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Were you ever told as a child, "Honesty is the best policy?" My mother lived by this rule, "Always tell the truth! No exceptions!" she would say.  But of course, she had her exceptions, she once told me, "If I ask how my cooking was, the answer is delicious, true or not!" We all develop our own exceptions to this rule, usually to spare peoples feelings but everyone has their own line for stretching the truth.

Before I get off topic, I am not writing this to discuss when you should or should not be honest, but why honesty truly is the best policy when it comes to forecasting in the Sales and Operations Planning Process. The key point in this blog is to address a deeper theme in the S&OP process, Strategy and why representing an honest forecast is so important.

In a previous blog, Sales and Operations Planning versus Budgeting, Is there a difference? Does it matter? I briefly discuss the importance of representing an honest forecast. It is important to first understand the difference between the budget and plan (Forecast), if you are not familiar with the difference please take a moment to read the blog referenced above by clicking on the link.

Declining demand in a business is never easy for anyone to accept or admit. The head of sales, who is usually in charge of signing off on the latest forecast and clearly considered the most responsible for sales in the company, can face a tough challenge when presenting an honest forecast when demand is slipping or an unfavorable variance to the budget occurs. Every time I think about this topic, I grow more amazed when sales executives, usually out of fear for keeping their job, try and brush reality under the rug, essentially building a dangerous bubble in the company.

Why is presenting an honest forecast so important? While I could reference numerous reasons for being honest, ethical reasons or making your mother happy, for the purpose of tying this to the strategic part of  Sales and Operations Planning, I will focus on the health of the company being put in immediate jeopardy as the reason.

When your demand is slipping, it’s pretty clear, you need to re-approach your sales and marketing strategy. A mature S&OP process is designed with this in mind. When the Executive S&OP meeting takes place showing the declining demand, it signals to the executive team that the current sales and marketing strategy needs to be revised. This could actually be a big help to the sales executive who signed off on a low forecast. Having the key financial decision makers in the room understanding the reality of the situation could open doors for essential resources needed that may have been denied earlier (increased marketing budget, additional sales people, etc.). By facing the current reality, the S&OP process gives the executive team a simple and quick alarm to a major issue that can now potentially be fixed. This can also help calm trust issues that seem to occur between many sales and operations teams. On the other side of this, if the sales executive opts for hiding the truth, many problems await, the biggest being driving fake demand in your system resulting in excess and obsolete inventory!

Clearly being honest about the forecast is the best policy, especially when the S&OP process presents the perfect forum to address the demand changes and find an appropriate solution to keep the health of the business in line. Its best to view honestly reporting an unfavorable forecast as a golden opportunity to grow being proactive as opposed to defending your value being reactive.

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