SCDigest Editorial Staff

Dershem Says:

We were able to achieve our primary goal – dependable forecasts to drive the supply chain. What was exciting to watch was the renewed enthusiasm about forecasting. What do you say? Send us your comments here

Getting active participation by sales in the forecasting process is always a challenge, and is especially difficult for the many companies that use distributors to get product to market.

The US arm of Dutch brewer Heineken faced that challenge in a big way, until an enterprising planning manager from Heineken used contests and incentives to drive significant improvements in forecasting and inventory planning processes.

Heineken, producer of its flagship brand of beer, as well as Amstel Light, Buckler, and other labels, has a different supply chain than most US brewers. The product is made in Europe, and shipped either directly to its US distributors, or to Heineken’s “demand centers” – DCs in several areas of the country that ship only to distributors. In either scenario, Heineken ships product based on true distributor orders, rather than having beer pushed from the factory, as is still the rule in most US-based brewery operations. Distributors in turn sell and ship to retailers, bars, restaurants, and other outlets in this three-tier supply chain.

A key supply chain planning calculation for Heineken is the expected level of “depletion forecast” – the forecast for the level of draw down in distributor inventories based on shipments. The depletion forecast is then used to derive a related sales forecast of actual order from the distributors to Heineken.

Brian Dershem, at the time a planning manager at Heineken US, and now in a similar role for the Papa John’s pizza chain, found he was getting only mediocre participation versus the level of expected contribution to the forecast from distributors in the Southeast region for which he was responsible.

As chronicled in a recent issue of The Journal of Business Forecasting, this lack of distributor participation and effort led to low levels of depletion and sales forecast accuracy, and the usual inventory problems that result from poor forecasts. These problems were exacerbated by the long supply chain and pull-based systems used by Heineken.

Forecasting Contests and Incentives

To get better participation and results, Dershem devised an incentive program for the largest 20 distributors in the region. Though the specific prize award structure and contest time periods were modestly revised a few times based on experience, the key aspect involved creating contests that offer attractive financial incentives to individual forecasters at the distributors for those that had the least forecast error.

For example, as can be seen in the figure nearby, Dershem initially created a weighted system that calculated a total score over forecasts for several sub-periods within a three-month window. The prizes were initially given to an individual at the distributor providing the most accurate forecasts, and involved a $500 Amex gift certificate for every two and four-month forecast period, and a $2000 certificate for the best annual forecaster. These schedules were later revised to offer more frequent prizes and enable more planners a chance to win.

Several interesting dynamics happened after the program was implemented:

• By publishing results of the on-going contest to all 20 distributors, a friendly competition quickly emerged. Planners at the distributors were not only competing for the prizes, but recognition.
• The differences in skill levels also quickly emerged. Several planners at the distributors quickly showed a much higher skill/accuracy level.
• An informal network developed, with less successful planners looking to the more successful ones for tips and techniques.
• Overall monthly forecast accuracy increased by 10% in one year after the program.

A similar program was later implemented with success to reward individuals for timeliness of inventory reporting and maintaining targeted on-hand inventory levels.

“We were able to achieve our primary goal – dependable forecasts to drive the supply chain. What was exciting to watch was the renewed enthusiasm about forecasting,” Dershem said.