Most businesses can take steps to build a pretty tight sales forecasting model using a bottom up and top down forecast by revenue, but when it comes time to break it down by product this can get tricky for custom manufacturers of parts used in medical devices or similar products. Why? Because aside from custom manufactured parts and custom devices and applications, what you are really dealing with is “custom customers”.

Now if your business sells a commodity or has a short sales cycle our use of the term custom isn’t really important and it may not be much of a challenge to forecast by product, but for those with a long sales cycle and/or a custom product it can be much more complex.

Here is an example of such a process and the different players and timeframes involved all of which will affect the ability and the accuracy of forecasts. Time can act like a slinky compressing at one point then stretching out at another when new issues arise.

Using our example of the medical device industry, sales people talk to prospects and identify opportunities. Those opportunities are usually the start of a long sales cycle lasting many months and sometimes longer where the actual quantity of a product may be up in the air even if the prospect says they are interested in purchasing 1 million parts right up front. No point here in adding this to any forecast unless it just makes you feel good to see big numbers on a spreadsheet.

To elaborate further, here’s a typical scenario: Custom manufacturers of products used in medical devices are approached by Design firms or Product Designers who want to know if what you are selling will work in their product or application. After some initial qualification of the product they often start a testing process and build a prototype to see if everything works together. The eventual purchase date is still subject to a number of factors from FDA approval testing for medical devices to the actual launch date of the product. At some point after it is determined your parts work as intended the task of actually purchasing your products often gets turned over to another person in a purchasing department at “some company”.

We say “some company” because the actual name brand of the device or product may be responsible for sourcing the parts that go into their device, but more often than not, they will outsource the assembly of the device to a contract manufacturer. Now we can conceivably have a third party enter the process and they may have their own ideas on quantity and pricing (that is fodder for another blog). 

Let’s assume at this point that the customer in question is serious about purchasing and we have gotten beyond the terms and conditions discussion (yet another topic for another blog).  Now we are reaching the stage where we are finalizing the actual order quantities and release dates. At this point there are still factors beyond our influence or control that can impact the opportunity. The market for the device may have changed, either up or down. The company making the device may have had a recall of some other products. Does Toyota’s unintended acceleration come to mind? That certainly put the kibosh on a lot of new parts to be ordered for Toyotas yet to be built.

Let’s jump in at this point with a caveat. If you are trying to track and manage all of this through customer service, forget it. Our clients who are most successful in these scenarios all have well trained inside sales people who can talk like engineers about the products and act as traffic cops throughout the whole process.

At a high level we can raise visibility for corporate planning and production about the opportunity in the mid stage, however, because this is a custom product much like a tailored suit, committing resources to producing the suit until the deal is final is not a good idea.

From our experience, for situations like this the best you can do is to have a very detailed historic sales database to draw from and develop sale trends based on actual sales of the component parts that make up the end products. Then you can apply management discretion on top of the trends based on the opportunities that are known. Some opportunities will be from companies you have worked with before and therefore you have a better feel for their buying cycle and the validity of their forecasts of both timing and quantities. Others will be from companies you know nothing about. It is important to have an opportunity management process that identifies these custom customers at each stage of the opportunity and agree on when things show up on radar.

The management discretion and the end result need to be a conservative forecast given the uncertain nature of a string of interdependent outcomes. At any step along the way of the customers’ buying cycle we may hit a dead end, a change in parts, quantity and/ or delivery date.

The take away here is that even though it may seem you have a lot of data, a great opportunity management process and CRM to track it in forecasting for a custom manufacturer selling to medical device manufacturers is not a slam dunk.