Page 281 - (DK) The Business Book

SUCCESSFUL SELLING 279

See also: Crisis management 188–89 ■ Balancing long- versus short-termism 190–91 ■ Contingency planning 210 ■
The marketing model 232–33 ■ Lean production 290–93 ■ Time-based management 326–27

uses numerical data such as sales September 2012. Luxury watches
patterns. Also in this category are became publicly associated with
equations that make assumptions corruption, and demand slumped.
about future sales by drawing
on a company’s historical data, and Is forecasting worthwhile?
market research that indicates the The only thing we know Management consultant Peter
number of potential customers for about the future is that it Drucker was scornful of forecasting.
a particular product or service. In will be different. “We must start out with the premise
addition, marketers look at external Peter Drucker that forecasting is … not worthwhile
factors beyond the company’s beyond the shortest of periods,” he
control, such as the state of the wrote in Management: Tasks,
economy, and make simulations of Responsibilities, Practices (1973). He
how quantitative forecasts would had reason to be wary, having
be affected by external factors. declared in a 1929 economic journal
that stock prices were bound to
Unforeseen circumstances began—as much as 24 percent in a keep rising, just a few weeks before
Even the most carefully planned single quarter. This was partly due the Wall Street Crash. International
forecast can be thrown out by to a slowdown in China’s economic auditing company KPMG maintains
unforeseen events. In the travel growth, which exporters might have that most companies produce
industry, for example, it is difficult been able to take into account; but unrealistic forecasts that can be off
to predict performance because what could not have been expected by up to 13 percent on average.
factors such as weather and world was a high-profile incident in the According to KPMG, better data
events have a significant impact Communist Party’s crackdown on management, scenario planning,
on customer choices. corruption. A party official in and forecasts that are continually
The effect of world events can be Shaanxi province was fired after updated rather than made long-term
seen in the sale of luxury watches to images of him wearing various can increase accuracy. Despite the
China. From 2009 to 2011, high-end luxury watches were found on the difficulty of accurate forecasting, it
watchmakers in Europe enjoyed Internet; one timepiece was worth remains the primary means by
growing sales in China, but from more than $32,000. The story made which marketers drive the business
late 2012 a dramatic decline front-page news across China in decisions of a company. ■

Accurate forecasting

Producing an accurate forecast accuracy can be optimized by
depends on the company’s creating a demand-driven supply
required lead time—the time chain, which uses information
from order placement to and technology to shrink lag
customer delivery. The longer times between supply decisions
the lead time, the greater the and actual demand. Thus the
error in forecasting figures. One need for forecasting is reduced
theory holds that if lead times when business activities become
are reduced by 50 percent, more demand driven. For
forecasting errors will also be example, when Wal-Mart asked
reduced by 50 percent. stores to place orders every two
Shares on the stock market are Since the 1990s management weeks rather than monthly,
affected by many factors, including theorists, including Dr. Edmund inventories reduced because
some that are difficult to predict— Prater at the University of Texas, accurate forecasting increased in
such as world events, severe weather, have advocated that forecasting line with the shorter time frame.
and global economic forecasts.