Functional objectives - Marketing Management

Forecasts are needed for many different purposes, including production planning; ordering raw materials; ensuring a steady supply of trained personnel; controlling stocks or inventories; estimating short-term cash requirements, and a variety of other reasons. All these applications have different ‘time horizons’. That is, the forecast is needed at different times before the event if it is to be of any practical value. The sales forecast is thus not merely used for planning marketing; it has company-wide applications.

It is marketing and sales personnel who should prepare the sales forecast. In fact according to Geiger and Guenzi,3 the sales force itself has a key role to play in sales forecasting. This point is made because in many companies, sales forecasting is left to the finance department, as they have an immediate need for the forecast for business budgeting purposes. When forecasts are left to finance in this manner it is an abrogation by marketing of its responsibilities.

The reason is that finance personnel are not expected to be forecasting experts and they will simply take sales from earlier periods and do extrapolations from past data. Marketing, above all other functions in business, should be in the best position to ascertain potential sales, including downturns and upturns, of which accountants will be less aware, since they are much further removed from customers than the marketing department. Forecasting is a risky business, which is all the more reason why marketing should not abrogate its responsibilities in this regard.

We now consider the business functions that are most directly concerned with sales forecasts. Production needs forecasts for each product line in order that manufacturing can be planned and scheduled on an orderly basis. Thus machines and manpower can be more effectively utilized. When the transport element of logistics is organized by production, it is helpful to have advance warning of bulky or awkward items that have to be packed and moved, particularly when overseas considerations are involved. In the longer term, production needs to make decisions on levels of plant operation in order to be able to meet production levels to achieve the planned-for sales. Production’s main need will thus be for accurate short-term forecasts for production planning and control.

Human resource management (HRM) needs forecasts in order to be able to ascertain staffing levels in the future. It will then be able to recruit personnel to achieve the forecasted sales. There will be training implications for employees taken on to achieve an increase in sales, so the concern of HRM will be mainly in respect of the medium-term forecast, but the long-term forecast will be needed for formulating management succession plans.

Purchasing needs accurate forecasting so that raw materials and component requirements can be met on a timely basis. As the forecast will give the purchasing officer more time in which to purchase, rather than having to wait until the requisition is received from production, he or she may be in a position to purchase on a more favourable basis because of the increased lead time. T

The purchasing department can also operate more effective stock control for raw materials and part manufactured goods and work out optimum stock levels. The danger of overstocking, with the risk of deterioration and obsolescence, will be less, and because less stock will need to be carried, this will result in a saving on working capital.

Better forecasting will also avoid the possibility of stock-outs resulting in disruption to the production programme. In general, the purchasing function will be more interested in short-term forecasts, although the medium-term forecast will be of value. Clearly the techniques of JIT supply and lean manufacturing the nature of the need for short-term forecasts in this regard.

Finance needs forecasts in the medium term to establish budgets based on the planned-for sales. Here, accuracy is important, because if the forecast is incorrect, then all the company budgets will be incorrect, with consequent overspending in the case of an optimistic forecast. Cash requirements to fund working capital need to be budgeted, and an incorrect forecast could mean that the company has to make a request to the bank for increased borrowing. Many bankruptcies are a result of a shortage of working capital, and better forecasting could, in many instances, have avoided such an event.

Also, finance needs to engage in long-term profit planning and must predict income flow. It must make provision for long-term capital needs in terms of plant, machinery etc., and here the long-term forecast is of importance if the organization is to be ready to produce appropriate products in the correct quantities at the time these are needed. Marketing should make the forecasts, and these are needed for the entire company as just illustrated. However, marketing also needs these forecasts in order to plan promotional campaigns and sales strategies to complement these campaigns.

It needs the forecast in order that the correct types of sales and marketing personnel can be recruited and trained to achieve the planned-for sales. Remuneration plans will also need to be formulated, particularly when these are linked to sales targets or sales quotas, and these targets or quotas will be a reflection of the sales forecast broken down among individual sales personnel. When ‘off-the-shelf’ delivery is offered to customers, the sales forecast will help to determine maximum and minimum stock levels, and here an incorrect forecast will result in either stock-outs (and possible loss of custom) or overstocking (with a resultant drain on working capital).

In the longer term, more precise goals can be set for members of the marketing channel, both in terms of the supply chain and the demand chain. Channel arrangements tend to be of a more stable, long-term nature, and if potential sales are predicted to be much higher in the long term, then new channel arrangements might be called for. Thus, marketing is in need of short, medium and long-term forecasts.

Research, Design and Development (R,D&D) requires technological forecasts. Marketing is the conduit through which changes in the market place can be relayed to the R,D&D department. Design features and new technology will affect company sales, and products need to be updated or changed at intervals. Marketing is in close touch with customers and should be aware of competitive offerings, so marketing is best placed to give advice in this respect.

It might be that a particular product line is becoming obsolete, in which case R,D&D will need to plan and develop a new product or make modifications to an existing product in conjunction with marketing research. Only by doing this will an organization be able to keep ahead of, or apace with, its competitors and continue to produce products that are appropriate for the marketplace. Marketing, through the medium of marketing research, will liaise with R,D&D and from medium and long-term forecasts will coordinate new product developments and ultimately product launches.

With an accurate forecast, departments can plan more effectively with the reassurance that these action plans can be carried through and will not have to be modified, as they might be if the forecast was inaccurate. There is thus an interrelationship and interdependency between the plans and operations of each of the above functions, because they are all based on the sales forecast.

If the original sales forecast proves to be incorrect, then it will affect each and every function within the business, because each department uses the sales forecast as its starting point. The importance of an accurate and timely sales forecast cannot be overemphasized. What we must do is reduce the extent of the wrongness of the forecast, or at least provide guidelines as to the extent to which it might be incorrect.


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