Case Study

Forecasting sales performance

Informing capital allocation decisions with bespoke model and forecasts

Details:

Client: An international manufacturing company of building systems
Department: Strategy

Sales outlook is one of the most important metrics for businesses; while many discuss it, few truly grasp how to forecast it robustly. Sales performance is driven by a range of factors, such as the outlook for end-user industries, government policies and broader macroeconomic conditions. Furthermore, different products respond uniquely to these market drivers across various markets. Our client’s strategy department sought to collaborate with an independent third party to gain unbiased insights into these million-dollar questions: what is driving my sales? Where should I invest and where should I retreat?

Details

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The Challenge

Our client, an international manufacturer of building systems, sought to expand its manufacturing operations and optimise internal capital allocation. To achieve this, they needed robust and accurate sales forecasts to identify where to build capacity and where to scale back.

Prior to contacting Oxford Economics, the client’s strategy department was already tracking various indicators. However, they struggled to connect their sales to trends in end-user industries and macroeconomic developments and lacked a clear understanding of how different metrics influenced their sales outcomes.

The complexity stemmed from the breadth of the client’s product lines, which included variants across the quality spectrum—from economy to luxury—catering to different types of housing and non-residential buildings (such as offices). Demand for these different products responded differently to changes in residential and non-residential construction output, household and corporate incomes and government policies, such as housebuilding incentive schemes, across different markets. This necessitated tailored forecasts for each product across different country markets based on specific market drivers.

The Solution

To support the client in explaining and forecasting their sales performance, Oxford Economics’ Industry Consulting team focused on three key areas:

Robust modelling and forecasts: Our team provided 10-year forecasts of the client’s product lines in each of its country markets, updated quarterly, along with a bespoke sales forecasting model. Our forecasts are based on developments in end-use industries, households, policy initiatives and the broader macroeconomic outlook for each of the client’s country markets. To ensure robustness and accuracy, we drew the driver variables from our proprietary Global Industry Model and Global Economic Model and analysed how different metrics, such as end-use industries’ performance, household sector’s income and spending, could statistically explain the clients’ sales. We supplemented these results with written briefings on the state of the client’s end user customers’ finances and broader macroeconomics trends to provide context for our forecasts.
Scenario forecasts: We included scenario forecasts from Global Industry Service in our deliverables, allowing the client to assess the potential impact of macroeconomic risks, such as inflation.
Client support and communications: Recognising that forecasts must be examined in a real-world context, we engaged the client in a detailed discussion about our statistical findings and their implications for its various sectors, diving deep into each market driver affecting both homes and non-residential buildings. This collaborative approach facilitated informed exchanges about the most influential market drivers. To maximise the project’s benefits, we delivered our forecasts and model in an easy-to-use Excel format that the client could understand and update independently as needed. Additionally, we provided a number of training sessions and a user manual to enable their team to utilise the deliverables more effectively.

The Result

The forecasts and model equipped the client’s strategy department with the necessary insights to make informed planning decisions regarding investments. They also served to challenge internal market assessments. As time progressed, the client began using the forecast as a benchmark for its actual sales performance, further enhancing their analytical capabilities.

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