July 29, 2013

1999: Sandbagging

Five popular songs from 1999:
  • "Believe" - Cher.
  • "No Scrubs" - TLC.
  • "Angel of Mine" - Monica.
  • "Heartbreak Hotel" - Whitney Houston.
  • "Hit Me Baby One More Time" - Brittney Spears.
Let's talk about the most valuable asset in your forecasting toolkit - the sandbag.

In auto racing, sandbagging happens when you purposely qualify slower than you normally could, because you know that the race organizers will put some of the slower cars in the front of the field, giving you, a fast car, an advantage when the race starts.  You don't drive as fast as you can, so that you protect your starting position when the big race starts (big-league racing starts the fast cars up front, avoiding the problem of sandbagging ... but your local Saturday Night track ... they have sandbagging).

The prevailing best practice at Eddie Bauer, when planning performance for the next year, was to apply "add on factors" to the plan.  Remember, 1997 was awful, and 1998 was a catastrophe.  So when you were planning 1999, you were strongly encouraged to apply "add on factors".  We'd sit in Executive Meetings, and our CEO would challenge each division to improve performance.
  • "Merchandising - how much are you willing to step up to the plate and commit to for 1999?  5%?  10%?  12%?

The merchandising team, sitting there, terrified, would pick 10%.  There's no reason for this 10% lift, other than they had to hit it or risk being fired.  Then the creative team would sign up for 4%, and the marketing team (me) had to sign up for something ... so I'd blurt out something like 2%.

Just like that, next year's plan was going to be 16% better than performance in 1998.  This allowed us to mail deeper (because the profit and loss statement looked better, even though it wasn't any better in reality), allowing the top-line forecast to grow, allowing us to acquire more customers, allowing the business to appear healthy.

It was all complete nonsense.

The Inventory Director and I concocted a plan, behind the scenes.  We'd tell our bosses what we were doing, of course, but that's it.

We would sandbag the plan.

In other words, if the demand plan called for a 16% productivity improvement, we'd plan a 0% productivity improvement behind the scenes.

This served two purposes.
  1. We would not over-circulate catalogs.
  2. We would not over-plan growth of the internet.
  3. We would not over-buy merchandise that caused us to have to include clearance catalogs in the plan ... clearance catalogs that would destroy profitability.
Productivity did not increase by 16% in 1999.  It increased by something like 2% or 3%.

But the sandbagging allowed us to have the most profitable year in the history of the Catalog/Internet division at Eddie Bauer ... that's a history that spanned more than fifty years.

Mind you, this record level of profitability, enjoyed by all employees, could not have happened if we had not sandbagged the plan, behind the scenes.  Had we signed up for a 16% increase in productivity, we would have had a ton of clearance activity, and profit would have been a disaster, and we'd have all been fired.

Two people - working together, coordinating inventory buys and circulation strategies - that's all it took for a $600,000,000 division to achieve record profitability.

The experts on Twitter would tell you that your highly coordinated and sophisticated omnichannel strategy is the gateway to riches.  Just be omnichannel, and just be excellent!

In-the-trenches workers will tell you that not making glaring mistakes, coupled with teamwork, yields record performance.

Sandbagging - if you are responsible for forecasting sales, make sure you sandbag a bit. You have a responsibility to protect your company from over-aggressive forecasts.