FORECASTING MANAGEMENT Authors: Andreas Jessen Carina Kellner Supervisor: Professor Hans Jansson Program: Growth Through Innovation & International Marketing Subject: International Marketing Level and semester: Masterlevel, Spring 2009 Baltic Business School Master Thesis, VCE Region International, Spring 2009 i Abstract Abstract In a world that is moving faster and faster, a company’s ability to align to market changes is becoming a major competitive factor. Forecasting enables companies to predict what lies ahead, e.g. trend shifts or market turns, and makes it possible to plan for it. But looking into the future is never an easy task. “Prediction is very difficult, especially if it’s about the future.” (Niels Bohr, 1885-1962) However, progress in the field of forecasting has shown that it is possible for companies to improve on forecasting practices. This master thesis looks at the sales forecasting practices in MNCs primarily operating in emerging and developing countries. We examine the whole process of sales forecasting, also known as forecasting management, in order to develop a comprehensive model for forecasting in this type of companies. The research is based on a single case study, which is then later generalized into broader conclusions. The conclusion of this master thesis is that forecasting is a four-step exercise. The four stages we have identified are: Knowledge creation, knowledge transformation, knowledge use and feedback. In the course of these four stages a company’s sales forecast is developed, changed and used. By understanding how each stage works and what to focus on, companies will be able to improve their forecasting practices. Key Words: Sales Forecasting, Sales Forecasting Process, Forecasting Management, Forecasting Methods, Performance Measurement, Domain Knowledge, Forecasting Systems, Emerging and Developing Country Markets, Construction Equipment, VCE Region International, Volvo ii Master Thesis, VCE Region International, Spring 2009 iii Acknowledgements Acknowledgements With this acknowledgement, we would like to express our deep gratitude to all people that contributed time and effort in supporting us when writing this thesis. Without these people this thesis would not have achieved such a high level of quality that we believe it has. First, we would like to sincerely acknowledge our supervisor Professor Hans Jansson for his guidance, supervision and support throughout the entire research. Moreover, we would like to thank our fellow students for profitable discussions and feedback. Furthermore we would like to address special thanks to Terese Johansson for all of her assistance and support during this research. Also, we would like to thank our case company Volvo Construction Equipment Region International and its management for making this research possible. In particular, we would like to thank Anders Sjögren who provided us with excellent supervision from the initial kick- off meeting in Eskilstuna until the final hand-in of this master thesis. We would also like to thank all participating respondents at VCE Region International for taking their time to give us valuable inputs and information for this study. Finally, we would like to thank our families and friends for their encouragement during the last five months, as well as their patience and great support. Kalmar, SWEDEN Spring 2009 Andreas Jessen Carina Kellner iv Master Thesis, VCE Region International, Spring 2009 v About the Authors About the Authors Andreas and Carina are both studying in Sweden at Baltic Business School, University of Kalmar, completing the master degree program: Growth through Innovation and International Marketing. In the course of our studies at BBS, we accomplished several assignments for Volvo Construction Equipment with great results. When the opportunity to write a Master Thesis for Volvo Construction Equipment occurred, we were immediately interested. We are thankful for this opportunity and put our best effort into achieving a good thesis – and we can honestly declare that we are proud of the result! Andreas Jessen was born in May 1985 and grew up in Odense, Denmark. After finishing his engineering degree in business development at Århus University – Herning Institute of Business Administration and Technology, Andreas started on a Master of Technology Based Business Development. In the course of this master he went a year to Kalmar to study his second master. Andreas has not worked with sales forecasting previously but has experience in technology forecasting, which do have some similarities. His motivation for this thesis lies in the opportunity to work with a company such as Volvo Construction Equipment, and to get real life experience in working with a subject of great interest to him. Carina Kellner was born in November 1985 and grew up in Tulln, Austria. She graduated with a Bachelor of Business Administration degree majoring in Business Administration and E-Business Management from IMC FH Krems, University of Applied Science, Austria in 2008. In the course of her Bachelor studies, she spent half a year as an exchange student in Helsinki/Finland, as well as completed an internship in Vancouver/Canada for half a year. Her motivation for this thesis lies within her natural passion for market research, and her marketing-, management- and project planning background in her Bachelor’s degree. Her interest has been in applying this knowledge in the real business world. She would like to further develop her career in business consulting and international marketing. This thesis concludes their studies for a Master of Science in Growth through Innovation and International Marketing at Baltic Business School, University of Kalmar, Sweden. vi Master Thesis, VCE Region International, Spring 2009 vii Abbreviations Abbreviations 4C New VCE Forecasting system and Process, “Foresee” Act Actuals, i.e. units sold AH Articulated Haulers ASM Area Sales Manager BC Regional Business Coordinator CCC Communication, Cooperation, and Collaboration DBM Dealer Business Meeting EtA Expected date of arrival to destination port EtD Expected date of delivery from port EWI-Report Early Warning Indicator Report F0x Forecast month x Fc Forecast - When talking about forecast, we mean sales forecasting, not to mix up with other types of forecasting, e.g. technology forecasting. HQ Head Quarter IOA Islands of analysis KPI Key Performance Indicator MAPE Mean Absolute Percentage Error MAS Machine Administration System, for machine ordering & reporting MNC Multinational Company MOM Master Order Management, Order System OOH Orders On Hand R12 F0x Rolling 12 months forecast from month x RBF Rule Based Forecasting ROH Retails on Hand, i.e. all end-customer orders known by Dealer (also referred to as Orders on Hand or Order Backlog) S&OP Sales and Operations Planning S&OP Leader Responsible person for a product group SAP Systems, Applications, and Products in Data Processing TM Total Market TOD Target for Operational Development VCE Volvo Construction Equipment VDN Volvo Dealer Network VFO Volvo Front Office VP Vice President for each sub-region VP Sales Vice President of Sales Region International VPT Volume Planning Team YTD Year-to-Date viii Master Thesis, VCE Region International, Spring 2009 ix Table of Contents Table of Contents 1 Introduction ..................................................................................................................2 1.1 Background .............................................................................................................2 1.2 The Case Company .................................................................................................2 1.3 Research Problem ...................................................................................................4 1.3.1 Problem Definition ..............................................................................................5 1.4 Purpose of the Thesis ..............................................................................................7 1.5 Delimitations...........................................................................................................8 1.6 Contributions ..........................................................................................................8 1.7 Outline of the Thesis ...............................................................................................9 1.8 Time-Plan for Research ......................................................................................... 10 2 Methodology ................................................................................................................ 12 2.1 Scientific Approach ............................................................................................... 12 2.2 Research Strategy .................................................................................................. 13 2.2.1 Strengths and Weaknesses of a Case Study ........................................................ 14 2.3 The Case Study Research Design .......................................................................... 16 2.3.1 Overall Intent .................................................................................................... 16 2.3.2 The Single Embedded Case Study Design ......................................................... 17 2.3.3 Sampling ........................................................................................................... 19 2.3.4 The Researcher’s Role ......................................................................................