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Compared to the forecasting of ongoing product demand and sales, new product forecasting receives considerably less attention, as is reflected in the number of publications found on the respective topics. Those publications that do address new product forecasting predominantly focus on statistically sophisticated techniques. This portrays new product forecasting as a potentially mysterious endeavor—which it is not. New product forecasting is certainly difficult due to the unique challenges connected to the new product forecasting endeavor. For example, new product forecasts contend with high degrees of uncertainty that result in new product forecast accuracy being, on average, slightly above 50%. Compare this to research that suggests forecast accuracy of current products to be between 70% and 85% on average at the product level. Time management is a second major challenge. When forecasting existing products, one can usually run a forecasting engine embedded within a company’s production planning software. In contrast, forecasting a new product requires more manual attention, and thus, considerable time and resources. The additional time required to develop a new product forecast may be prohibitive, particularly if a forecaster is responsible for a product mix of thousand of items. Less available time means less thinking on inherent new product forecasting issues such as:
A third challenge is the amalgamation of assumptions on which new product forecasts are based. This mandates that managers recognize new product forecasting as a process of assumptions management, where assumptions are systematically generated, translated and tracked. Failure to approach new product forecasting with a mindset towards new product forecasting as assumptions management results in a greater tendency for erroneous new product forecasts. Assumptions which are not regularly documented and tracked for consistency can meander, can be easily manipulated and are more susceptible to company politics While the challenges may appear to be daunting—high forecast accuracy is never assured, time is a limited resource and a myriad of assumptions may persist—employing a systematic new product forecasting approach can “demystify” the new product forecasting endeavor and force focus on those new products and issues deserving of attention. A systematic new product forecasting approach includes the establishment of a new product forecasting process that dovetails with the existing sales forecasting process and the Sales and Operations Planning (S&OP) process; the assignment of specific roles and responsibilities for new product forecasting-related tasks; and the delineation, revisiting, and tracking of new product forecasting assumptions that underlie the new product forecast. By systematically approaching new product forecasting as a process, a company will attend to the right issues initially, manifest more accurate new product forecasts, and optimize one’s time in generating this forecast. These benefits highlight the need to take a practical, systematic approach to new product forecasting and acknowledge a process approach for proper new product forecasting. In short, careful consideration, understanding and systematic persistence will create a new product forecasting endeavor that is laudable and meaningful for the business.
Additional Resources Click here to download slides which provide the overview of Dr. Kahn’s upcoming workshop.
About the Author Prior to joining Purdue University, Dr. Kahn was the co-founding Director of the University of Tennessee’s Sales Forecasting Management Forum – an education and research consortium involving market analysis and sales forecasting. He also previously was Director of Georgia Tech’s Marketing Analysis Laboratory and co-founder of Georgia Tech's Collaborative Product Development Laboratory, both of which conducted corporate-sponsored research. Dr. Kahn is currently Vice President of Publications for the Product Development & Management Association (www.pdma.org). Dr. Kahn's industrial experience includes serving as an industrial engineer and project engineer for the Weyerhaeuser Company and a manufacturing engineer for Respironics, Inc. He has consulted with and facilitated training sessions with numerous companies, including Acco Brands, Alticor Corporation, Biolab, Coca-Cola, Deere & Company, Enterasys Networks, Gillette, Harley-Davidson, Honeywell, Johnson & Johnson, Mary Kay Cosmetics, McNeil Nutritionals, Schering-Plough, Springs Industries, and Unilever.
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Kenneth B. Kahn, Ph.D. (BIE, Georgia Institute of Technology; MSIE, Virginia Polytechnic Institute and State University; Ph.D. in Marketing, Virginia Polytechnic Institute and State University) is a Professor and the Avrum and Joyce Gray Director of the Burton D. Morgan Center for Entrepreneurship at Purdue University. His teaching and research interests concern product development, product management, and demand forecasting of current and new products. He has published in a variety of journals, including the Journal of Product Innovation Management, Journal of Business Research, Journal of Forecasting, Journal of Business Forecasting, Journal of Business Logistics, Marketing Management, and R&D Management. He is the author of Product Planning Essentials (Sage Publications, 2000) and New Product Forecasting: An Applied Approach (M.E. Sharpe, 2006), and is editor of the PDMA Handbook on New Product Development, 2nd Edition (Wiley & Sons, 2004).
