a timely way economic conditions around the world. Its
historical behavior is consistent with the index of industrial
production for a group of 23 advanced economies, so-called
industrial countries, constructed by ‘hard data’ and maintained
by the International Monetary Fund (IMF). However, IMF’s
industrial production index lags our diffusion indicator in terms
of timeliness by one to two quarters. The e-forecasting global
activity index is a “real time” indicator providing readings at the
end of the last month of the reference quarter.
Historically, changes in our global activity index mirror
the year-to-year growth rate of worldwide industrial
production (see Chart 1). Based on the real time behavior
of our indicator, industrial activity in the world’s advanced
economies is estimated to bottom out at 50 in the third
quarter of 2013 after four consecutive quarters of decline.
By modeling business executives’ two-quarter-ahead
III. Regional Contributions to Global Growth
In our baseline annual forecast, global output  —  a
worldwide composite of 60 countries that account for 94%
of the world’s GDP using as weights each country’s relative
Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 37
CHART 2
PREDICTING
Chart 2 | Predicting WorldWORLD
TradeTRADE
70 30
Global Activity Index, left scale
35 15
0 0
-35 -15
World Industrial Production, right scale
-70 -30
92 94 96 98 00 02 04 06 08 10 12 14
e-forecasting.com Index, change from previous year
IMF World Industrial Production, % change from previous year
expectations into a dynamic high frequency forecast, we
predict a modest recovery in the growth of the global business
activity index in the next two quarters of 2013. As a result,
global industrial production is forecast to experience a reversal
of its path, from declining to rising, in the third quarter of 2013.
Our composite index of global economic activity also serves
as an indicator of worldwide demand and, consequently, its
change from a year ago mirrors the year-to-year growth rate
in the demand for internationally traded goods. Derived
from the opinions of about 1,200 business experts from 125
countries, e-forecasting’s composite global activity index has
shown a strong performance record in tracking the volume
of international trade, measured by the dollar value of global
exports adjusted for price changes (see Chart 2).
Following nine quarters of year-over-year growth
deceleration ­— from 18.5% in the second quarter of 2010
to the latest available reading of 0.5% in the first quarter
of 2013 — growth in the volume of international trade is
expected to have turned around in the third quarter of 2013.
The predictive power of our global activity index suggests
that growth in the volume of world trade will accelerate in
the last quarter of 2013 and in the first quarter of 2014.
GDP converted to international dollars at purchasing-power-
parity (PPP) — is estimated to have advanced by 3% in 2012,
following a 3.8% increase in 2011. Growth in global output
is forecast to decelerate to 2.6% in 2013 and modestly
accelerate to 3.1% in 2014 and 3.3% in 2015.
Given the relative economic size and expected output
growth in each of the major regional blocs, the contribution
of each region to global economic growth is computed so
that we may identify the distribution of worldwide growth
and, consequently, the allocation of global demand among
geographic areas along with its changing pattern over the
forecast horizon.
The baseline forecast calls for output in the countries
of the North America region (NAFTA) to advance by 2% in
2014 and 2.2% in 2015. Thus, NAFTA will contribute 16%
in both 2014 and 2015 to the growth of global demand, as
measured by worldwide GDP.
In the Euro Area, the combined real GDP of the 17
members of the European Union (EU) that use the euro
as common currency, GDP is forecast to increase 0.6%
in 2014 and 1.4% in 2015. As a result, the Euro Area will
contribute to global economic growth 3% in 2014 and
6% in 2014.
In the Emerging Asia region — which includes the two
most populous and fastest growing countries, China and
India — growth in output is forecast to average 5.6% in
2014 and 5.5% in 2015, faster than any other economic bloc.
Accordingly, the Emerging Asia region will contribute 53% in
2013 and 50% in 2014 to the growth of worldwide demand,
as measured by worldwide GDP.
In the industrial bloc of Asia and Pacific region — which
includes Japan, Korea, Australia and New Zealand — growth
in output is forecast to average 2.5% in both 2014 and
2015. Consequently, the Asia and Pacific industrial club will
contribute about 8% in 2014 and 7% in 2015 to the growth
of global demand, as measured by worldwide GDP.
Real GDP in the major countries in South America is
forecast to increase by 2.9% in 2014 and 3.5% in 2015. South
America is forecast to contribute about 6% to the growth of
global demand in both 2014 and 2015, which is as large as
the contribution of the Euro Area.

Table 2 | Contribution of Regions to Global Growth

Percentage Points Contribution Relative Contribution, Percent

R egion
2012 2013 2014 2015 2012 2013 2014 2015

EUROPEAN UNION (EU27) -0.06 -0.03 0.21 0.32 -1.9 -1.3 6.6 9.5

Euro Area (euro17) -0.09 -0.09 0.09 0.19 -3.0 -3.4 3.0 5.7

Non-Euro Members (10) 0.03 0.05 0.11 0.13 1.0 2.1 3.6 3.8

OTHER EUROPE 0.17 0.14 0.20 0.20 5.4 5.2 6.3 6.1

NORTH AMERICA 0.70 0.37 0.50 0.52 23.0 14.2 15.9 15.7

United States 0.57 0.29 0.36 0.40 18.9 10.9 11.6 12.0

SOUTH AMERICA 0.15 0.15 0.18 0.21 4.9 5.7 5.7 6.4

ASIA & PACIFIC INDUSTRIAL 0.21 0.19 0.23 0.23 7.0 7.4 7.5 7.0

EMERGING ASIA 1.72 1.69 1.65 1.67 56.6 64.3 52.8 50.4

China & India 1.45 1.40 1.37 1.39 47.5 53.5 43.9 41.9

MIDDLE EAST & AFRICA 0.10 0.06 0.13 0.13 3.3 2.3 4.1 3.9

WORLD GROWTH1 3.0 2.6 3.1 3.3 100.0 100.0 100.0 100.0

1
Sum of Regional Contributions Source: www.e-forecasting.com

38 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
The U.S. Economy…
A Challenging Recovery…
Sidestepping into
the End of the Year
By Jack Malehorn

The information in this forecast is gathered by the Journal from sources it considers reliable. Neither the Journal nor the
individual institutions providing the data guarantee accuracy; nor do any of them warrant in any way that use of the data
appearing herein will enhance the business or investment performance of companies or individuals who use them.
Jack Malehorn is a professor at Georgia Military College (Milledgeville, Georgia). He is on the Editorial Review Board to the
Journal of Business Forecasting. He has worked as President and CEO of The Black Hill Manufacturing Co., and COO of NorCom
Advanced Technologies. He has also worked as Chief Economist for United Telephone Company of Pennsylvania and
New Jersey, which is an operating company of Sprint. He has taught as an Adjunct Professor at Johns-Hopkins University,
Graduate School of Business. For any comments and suggestions, contact him by email at Jmalehorn@yahoo.com.

Participants | Beacon Economics = Los Angeles, California; Conf. Board = Conference Board, New York, New York; Fannie Mae = Fannie Mae,
Washington, D.C.; Global Insight = Global Insight, Eddystone, Pennsylvania; GSU - EFC = Georgia State University, Economic Forecasting Center,
Atlanta, Georgia; Moody’s Economy = Moody’s Economy.com, Westchester, Pennsylvania; Mortgage = Mortgage Bankers Association, Washington,
D.C.; NAM = National Association of Manufacturers, Washington, D.C.; Northern Tr = Northern Trust Company, Chicago, Illinois; Perryman Gp = The
Perryman Group, Waco, Texas; Royal Bank of Canada, Toronto, Ontario, Canada; S&P = Standard & Poor’s, New York, New York; UBS = UBS Bank, Salt
Lake City, Utah; US Bank = U.S. Bank & Nuveen Capital Asset Management, Minneapolis, Minnesota; US Chamber = U.S. Chamber of Commerce,
Washington, D.C.; Wells Fargo = Wells Fargo Bank, San Francisco, California.

T
he Economic Consensus Outlook for Fall 2013 has a
little bit of everything in it. There are indeed some
positive notes with respect to the nation’s economy,
but there exist several significant negative factors as well.
Rajeev Dhawan, Director of the Economic Forecasting
Center at Georgia State University’s Robinson College of
Business, in his Forecast of the Nation, paints a tentative
picture of economic activity. On the positive side, he cites
recent job growth, almost bullish auto sales, and reasonably
strong housing data. But, on the negative side is poor
income growth, an overabundance of consumer caution,
and ongoing political uncertainty linked to the federal

Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 39
 Participants GROSS DOMESTIC PRODUCT (GDP) PERSONAL DISPOSABLE INCOME
Bill. of Chained 2005 Dollars | Level Based on GDP Concept | Curr. Bil. of $, Level (SAAR)

Quarter 13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3

Beacon Economics | Christopher Thornberg NA NA NA NA NA NA NA NA
Conf. Board | Ken Goldstein 15736.0 15840.8 15957.6 16079.6 NA NA NA NA
Fannie Mae | Doug Duncan NA NA NA NA 12517.1 12601.0 12714.0 12824.9
Global Insight | Nigel Gault 15830.3 15940.7 16064.7 16192.5 12563.9 12805.9 12981.1 13145.6
GSU-EFC | Rajeev Dhawan 15776.0 15860.4 15955.3 16062.6 12660.6 12859.6 13022.1 13173.2
Moody's Economy | Mark Zandi NA NA NA NA NA NA NA NA
Mortgage | Jay Brinkmann NA NA NA NA 12554.5 12654.1 12777.7 12905.1
NAM | Chad Moutray NA NA NA NA 12580.0 12725.0 12870.0 13025.0
Northern Tr | Paul Kasriel 15835.3 15954.2 16074.4 16196.2 NA NA NA NA
Perryman Gp | Ray Perryman NA NA NA NA 12794.5 13008.4 13198.7 13421.0
Royal Bank of Canada | Craig Wright 15873.2 15989.0 16108.8 16233.6 12696.6 12839.2 12963.5 13122.6
S & P | Beth Ann Bovino 15908.0 16008.0 16124.0 16247.0 12590.0 12842.0 13019.0 13182.0
UBS | Maury Harris 15890.2 16008.7 16127.8 16248.1 12672.1 12816.3 12963.7 13114.6
US Bank | Keith Hembre 15785.0 15870.0 15930.0 16000.0 NA NA NA NA
US Chamber | Martin Regalia 15833.8 15943.5 16051.8 16170.8 NA NA NA NA
Wells Fargo | John Silvia 15795.8 15880.3 15972.8 16067.7 NA NA NA NA
Consensus 15826.4 15929.6 16036.7 16149.8 12625.5 12794.6 12945.5 13101.6

Participants PERSONAL CONSUMPTION EXPENDITURE CONSUMER PRICE INDEX

Based on GDP Concept | Curr. Bil. of $ | Level (SAAR) 1982-1984=100 | LEVEL

Quarter 13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3

Beacon Economics | Christopher Thornberg NA NA NA NA NA NA NA NA
Conf. Board | Ken Goldstein NA NA NA NA 233.3 234.5 235.8 236.9
Fannie Mae | Doug Duncan 11672.6 11778.5 11895.1 12012.8 234.6 235.4 236.3 237.3
Global Insight | Nigel Gault 11623.2 11756.1 11884.5 12006.8 233.9 234.2 235.8 236.7
GSU-EFC | Rajeev Dhawan 11591.4 11703.6 11823.0 11936.8 233.6 234.6 235.8 237.0
Moody's Economy | Mark Zandi NA NA NA NA 234.5 235.6 236.8 238.0
Mortgage | Jay Brinkmann 11681.0 11800.1 11927.2 12058.5 236.2 237.1 238.1 239.3
NAM | Chad Moutray NA NA NA NA 234.5 235.6 236.8 238.0
Northern Tr | Paul Kasriel NA NA NA NA 234.7 235.7 236.9 238.0
Perryman Gp | Ray Perryman 11804.5 12005.9 12185.5 12394.9 234.4 235.4 236.6 237.5
Royal Bank of Canada | Craig Wright 11703.7 11822.7 11920.6 12058.3 234.1 235.7 237.4 238.2
S & P | Beth Ann Bovino 11689.0 11818.0 11946.0 12068.0 233.9 234.9 235.9 236.8
UBS | Maury Harris 11666.9 11786.5 11907.9 12057.5 234.0 235.0 236.1 238.0
US Bank | Keith Hembre NA NA NA NA 234.0 234.6 235.2 236.0
US Chamber | Martin Regalia NA NA NA NA 233.9 235.0 236.2 237.5
Wells Fargo | John Silvia NA NA NA NA 235.5 236.7 238.0 239.2

Consensus 11679.0 11808.9 11936.2 12074.2 234.3 235.3 236.5 237.6

40 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
Participants TOTAL LIGHT VEHICLE SALES CHAINED PRICE INDEX
FOR & DOM. | Mil. of Units (SAAR) 2000 | Level

Quarter 13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3

Beacon Economics | Christopher Thornberg NA NA NA NA NA NA NA NA

Conf. Board | Ken Goldstein 15.6 15.6 15.8 15.8 106.6 106.9 107.4 107.7

Fannie Mae | Doug Duncan 15.7 15.6 15.7 15.9 NA NA NA NA

Global Insight | Nigel Gault 15.7 15.7 15.9 16.0 107.7 108.1 108.5 108.9

GSU-EFC | Rajeev Dhawan 15.1 15.2 15.3 15.4 107.2 107.8 108.3 108.7

Moody's Economy | Mark Zandi 15.8 16.1 16.5 16.8 NA NA NA NA

Mortgage | Jay Brinkmann 15.5 15.4 15.2 14.9 NA NA NA NA

NAM | Chad Moutray 16.0 16.1 16.5 16.8 NA NA NA NA

Northern Tr | Paul Kasriel 15.5 15.6 15.7 15.8 107.3 107.7 108.2 108.6

Perryman Gp | Ray Perryman 15.9 16.1 16.0 16.3 116.8 117.3 118.0 118.8

Royal Bank of Canada | Craig Wright 15.6 15.6 15.6 15.7 NA NA NA NA

S & P | Beth Ann Bovino 16.1 16.1 16.1 16.2 107.2 107.8 108.2 108.7

UBS | Maury Harris NA NA NA NA 107.2 107.8 108.3 108.9

US Bank | Keith Hembre 15.4 15.6 15.5 15.8 107.1 107.5 107.7 107.9

US Chamber | Martin Regalia NA NA NA NA 107.5 108.0 108.5 109.0

Wells Fargo | John Silvia 15.5 15.7 15.9 16.2 107.0 107.5 107.9 108.5
Consensus 15.6 15.7 15.8 16.0 108.2 108.6 109.1 109.6

Participants FEDERAL FUNDS RATE AAA CORPORATE BOND RATE

% %

Quarter 13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3

Beacon Economics | Christopher Thornberg NA NA NA NA NA NA NA NA

Conf. Board | Ken Goldstein 0.1 0.1 0.1 0.1 4.5 4.5 4.6 4.7

Fannie Mae | Doug Duncan 0.2 0.2 0.2 0.2 NA NA NA NA

Global Insight | Nigel Gault 0.1 0.1 0.1 0.1 4.4 4.4 4.5 4.5

GSU-EFC | Rajeev Dhawan 0.1 0.2 0.2 0.2 4.8 5.1 5.3 5.3

Moody's Economy | Mark Zandi 0.1 0.1 0.1 0.1 4.4 4.6 5.1 5.3

Mortgage | Jay Brinkmann 0.2 0.2 0.2 0.2 NA NA NA NA

NAM | Chad Moutray 0.1 0.1 0.1 0.1 4.4 4.6 5.1 5.3

Northern Tr | Paul Kasriel 0.2 0.2 0.2 0.2 NA NA NA NA

Perryman Gp | Ray Perryman 0.2 0.2 0.3 0.3 3.7 3.8 3.9 4.0

Royal Bank of Canada | Craig Wright 0.1 0.1 0.1 0.1 NA NA NA NA

S & P | Beth Ann Bovino 0.1 0.2 0.2 0.2 4.3 4.4 4.4 4.5

UBS | Maury Harris 0.1 0.1 0.1 0.1 NA NA NA NA

US Bank | Keith Hembre 0.1 0.1 0.1 0.1 4.3 4.3 4.3 4.3

US Chamber | Martin Regalia NA NA NA NA NA NA NA NA

Wells Fargo | John Silvia 0.1 0.1 0.1 0.1 4.4 4.6 4.7 4.9
Consensus 0.1 0.1 0.1 0.2 4.4 4.5 4.7 4.8

42 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
 UNEMPLOYMENT NON-RESIDENTIAL FIXED INVESTMENT J o u r n a l o f

Civilian % (SAAR) (Bil. of Chained 2005 Dollars)

Business Forecasting
13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3
NA NA NA NA NA NA NA NA • Q
 uarterly, read jargon-free articles
on how to obtain, recognize, and
7.4 7.3 7.2 7.0 1997.6 2023.1 2048.2 2078.7 use good forecasts
7.2 7.0 6.9 6.8 1894.5 1904.9 1916.7 1928.4 • C
 onsensus Forecasts of 13 key
business and economic indicators
7.6 7.4 7.3 7.1 2029.4 2064.1 2098.4 2127.5 plus a consensus
7.4 7.4 7.3 7.2 2010.9 2032.0 2062.3 2091.7 • I nternational Economic Outlook
gives one-year ahead forecasts of
7.3 7.1 6.9 6.8 NA NA NA NA
real GNP/GDP growth rate of 70
7.3 7.2 7.1 6.9 1885.4 1898.2 1909.6 1922.0 countries

7.3 7.1 6.9 6.7 NA NA NA NA

Subscription
7.3 7.2 7.1 7.0 2020.0 2044.1 2068.4 2093.0 (Published four times a year)
7.4 7.2 7.2 7.0 1840.9 1849.5 1862.9 1878.1
Hard copy:
7.4 7.3 7.2 7.0 2036.9 2076.7 2119.6 2162.4 $95 Domestic
7.4 7.3 7.1 7.0 2048.7 2087.0 2119.5 2145.9 $120 International
(Outside USA)
7.0 6.8 6.7 6.5 2026.2 2057.1 2088.6 2120.7

7.3 7.1 6.9 6.8 1991.0 2008.0 2026.0 2044.0 Journal of Business Forecasting
350 Northern Blvd.
7.4 7.5 7.4 7.3 2021.9 2050.1 2080.7 2111.7 Great Neck, NY 11021
+1.516.504.7576
7.3 7.2 7.2 7.1 NA NA NA NA email info@ibf.org | web www.ibf.org

7.3 7.2 7.1 7.0 1983.6 2007.9 2033.4 2058.7

INDUSTRIAL CAPACITY UTILIZATION MONEY SUPPLY M2, BIL. OF $ PRIVATE HOUSING START TOTAL
(SAAR) Bil. of $, Level (SAAR) Mil. of Units (SAAR)

13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3 13/4 14/1 14/2 14/3
NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA 1.0 1.1 1.2 1.2

NA NA NA NA NA NA NA NA 1.0 1.1 1.2 1.3

76.1 76.3 76.3 76.6 10868.8 11017.8 11154.3 11270.7 1.0 1.1 1.2 1.3

76.4 76.3 76.2 76.4 10717.5 10793.2 10879.5 10964.7 1.0 1.1 1.1 1.2

NA NA NA NA 10816.5 10939.5 11052.8 11182.3 1.2 1.4 1.6 1.7

76.4 76.8 77.0 77.1 NA NA NA NA 0.9 1.0 1.0 1.0

76.7 76.7 76.6 76.5 10815.0 10940.0 11050.0 11180.0 1.0 1.1 1.1 1.1

77.1 77.2 76.5 76.0 N/A N/A N/A N/A 1.0 1.1 1.1 1.2

78.1 78.7 79.2 79.7 10937.7 11095.5 11231.5 11414.3 0.9 0.9 1.2 1.2

NA NA NA NA NA NA NA NA 1.0 1.1 1.2 1.2

76.7 76.8 76.6 76.7 10922.0 11065.0 11197.0 11311.0 1.0 1.1 1.2 1.3

78.6 78.9 79.2 79.5 NA NA NA NA 1.2 1.3 1.3 1.4

78.0 78.0 78.3 78.5 NA NA NA NA 1.0 1.0 1.1 1.1

NA NA NA NA NA NA NA NA 1.0 1.1 1.0 1.0

79.6 79.7 79.8 80.0 10725.0 10825.0 10925.0 11025.0 1.0 1.1 1.1 1.2
77.4 77.5 77.6 77.7 10828.9 10953.7 11070.0 11192.6 1.0 1.1 1.2 1.2

Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013 43
L I VE ONLIN E T R A INING:
DEMAND PLANNING
& FORECASTING
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44 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
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budget and upcoming public policy decisions. Dr. Dhawan
provides a textbook analysis in his publication, citing the
domino effect realized in the housing sector. From the
initial request for building loans, the process incorporates
the builder, suppliers, and the ultimate final consumer.
However, the consumer, having made the commitment for
a new home, looks out into the troubled world environment
and sees unrest throughout the Middle East spilling over
to domestic gas prices, lack of strong consistent job gains,
and subsequent income growth. Under the circumstances,
we may need to wait awhile before we make a commitment
to go all the way, that is, for new furniture, new drapes,
etc. As such, this veil of negativism spreads to corporate
management decision makers, signaling we should wait until
we pull the trigger on long-term investment plans. The last
straw appears to be linked to Washington, D.C., where the
political fray surrounding the federal budget deficit, health
care reforms on the horizon, and the timing of the Fed finally
withdrawing its easy money policy. For the most part, this
scenario seems reflected across the board in the Consensus
Outlook forecasts. Adding to this, Dr. Ray Perryman figures
there to be little momentum building in the economy until
several months down the road linked to the situation in
Europe, as well as several of the factors already addressed.
As such, the Consensus Economic Outlook calls for a
continuation of the current relative lackluster economic
performance, which has characterized this seemingly long
recovery period. Real GDP is forecast to advance at a 2% rate
over the forecast period. In turn, PDI and PCE are projected to
advance at more than a 3% rate. Some good news is reflected
in the nation’s unemployment numbers, but still one must
be careful in the analysis since job growth is still paltry, and
at least some of the dip is accounted for by participants
using up their benefits and falling off the roll. One good
sign is linked to the fairly timid inflation forecasts—less than
1.5%—with the hope the Fed will continue to pursue its easy
money policy.
HOUSEHOLDS
ou would have to believe or hope that America’s
Y
households are just dying to get in the game and spend
money. Still, short-term memories in hand, things point
to a less than rosy forecast surrounding the consumer. As
previously stated, Personal Consumption expenditures are
projected to increase at a greater than 3% rate. The forecast
for auto sales appears to be tapering off from the robust
activity seen recently. Housing starts are stronger—above 1
million units throughout the four quarter forecast period—
for the first time in quite a while. Many wonder whether this
can single handedly drive the economy in the near future?
FIRMS
F
rom all indications, the uncertainty pervading
households seem to have taken roost with business firms.
The two key indicators, Industrial Capacity Utilization Rate
and Nonresidential Fixed Investment, are projected to
increase, albeit at a slower pace. It would seem likely that
until many of the public policy issues are addressed by
Congress, firms will hold their stand pat position into the
foreseeable future.
MONEY AND INTEREST RATES
For the most part, interest rates are projected to remain
relatively flat. While the Fed Funds rate is anticipated to
remain steady, the AAA bond rate shows only a small
variation spread out over a year. Clearly, it seems that
everyone is watching both public policy makers and the Fed
to ascertain what might happen next. It seems likely that the
Fed will eventually begin to stop its easy money policy, but
with inflationary pressures in check and a less than stellar
economy, it could continue into the foreseeable future.
(info@ibf.org)

• Q uarterly, read jargon-free articles on

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46 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Fall 2013
LEARN > SHAR E > ADVAN C E

Speaking & Publishing At IBF

Have you considered sharing your experience and lessons learned as a
speaker/panelist at an upcoming IBF event or writing an article for our
Flagship Publication, the Journal of Business Forecasting (JBF)?

PUBLISHING
The Journal of Business Forecasting (JBF) is IBF’S quarterly publication read
by professionals across the world. Every article is written for practitioners at every
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TO BE CONSIDERED, please email: jbf@ibf.org

with your interest in submitting an article

SPEAKING
Join some of the world’s largest and most well known companies who have shared
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You don’t have to be an “expert” or a thought leader in the field to be considered as
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with your interest in speaking


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I B F C alendar 2 0 1 3 - 2 0 1 4 *
2013
September 24 Supply Chain Forecasting & Planning: Latin American Experiences (Language: Spanish)
2013 Sheraton Maria Isabel Hotel & Towers | Mexico City, Mexico

October On-line Education 1 | October 10, 2013

2013 Fundamentals of Demand Planning & Forecasting: 1-Day Workshop
On-line Education 2 | October 15, 2013
An Introduction to Statistical Forecasting: 1-Day Hands-On Workshop
On-line Education 3 | October 16, 2013
Collaborative Planning, POS Based & New Product Forecasting: 1-Day Workshop
On-line Education 4 | October 31, 2013
Sales & Operations Planning: What, Why, How, Who, When: 1-Day Workshop

November 4 Leadership Business Planning & Forecasting Forum

2013 Disney’s Contemporary Resort | Orlando, Florida USA

November 5-6 Business Planning & Forecasting: Best Practices Conference

2013 w/1-Day Fundamentals of Demand Planning & Forecasting Tutorial
Disney’s Contemporary Resort | Orlando, Florida USA
November 20-22 Supply Chain Forecasting & Planning Conference: Europe
2013 w/ 1-Day Fundamentals of Statistical Forecasting & Planning Tutorial
Radisson Blu Hotel Amsterdam | Amsterdam, Netherlands

2014
February 23-25 Supply Chain Forecasting & Planning Conference
2014 w/ 1-Day Fundamentals of Demand Planning & Forecasting Tutorial
Hilton Scottsdale | Scottsdale, Arizona USA
March 6-7 Demand Planning & Forecasting Boot Camp
2014 Radisson Hotel Chicago O’Hare | Chicago, Illinois USA

March 24-25 Supply Chain Forecasting & Planning Conference: MIddle East
2014 Hyatt Dubai | Dubai, UAE

April On-line Education 1

2014 Fundamentals of Demand Planning & Forecasting: 1-Day Workshop
On-line Education 2
An Introduction to Statistical Forecasting: 1-Day Hands–On-line
On-line Education 3
Collaborative Planning, POS Based & New Product Forecasting: 1-Day Workshop
On-line Education 4
Sales & Operations Planning: What, Why, How, Who, When: 1-Day Workshop
April Supply Chain Forecasting & Planning Conference: Asia
2014 Shanghai, China
May 15-16 APICS & IBF Best of the Best S&OP Conference: Europe
2014 Amsterdam, Netherlands
June 12-13 APICS & IBF Best of the Best S&OP Conference
2014 Chicago, Illinois USA
August Business Forecasting & Planning Academy
2014 Henderson (Las Vegas Area), Nevada USA
September Supply Chain Forecasting & Planning: Latin American Experiences (Language: Spanish)
2014 Sheraton Maria Isabel Hotel & Towers | Mexico City, Mexico
October 27 Leadership Business Planning & Forecasting Forum
2014 Disney’s Contemporary Resort | Orlando, Florida USA
October 28-29 Business Planning & Forecasting: Best Practices Conference
2014 w/ 1-Day Fundamentals of Demand Planning &Forecasting Tutorial
Disney’s Contemporary Resort | Orlando, Florida USA
November Supply Chain Forecasting & Planning Conference: Europe
2014 w/ 1-Day Fundamentals of Statistical Forecasting & Planning Tutorial
*IBF events are updated regularly. Please check www.ibf.org for the most up to date schedule
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Demand Planning,
Companies that have participated in
IBF’s In-House Training include (partial list):

Ashland Micron

Forecasting,
Bayer Molson
Biomet Motorola/
Bombardier Google

& S&OP T raining

Cadbury Nestle/Gerber
Caterpillar Nike
Coleman Pfizer/Wyeth
Coty Philip Morris/
Altria
“ The workshop was very thorough and introduced Cummins
Rolls Royce
valuable forecasting concepts. It also stimulated Del Monte Foods
discussion on our business process relating to SABIC
Dupont
forecasting.” San Miguel
GAP
Foods
— C. Eland, Demand Management, SC JOHNSON Genentech
Sanford Brands
GlaxoSmithKline
“ More than the enjoyment, I learned so much from Sartomer
Goodyear
the real life examples and exercises. The speaker Saudi Aramco
was extremely accommodating of questions.” Heineken
SC Johnson
— Elizabeth Tambongco, Business Planning Manager, Heinz
Social Security
THE PUREFOODS - HORMEL CO Hospira Administration
Johnson & Trek Bikes
“ I loved it! The structure was outstanding. Johnson/Depuy
USAA
The instructor was confident. He knew the Mars
Uline
topic extremely well.” Mattel
Vietnam
— Sameera Al-Masool, Corporate Planning, McCormick Breweries
SAUDI ARAMCO Merck Whirlpool

A D VA N TA G E S :

• Benchmarks & Best Practices: Gain access to valuable benchmarking data, as Contact IBF for Details
well as best practices that successful companies are using to win in today’s marketplace. Call +1.516.504.7576 or
Identify the gaps in staff skills, processes, and technology and correct them through
hands-on learning. email us at info@ibf.org

• Unlock the Power of your ERP / Demand Planning System: Learn to to schedule your On-site
leverage the power of your ERP for improved demand planning & forecasting. Most Corporate Training any where
companies only utilize a small percentage of their system’s features. Let us teach you
how to take advantage of its capabilities. in the world!

• Valuable Bonus Materials: Case studies, exercises, data-sets, templates, and

complete presentation slides.
• Certification Preparation: IBF’s training program prepares participants for
the IBF’s Certified Professional Forecaster (CPF) and Advanced Certified Professional
LEARN > SHARE > ADVANCE
Forecaster (ACPF) exams. You have the option to combine the training with IBF’s
certification exams. tel: +1.516.504.7576 | email: info@ibf.org | web: www.ibf.org