Forecasting Sales in Wholesale Industry

Most of the wholesalers, small and large, use managerial judgment in preparing their forecasts ... in large companies, forecasts are primarily prepared by sales and financial managers, and in small companies, by top managers ... most often forecasts are prepared for a period one year or less. Executives in all industries recognize the importance of the forecasting function for planning and control purposes. While this recognition is near universal, its implementation is not. In fact, there are substantially different forecasting beliefs, practices, and procedures from one industry to another, and one sector of the economy to another. Wholesalers, like their counterparts in other business operations, are in need of reliable forecasts. This tool is of special importance in this industry, where competition is very intense and customerbuying habits are very dynamic. These conditions make planning and control very important to management and, as such, sales forecasting becomes a vital process. The bulk of the studies on how forecasting is conducted has concentrated on manufacturing, financial institutions, and retail industries. Few inquiries have focused on the wholesaling sector, despite its importance to the performance of the economy. This paper is based upon a study of forecasting practices in the wholesale industry. It is concerned with who prepares forecasts, forecast horizon, methods employed, and the types and forecast accuracy. THE STUDY The data were collected by five graduate student interviewers who administered telephone interviews to a randomly selected sample of 484 wholesalers. Initially, the interviewers contacted 1,100 wholesale companies in different cities. The names were selected from the yellow pages. The cities included Seattle, Los Angeles, San Francisco, Las Vegas, Salt Lake City, Phoenix, New Orleans, Denver, Dallas, Kansas City, Houston, Miami, Memphis, Indianapolis, Cleveland, Detroit, Minneapolis, Philadelphia, Chicago, New York City, Pittsburgh, and Boston. Fifty wholesalers were randomly selected from each city. From this list, 484 firms agreed to be interviewed by telephone (producing a response rate of 44.0%). The data for this study was derived from these companies. All interviewers had past experience in telephone interviewing. They received two hours of instruction by the authors. Further, they pre-tested the interview guides on a sample of 50 wholesale firms contacted by telephone. The interviewees were the top managers of the firms or their designees. RESULTS It was anticipated that the forecasting practices could differ widely between firms of different sizes. Accordingly, each respondent was asked to specify the number of individuals employed by the firm. In this study, small firms consist of those with less than 100 employees and large firms of those with 100 or more employees. The sample consisted of 411 small and 73 large wholesalers. The members of the sample were asked, "Each year, do you prepare a forecast of future sales?" Each large company said "yes." However, 93.2% of small companies prepare some kind of estimate. In general, managers in this industry appear to be committed to estimating their future sales, although a few small firms do not FORECAST IDENTIFICATION The interviewers also asked the respondents, "Who is primarily responsible for preparing the forecast?" Table I presents the findings. Overall, the highest rankings were for (1) top managers, (2) sales managers and (3) company accountants. For large companies, the main preparers were (1) sales managers, (2) financial managers, and (3) top managers. In the case of small enterprises, however, the first ranks were held by ( 1 ) top managers, (2) sales managers, and (3) company accountants. It is logical that top managers of large companies would be less inclined to be involved in preparing forecasts, since they are heavily involved in organizationwide decision making, and would delegate forecasting responsibility to someone else. …