Forecasting and Sausage Making: CFO Says the Message Is Always “Bottoms Up”

A beleaguered CFO once said, “Creating a forecast is like making sausage -- you don't want to know how it's made.”

His frequently recycled thought made me wonder what a sausage maker would tell us about creating a forecast.

In the case of Grandi Salumifici Italiani, a maker of Italian sausage and other processed meats, the message these days is always “bottoms up.”

“The company's top-down approach to forecasting was no longer effective, and we needed to create a strong link with sales and involve everyone in the process,” says Massimo Romani CFO of Grandi Salumifici.

For its part, Grandi Salumifici was established nearly ten years ago by the merger of two companies -- a transaction that has been followed by a series of other acquisitions. In fact, the company has doubled its size in the last three years – a period of time equal in length to its CFO's tenure.

According to Romani, a finance leader with a resume crowded with M&A experience, Grandi Salumifici was ripe for change, and nowhere was change more badly needed than inside the company's overtaxed forecasting processes.

“We needed monthly figures that would help to explain the P&L differences for 1,600 products, and to achieve this we needed a new culture and some new technologies,” says Romani, recalling the difficulties the company faced as it rapidly grew and began pushing out its products across eight sales channels and 30 countries worldwide.

According to Romani, the costs associated with a single faulty SKU projection were becoming quickly multiplied under the current planning and forecasting process. Changes were needed, and fast.

Over the course of a year, Grandi Salumifici introduced a new approach to forecasting that involved 15 forecasters routinely tallying customer sales estimates. While the forecasters helped nurture a steady flow of sales estimates from the front lines, a new software application, known as SAS Forecast Server, helped organize the data. The company's technology solution also included a new financial management application from SAS.

In light of sales estimates having to go through various degrees of validation, Romani credits the technology with speeding up the availability of data and hence the process overall. Today, the company each month builds out a forecast for the next three months.

According to Romani, the company's cultural change was driven by the new technology, as well as a “mentality change” – a development triggered when management stopped handing down forecasting edicts and began listening to the people down below. ###

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