Demand Management 485 its quantity and timing, through the use of advertising, pricing, and incentives to dealers, sales representatives, and customers. 4. Prioritization and allocation. The idea behind demand management and master scheduling is to satisfy all customer demand. However, if a situation presents itself in which less product exists than requested, or the materials and resources needed to produce the required product are not available, then a decision must be made as to which customers get their orders filled as requested and which need to wait. This decision is the responsibility of sales and marketing. Allocation is the process used when the company cannot produce enough product to cover the demand, whereas prioritization is the process used to determine which customer’s order is filled first. If a company cannot produce enough product, then some business may have to be turned away. In this case, the available product needs to be allocated so that the company does not oversell and overcommit its ability to produce. Thus, the idea of managing demand is reasonable and has plenty of precedents. THE ROLE OF FORECASTING IN THE COMPANY: THE CASE OF HASTINGS & BROWN Richard Phillips sat in front of his computer, checking all the numbers he had just entered into an elaborate spreadsheet. The first column listed each of the company’s 50 key products, which collectively accounted for almost 95% of company revenues. Arrayed across the top were the company’s 42 sales territories. The number he entered into each cell represented a sales forecast by product as determined by a field representative, based upon contacts with customers who were just then beginning the lengthy process of making purchase decisions. 486 Master Scheduling Phillips was assistant sales director for Hastings & Brown, a publisher of college textbooks with annual revenues of $38 million. H&B’s customers were college professors scattered across North America who determined which textbooks their students would be required to use during the next fall semester. Their purchase decisions were generally made between April 15 and June 15. Each April, Phillips had to prepare a sales forecast for July through September, the period during which fall semester books would be ordered. Although this was his third experience of handling the fall forecast, this year would be more difficult than ever. Many new editions of H&B texts were just now being published, and their acceptance by the marketplace would be one large question mark until actual orders came in from the field. The competition had been active in both new publications and promotions. Forecasting fall sales this year would clearly be more difficult than in any of the past few years. In H&B’s industry, every new book was an experiment. Many, in fact, joked that “the first printing is our market research.” Some of the books published in the spring would catch on and be ordered in large numbers for the fall and for subsequent semesters; most, however, would be used by just a few schools and would disappear from the marketplace in a year or two. Determining the winners and losers at this point was the tough part. Many in H&B management needed the forecast and would rely on it for a variety of purposes. Phillips’s boss needed it for his report to the president. He would also comb through it for evidence of big winners to be touted to the sales force to spur them on to even larger sales. The production manager would use the forecast to plan reprints. Since the first printing of a new title was indeed a form of market research, initial printings were deliberately kept small. Once the winners were identified by the field sales force, plans for second printings had to be made; the same had to be done for other, older publications. The company’s financial manager also had a keen interest in the forecast, as he would have to finance production and budget further expenses. Finally, H&B’s president would be making his quarterly trek to New York, where he was expected to report to the parent company’s board of directors on the plans and progress of the subsidiary company he managed. The fall sales forecast would be his primary resource in preparing for that important meeting. Demand Management 487 All forecasted sales figures were submitted directly by the field sales representatives, who were (or were supposed to be) in regular contact with their customers. As a former field representative who knew most of the field staff, Phillips was suspicious of many of their forecasts. The Nashville representative, Rhett Farnsworthy, he remembered as a self-styled big shot. Farnsworthy’s forecasts were always higher than just about everyone else’s, yet his optimism was never supported by actual sales. Joan Sommerville of Seattle, on the other hand, was a high-performing sales representative who invariably turned in a low forecast. Phillips liked to think that the overly optimistic and overly pessimistic figures submitted by individual field representatives would naturally cancel each other out when the figures were aggregated into a final forecast. But he had neither the time nor a method to empirically evaluate that theory. Some field representatives he suspected of simply pulling numbers out of a hat. Because the forecast played no part in establishing sales quotas for their territories, and since no rewards or penalties were ever assessed for accurate or inaccurate forecasts, the largely unsupervised field representatives had no particular incentive to take the forecasting job seriously. To many, it was an annual chore that took away from their selling time. H&B management had never emphasized the importance of good sales forecasting to the overall workings of the company, nor had it provided them with a methodology for doing the job systematically. One who did take the forecasting job seriously was Arthur Petersen, of the Wisconsin territory. Petersen had a reputation for being diligent in developing his territory forecast for each major project. He kept careful records of past order quantities, called his customers frequently about their plans, and used early order patterns to project future orders. This attention to detail paid off in booking orders and in more accurate forecasts for the Wisconsin territory. But Petersen was an exception to the rule. Phillips continued the tedious business of compiling the forecast figures, and as he did so he determined that he would ask Petersen to develop a short training program on sales forecasting for the other sales representatives. But not until next year.