Predicting the future is tricky, especially when we don’t yet know the players.
With over 40 years of new business development and marketing experience in the electronics manufacturing marketplace, no sales team requirement produces more dread, apathy or frustration than when we hear, “It is time for your new business forecast for next year.” Contract negotiations, board meetings, airplane travel after 9/11, Covid-induced supply-chain issues, dealing with your cable company and dental appointments; none of these compares to the angst sales leaders experience when forecasting new business from new clients they hope to win and have no current business relationship with.
Is there a less exact science to any required report or activity for salespeople than forecasting clients with whom you have no historical relationship and are competing against other EMS companies to win? Let’s examine some of the truths behind this requirement.
When we consider some of the variables that can affect an accurate, next-year new business forecast, it seems staggering:
- In the final analysis, did we win or lose the deal? If we lost, were we 100% off on any monies forecast for that win?
- Will the client stick to their decision-making timeline, or will BAFOs, BARFOs, RALFOs (contact me for definitions) and plant audits carry on months after the stated decision and action timelines?
- Can we predict the precise month the client makes a final decision?
- Can we predict the precise month that decision will be announced?
- Can we predict the total SKUs that actually constitute the first award, or does every SKU and quantity we quoted initially get awarded?
- Can we predict the velocity with which the client’s qualification POs are cut and then awarded? Did we know multiple signatures were required to sign off on a new vendor and some of those folks are traveling for three weeks in Asia?
- Can we predict the EMS execution of the qualification PO that is supposedly within the EMS’s ability to control, especially with raw material lead-times being so unpredictable? Does the EMS lose time setting up the new client in its system and delay any forward progress weeks beyond a reasonable expectation the sales team (or the client) understands? (Note: The client’s BoMs and specs never change or are revised from the RFQ the EMS initially reviewed and quoted, are they?)
- Can we predict any test or manufacturing startup problems that tend to be uncovered in the EMS qualification runs, even when robust DfM/DfT was produced at the time of the quote and our forecast?
- Can we predict the OEM’s verification process timelines for the initial qualification products the EMS shipped? Will they really take just five days from receipt of our shipment, as their RFQ package stated, or have resources been assigned to a more pressing issue that crept into the client’s business?
- What is the time impact for any initial failed qualification run caught inside the EMS or, heaven forbid, at the client, as not all first-article runs are initially successful?
- Can we predict the precise production ramp volumes and timing, even if the initial qualification was successful, or supply-chain delays?
- Can we predict when the follow-on POs are placed or when the OEM customer’s demand profile matures and the EMS achieves the full outsourcing planned for that EMS provider?
- Finally, inside the EMS company, when does a new customer cease to be measured as a new win and become an existing customer, falling off the new business radar and onto the sustaining teams' forecast?
If a new customer is not initially booked by the midpoint of any fiscal year, it is unlikely there will be a significant revenue contribution from the billings for that client for the final six months. So many first-year new business forecasts are working on a six- to seven-month window of opportunity to hit a 12-month forecast, even if most of the questions raised above are understood and all goes according to plan. This condition can be exacerbated with the longer lead times we sometimes see on some critical components.
Does any EMS provider hire direct labor or buy expensive capital equipment based on a new business development forecast? Probably not, if they are smart and the company is managed as virtually all EMS companies are run today. Does anyone spend capital on their technology roadmap, as we once did before the first electronics downturn we lived through? Don’t we need booked clients and orders to determine actual new (not replacement) capital appropriations with a solid ROI analysis today?
How often does your new business forecast mysteriously match a “needed revenue gap number” if a next-year’s corporate revenue forecast target can’t be met with existing clients? Ouch! This is a recipe for disaster.
As we know, companies forecast for a great number of reasons. This is not an argument against forecasting, but rather reminder of the unspoken truth that a new business forecast is almost always lousy or lucky, and leaders should set expectations and business plans accordingly.
Some industries or product lines seem to be easier to forecast than others, but a broad market spectrum served by an EMS provider with a dispersed pipeline is difficult to predict. Consider: How long do you wait for your new iPhone once you order it, unless you stood in line 24 hours before the release date?
There is no one forecast process I have ever been able to copy or create that accounts for all the variables involved with clients we don’t yet serve, accurately reflecting who we will win and what the revenue number (billings) will be the following year. It’s tricky enough to forecast mature accounts that we have had relationships with for years, trading MRP weekly runs, conducting QBRs, and daily communications. Yes, the larger the EMS revenue number is, the more accurate we are forecasting, but a large percentage of all the EMS companies don’t have that revenue safety net due to their smaller revenue status.
So, consider how you treat new business forecasts and how much effort and time is spent on this process, as well as the expectations of the sales team. I would love to know if anyone has a process that is accurate year in and year out, as I am still learning.
Jake Kulp is founder of JHK Technical Solutions, where he assists OEMs and EMS companies with optimizing demand creation offerings and deciding when and where to outsource manufacturing. He previously spent nearly 40 years in executive roles in sales and business development at MC Assembly, Suntron, FlexTek, EMS, and AMP Inc. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
