Forecasting Sales

Some organizations have robust tools and monthly processes to help them build and validate their demand forecasts. Others struggle and use simple measures like a 90-day rolling average to inform their purchasing decisions. Whatever the situation, sales forecasts can have a huge impact on a company's strategy and success. We can use the Meta-Problem Method to help.

Complex problems are often vague, and that means they have many possible solutions. Following the Meta-Problem Method may lead you to a distant dilemma from the one that started your quest. A key part of the method's value is that it forces you to clarify what you really want and what you are willing to give up. It also enables you to compare objectively the possible pathways and their trade-offs. It prevents you locking into solutions mode too early, and then doubling down on solving a low-yield problem that does not serve your goals as well as the alternatives. At the end of this process, you will have a better understanding of your priorities and how to achieve them.

Step in the Meta-Problem Method	Illustrative Example
Dilemma The high-level issue you are trying to address	Future sales are unknown.
Goal The changes you would like to make to address the dilemma. There are usually many options. Selecting the best set comes after you learn what is possible.	Supporting Goals Increase profits Reduce inventory costs Minimize effort to develop accurate forecasts Increase service levels to customers
Problem Space While goals tell us what we want, our next step is to understand what is holding us back from making progress on them. This approach is borrowed from calculus as we explore the neighborhood of the current dilemma.	For each goal that you are considering, ask yourself: How much progress is possible? How much effort would it take to make progress? What methods might help to make progress? What might the positive or negative effects be on the other goals as you make progress towards the current one? Example Problems: How could we increase profits a little? Is the problem lost sales due to stockouts, or high costs due to excess inventory?  For example, most organizations who do not use mathematical models for inventory decisions will over-order low-sales products and under-order the top products. How could we reduce inventory costs a little? Are most losses coming due to expired products, or is it more about just carrying costs compared to sales?  For example, if you use clearance to sell out expiring products, you need good data tracking to ensure you take those discounted sales out of your forecast in the future. How could we develop good sales forecasts with a minimum of effort? Are we following industry standard practices?  For example, there are industry certifications that teach foundational models for forecasting and inventory. If those models are not in use, it can be very easy to find someone qualified to implement them into your organization. How could we increase service levels a little? Are specific customers or categories of products hardest to fulfill?  For example, we might find that make-to-stock products have reasonable fill rates, but make-to-order take 12 months to fulfill. If we can improve our performance on make-to-order products we may be able to increase customer service substantially.
High-Yield Problems Sometimes solving one problem helps make progress towards several goals. In this step, we identify these “two-for-the-price-of-one” problems.	Which Options Will Advance More Than One Goal? Develop a mathematical model for sales forecasting and inventory decisions. This can be one of the best ways to address the uncertainty of future sales leading to increased profits, lower cost, and higher customer service. Evaluate each product to assess the right service level, to adjust target inventory levels. This can allow the same amount of inventory to cover a much higher proportion of potential sales leading to higher profits. Evaluate which products should be added or discontinued. If this is the right choice, it can dramatically improve profit and reduce costs while allowing the company to focus on their core. Try working with sales or customers to provide more qualitative inputs into the sales forecast model. If this is the right approach, it can lead to higher profits, lower costs, and higher service levels. Et cetera.
Problem Selection Which of the many possible options in the high-yield problem step is the best set to address the dilemma?	Selection Criteria Which solutions will best address the dilemma? Which solutions will deliver the best outcome for the least amount of time, effort and money? Which solutions is the student most excited to take on? By this point in the Meta-Problem process, you have clarified your goals, identified some options you could take, weighed the trade-offs that come with each of those options, rejected some options because they will take more time, effort or money than the results are worth, and you have identified a set of high-yield problems that will advance several of your goals at once. Now you are ready to start solving a problem knowing what you expect to achieve.
Implement, Learn and Adapt	Observe and learn as you go. New information may reveal itself as you implement your chosen solution, so check continuously that you’re still solving the right problem.