Medical
Prophecies!
Art
or science, whatever it may be, the primary aim of sales
forecasting is to provide error-free predictions of future
sales volumes. How can the pharma industry use forecasts?
Small
or big; consumer or industrial; in every company, sales
forecasting is the most important planning task. Since sales
is the only revenue-generating source, the rest of the functional
planning tasks depend upon the forecasted sales figures.
What
is sales forecasting?
Sales forecasting is the process by which the company estimates
its future sales with an assessment of the possible risk
to achieve it. Predictions are made based on a certain set
of assumptions backed by good quality market research. The
estimates may be for a shorter or longer period. For example,
forecasts may be made for either weekly or monthly sales
targets.
Why
is it important?
Forecasts aid sales managers in improving decision-making.
Pharma manufacturers, being in a critical life and death
industry, must use sophisticated analytical techniques to
build a forecasting system that would warn him against discrepancies.
The finance department uses the sales forecasts to control
and schedule its operating costs and in capital budgeting.
Projecting staffing needs by the HR department are made
easy by the sales forecasts. The Purchase department uses
it to control inventories and production schedules.
For
example: A newly launched drug has evoked blockbuster response
and the manufacturer is caught unprepared. He is not able
to produce enough quantities to meet the demand. If the
forecasted sales were right, he would have been ready to
meet the situation by rescheduling his production activity.
The fault may have been with the information source or the
forecasting method used.
Though
no prediction can be 100% accurate, to make a reasonably
accurate pharma forecast, relevant and authentic market
information is needed, which can be obtained from the following
sources:
- Drug associations
- Patient interviews
- Physician insights
- Analysis of past cases
- Press and the media
- Medical research firms
- Competitors
- Clinical trial tests
Besides the above information sources, all factors that
affect sales volumes have to be taken into consideration
like: market changes, both local and international, seasonal
demand, political events, sales promotional campaigns, consumer
earnings etc.
The
accuracy and importance of sales forecasting lies in how
carefully the sales quotas and sales budgets are set. Sales
quotas are short-term goals and objectives set up by the
management, which are the performance standard for the sales
force. Sales budgeting is the process by which the management
determines the amount to spend to realise its sales goals
and sales objectives.
According
to pharma industry experts and specialist doctors, pharma
forecasting is both an art and a science. As a science,
it is more statistical and quantitative. As an art, it is
more interpretive trying to evaluate the actual forces,
which have an impact on sales volumes.
The
forecasting process
The
forecasting process consists of three sequential planning
steps addressing key factors :
Preparing
a forecast of general economic conditions: The general
economic condition acts as a base for predicting future
sales volumes. GDP, stock prices, purchasing power of consumers
and their consumption patterns, employment levels and the
consumer price index along with fluctuating inflation levels
have an impact on the forecasted sales figures.
Preparing
a forecast of industry sales: Developing industry forecasts
depends much on the size of the firm. Smaller firms generally
find it difficult to develop company-specific forecasts
due to the costs involved and base their forecasts on third
party information from various drug associations, government
sources and industry experts. On the other hand, large corporates
employ specialist economic advisors who provide support
and information for sales forecasting using various forecasting
methods based on the GDP of the market. Though these sales
forecasts are made elsewhere in the company, they are generalised
to suit the company's economic environment and passed on
to all the departments.
Preparing
a forecast of product and company sales: Predicting
how the product will fare in the future is of major concern
for the company. For this, the right forecasting method
should be employed. Forecasting methods are generally classified
into:
Qualitative techniques: This method is based on subjective
opinions and judgments. For example, jury opinion, Delphi
technique and surveying actual buyers' intention are some
of the techniques used.
Quantitative techniques: Mathematical and statistical techniques
like extrapolation technique, regression, correlation co-efficients,
and time series analysis are used for arriving at results.
It
is imperative that sales managers understand how sales forecasts
are developed to use them appropriately. In general, the
most accurate forecasts come from persons who are in close
contact with your customers. They are your salespeople.
Don't neglect them. Get them involved in the process for
they are the ones who best know their territory, product
lines, consumption patterns, service levels imparted and
so are the best predictors.
Keep
the health of your market in full view constantly to remain
in good sales health yourself!
Related reading:
1. "World class marketing plans, Planning fundamentals
map the route to increased world market share"; Kay;
2001.
2. "Forecasting the sales potential of a new drug delivery
system", IMS Health, 2001.
3. "Forecasting the growth of obesity treatments",
IMS Health, 2001.
