Ask a MHEDA-NET Group: Forecasting Metrics

January 24, 2020

“The first Material Handling Business Trend for 2020 notes: ‘Members must identify forward looking metrics (sales pipeline, quote activities, etc.) and manage assets and operational costs accordingly.’ What specific metrics do you use as an organization to forecast for your company? Are there specific indices you look at? How do you use these to manage your costs?” Thomas R. Duck, VP/General Manager, Tri-Lift NC, Inc., Greensboro, NC. MHEDA-NET Group: The Rat Pack Revived The specific metrics we use as an organization to forecast are pretty much the same as most other dealers would most likely tell you. We actually track our changes in rental activity and focus on strengthening our parts and service business as that is what can sustain a dealership through the economic downturns. We try to employ consultative type sales people who don’t rely as much on economic changes as they do on helping the customer to reduce cost, no matter what the economy outlook is. We do have specific indices we look at, such as the ITR forecast and MHEDA business trends, new building starts vs existing home resales, interest rate fluctuations and more importantly what our customers are saying. And we are always managing our cost and trying not to be reactive but proactive in managing WIP, cash flow and expenses. We operate lean always, reducing underutilized assets and keep stock at a minimum, so we don’t have to make cuts when we experience a downturn. Robert Giberson, President, PeakLogix, Richmond, VA MHEDA-NET Group: NASA – North American System Alliance At PeakLogix, we manage by looking at the backlog of existing work, the current sales funnel, recent proposal activity (number of proposals and associated dollars), the project manager’s report and the number and size of our engineering projects to keep our fingers on the pulse of the business. Like everyone, we review sales and bookings by month and by quarter compared to the same timeframe for the last several years. We manage project costs by working closely with our vendors to achieve mutually beneficial results. Mike Burskey, President, Shelving + Rack Systems, Inc., Commerce Twp, MI MHEDA-NET Group: NASA – North America System Alliance Internally we look at our active quote pipeline and order backlog. We ask the sales team what they are hearing in the marketplace from our customers, how busy they are- what are they seeing? We ramp up inventories ahead of our historically busy times and let it go down (somewhat) ahead of traditionally slower times. We monitor/limit overtime as required. In the past we would hire more personnel as times got busier; not so easy to do today with the tight labor market. We pay attention to the ITR’s economic forecast for an idea of what is coming up in the future. Rick Andrews, Vice President, Conveyer & Caster-Equipment for Industry, Westlake, OH MHEDA-NET Group: NASA – North America System Alliance Forward looking metrics start with appointments – activities – new account set-up, followed by quote activity which helps us gauge the sales pipeline. Other metrics we watch weekly/monthly include order bookings, A/R balance and our cash position. For sales forecasting, we take each sales person’s account package and gauge the repeat business which we factor out when looking at a pipeline needed to achieve a sales goal. The pipeline is measured based on close % per salesperson, which in turn helps us set a load input number per week, per month to calculate the annual goal. To further clarify the pipeline; Opportunities / Orders (Actual orders) – Looking forward at the level (Increase/decrease). Basically, making sure we have enough opportunities in place (Based on close rate to meet business goals.) Regarding specific indices we use to manage our business, these would include MHEDA financial forecasts as well as Kiplinger Newsletter and US Government data. We take all these into account when working on our forecast numbers. The forecast helps us set a budget which helps guide us in controlling costs. But also using that trend rate to adjust costs. David Cranston, Jr. President, Cranston Material Handling Equipment Corp, McKees Rocks, PA MHEDA-NET Group: Storage & Handling As a smaller distributor of material storage and handling equipment, forecasting sales has always been a challenge. I have not found any metric that forecasts with any degree of consistent reliability what our sales will be a few months into the future. A few missed larger orders or winning a couple of nice jobs can break or make a year regardless of the number of proposals we are submitting, or how the economy may be trending. I do rely on the ITR forecasts to keep a handle on the direction of the economy. I track gross margins of each month’s booked sales, so I can anticipate future cash flow. I have watched our business morph into a company dependent on technology. So, in years when our gross margins are strong, we invest heavily in new technology. These investments have provided us the tools and productivity necessary to ride out the poorer years. Gerardo Padilla, Director, SEIL Rentals, Saltillo Coahuila, Mexico MHEDA-NET Group: The Rat Pack Revived We are facing a very hard year in the Mexican economy; the economic growth for 2019 has been zero. We are forecasting next year using ITR numbers and the MHEDA economic report. We are making a budget for each center of cost (Equipment, parts, service, etc.) and each manager should track its performance during the year. We are basing our sales forecast on the pipeline, including not only deal size, but also deal strength and probability to close. Finally, we are using a variance analysis to measure how much the sales forecast changes from the beginning to the end of each month. Will Egerton, VP Operations Wecon Systems Ltd., Ontario, Canada, MHEDA-NET Group: NASA – North America System Alliance Keeping things as fluid and flexible as possible is one key to being able to react to changes that will inevitably happen. Quote activities always need to be kept up through any changes in your environment, and keeping “in touch” with your customers on a regular frequency should give you a good indicator of the direction in which your world is moving. Pipelines, spread sheets, pie charts and tables are all great tools but there is still no better indicator of what is happening as talking to your customers. Workloads need to be monitored as well, resource planning is key to keeping things moving as we move through ups and downs in our regular work cycles. Managing all the costs associated with your operation is a never-ending challenge but if you are able align yourself with trusted suppliers they will help you keep your costs in line. Another thing we try to do is distinguish between wants and needs; the wants are only available when all indicators are pointing positive. It is by no way an easy task but someone has to do it and hey, if it was easy wouldn’t everyone be doing it? Kevin Thompson, Vice President, Conveyor Solutions, Inc., Newport Beach, CA MHEDA-NET Group: NASA – North America System Alliance We break this up in multiple stages and steps. Our Executive Committee (EC) looks at long term organizational structure. Based on the 5-8-year Sales goal, what will we need in infrastructure to get there? We also break this down to a 12-month version for the LM (Leader/Manager) team to review and execute. We use our CRM for Month to Month sales forecasts. Due to the range of project sizes, we have a significant range in overall sales cycles. Parts and service have a very short cycle while larger facilities with multiple levels of automation will have a longer sales cycle. A typical plan will have smaller projects in a monthly value and larger projects in a quarterly value. We do look at total number of proposals presented to the customer, value of those proposals, and % of probability for a sale. These are broken out by cost to split up the expectations in quarterly revenue and monthly revenue. Based on this data we look 2-4 months ahead. The much harder part is the forecast for “Assets and Operational costs.” It is not an easy switch to flip. Hiring and training for the backbone of the company is a 3-6-month investment. Finding the correct person to fit our needs can be a 3-6-month investment. We base this segment on the longer-term Strategic Vision of the EC team and overall economic information we see. Mark Evans, Vice President of Operations, Valley Industrial Trucks, Inc., Youngstown, OH MHEDA-NET Group: The Rat Pack Revived We watch the economic forecasts, but also throw in our interactions with our customers. Our pipeline is very important, but understanding the businesses of the people that buy from us is the biggest indicator. Focusing on only a few metrics can be misleading while widening your focus can leave you feeling the overall picture is less serious that it truly is. The wide focus has to be used to narrow your focus on the important indicators that are going to steer the economy of the future. Unforeseen events are never going to be forecasted properly and can cloud judgement and affect or delay good decisions. Trends have shown how the economy is shifting and 2 years ago we geared our managers and key role personnel to focus on efficiency. We hold them accountable for expenditures and spending with an approval and justification process. Training on utilization of resources, management of expenses by challenging the status quo of our current vendors and assessing our current assets has strengthened our profits in the upswing of economic growth. Scott Fawcett, President, Bode Equipment Company, Londonderry, NH MHEDA-NET: Storage & Handling In preparation for the 2019/2020 slow down, Bode focused on internal restructuring. Until now, we did the same thing every year. We looked at internal metrics such as quote logs, quoted dollars, closing rates, bookings, invoiced, etc. We look at external metrics such as Purchasing Managers Index, Baltic Exchange, Architectural Billing Index and others. In June 2019, we installed a new ERP system focused on increasing efficiencies within the organization. In October 2019, we hired Outpace Enterprises, an EOS consultant who focuses on departmental responsibilities, accountability, standard operating procedures and structured process. We continue to look at the traditional internal and external metrics but we strongly believe that aligning our existing personnel with specific duties/responsibilities, we can align everyone to be focused on the common goals of the company. We needed more than just metrics; we need to focus on internal efficiencies, increase profits through sustained structure and process.