...Demand Forecasting is the business process that involves calculating future demands for products and services that consumers will buy. It also helps predict the quantity of products or services that must be manufactured and shipped. It is an important tool for managing a sustainable business, whether it comes from customer surveys, general predictions, market trends, or in-depth economical analysis (Hartman, 2015). Demand forecasts are necessary since the basic operations process, moving from the suppliers' raw materials to finished goods in the customers' hands, takes time. There are many advantages that come with demand forecasting, if done accurately, such as having adequate supply – business has to make sure it has enough supply of a product/service to meet the demands. If there is not enough supply, it can lead to lost of sales as customers buy from a competitor and if there is more supply than demand then the business’ revenue will be effected because of the expenses for labour, production, and shipping (Hartman, 2015). Also, managing human resources – this allows the business to manage human resources more efficiently by looking at information that gives managers an idea of how many workers they will need, and where their labour needs will be the highest (Hartman, 2015). For example, retail stores higher more staff in September to December because of Black Friday and Christmas/Boxing Day. However, there can be many challenges that businesses may overcome when...
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...FORECASTING FUNDAMENTALS Forecast: A prediction, projection, or estimate of some future activity, event, or occurrence. Types of Forecasts * Economic forecasts * Predict a variety of economic indicators, like money supply, inflation rates, interest rates, etc. * Technological forecasts * Predict rates of technological progress and innovation. * Demand forecasts * Predict the future demand for a company’s products or services. Since virtually all the operations management decisions (in both the strategic category and the tactical category) require as input a good estimate of future demand, this is the type of forecasting that is emphasized in our textbook and in this course. TYPES OF FORECASTING METHODS Qualitative methods: These types of forecasting methods are based on judgments, opinions, intuition, emotions, or personal experiences and are subjective in nature. They do not rely on any rigorous mathematical computations. Quantitative methods: These types of forecasting methods are based on mathematical (quantitative) models, and are objective in nature. They rely heavily on mathematical computations. QUALITATIVE FORECASTING METHODS Qualitative Methods ...
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...Make to Stock Strategy Riordan Manufacturing implements the make to stock strategy in their business. This strategy involves having the manufacturing company match production with consumer demand forecasts. This strategy forecast demand to determine how much stock should be produced. (Jacobs & Chase, 2011). This strategy is beneficial to the company because the fans are seasonal and it allows the company to produce the product during the slow season and can be used during the peak season. This allows for the process to run at a constant rate throughout the year (Jacobs & Chase, 2011). Riordan manufacturing forecast the demand of fans by taking the average of sales for the last three years and extrapolating it into the next year (rorodan 2013). Riordan believes that the same amount of sales will be estimated for the future years. In order to focus on ways to improve Riordan’s current method of operation is by forecasting the customers demand in order to minimize waste Cite tiorodan.). Riordan Manufacturing employs about 550 employees and has projected annual earnings of $46 million. Their sales and production levels fluctuate slightly month over month (Riordan Manufacturing, 2013). Riordan has a stable work force and has enough employees to be able to produce the demand for the goods. Riordan hires the right amount of employees to avoid the tangible and intangible costs of hiring and laying off employees due to not needing them. This strategy allows the...
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...Team “B” is presenting an inventory proposal to address the problem University of Phoenix is encountering regarding the Summer Historical Inventory Data and the benefits expected to achieve by implementing a solution. Time series data is converted to indices and analyzed using the slope-intersect formula to calculate the busy and slow months. To close, a histogram, and a forecast of future inventory costs will be presented. Proposal The University of Phoenix is one of the largest campus and internet-based schools in the country. The school’s online and campus classes require the university to have on hand enough supplies to satisfy an extremely large number of students, instructors, and faculty members. With new classes beginning every five, six, and nine weeks online in conjunction with semester and summer sessions at campus sites; classes involves several instructors and students that deem it necessary to have on hand a large amount of supplies in stock. This problem forced the university to develop a much needed system to ensure the needed supplies are on hand for it faculty and students as needed. Team “B” used the information given in the University of Phoenix Summer Historical Inventory to create indices for each month during the four year period. Below is the table used for the calculations (see figures 1-3): Figure 1. The table used for the calculations: | | | Actual Demands (in units) | | | | | | | | | Month | Year 1 | Year 2 | Year 3 | Year...
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... Chapter 5 Demand forecasting Note: Demand-how much you expect to sell in a specified period Slide 1: Data Matters—Video Data driven decision making Focused on how much data is out there All data is not relevant you need to focus on the data that is necessary and you need ot know how to separate that which is important. IBM- “A smarter planet” their quote 5 times as expensive to go get a new customer than to just keep the existing one Slide 2- Learning objectives You should be able to: -Explain the role of demand forecasting -Identify the components of a forecast -Be able to calculate the following forecast: -simple moving average forecast -weighted Moving Average Forecast -Understand the principles behind calculating: -exponential smoothing forecast -linear Trend forecast -Simple and Multiple regressions Note: for data forecasting you will use historical data to calculate future data Slide 3- The Role of Demand Forecasting -Designed to estimate future demand for planning -purchasing Decisions -Inventory decisions -production Decisions -Important to match supply with demand -Results of increased forecast accuracy -lower inventories -reduced stock-outs -smoother production plans -reduced costs -improved customer service Notes: purchasing needs to know how much to buy…or how much will be made in order to know how much to buy… need to know how much inventory to hold.. Production schedule--- how many units will you make...
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...Postponement as Supply Chain Strategy The postponement strategy is based on the following two basic principles of demand forecasting. 1. The accuracy of the forecast demand decreases with an increase in the time horizon. The farther the time window for which the demand is being forecasted, the more inaccurate it will be. The figure graphically represents this effect as a funnel: as time extends farther into the future, the forecast error grows, showing that the forecast demand will have larger and larger variations as time periods progress into the future. 2. Demand projections for a product group are generally more accurate than projections for individual products. For example, it is much easier to forecast the total demand for LCD TVs than it is for an individual TV of a specific brand, model, screen size, resolution, and color contrast ratio. The postponement strategy leverages the above characteristics of demand forecasting. It dictates that the firms should postpone the creation or delivery of the final product as long as possible. For retailers, this takes the shape of postponing the delivery of the final product to its destination, while for assemble-to-order manufacturers this means postponing the final assembly of the product. For manufacturing scenarios like build-to-stock, the postponement strategy may drive pushing the packaging or final assembly of the products, allowing the manufacturer to personalize, configure finished products to customer orders, and...
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...The current issue and full text archive of this journal is available at www.emeraldinsight.com/1475-7702.htm Individual differences and analyst forecast accuracy Ting Luo Department of Accounting, School of Economics and Management, Tsinghua University, Beijing, People’s Republic of China, and Analyst forecast accuracy 257 Wenjuan Xie Department of Accounting and Finance, Whittemore School of Business and Economics, University of New Hampshire, Durham, New Hampshire, USA Abstract Purpose – The purpose of this study is to examine the impact of unidentifiable individual differences among financial analysts on the cross section of their earnings forecast accuracy. Design/methodology/approach – The paper employs the concept of analyst fixed effects to control for unidentifiable individual differences. Various psychological factors, such as decision style and personality traits, are documented to impact individuals’ decision making. However, analysts’ individual differences in such psychological factors are not captured by identifiable personal attributes employed in finance literature, such as years of experience. The methodology used addresses this issue and presents a more comprehensive study of analyst forecast accuracy. Findings – The paper documents that unidentifiable analyst-specific effects are significant, and that controlling for them improves model fitting and changes the explanatory power of some of the traditionally used independent variables in the literature...
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...Thank you for allowing us the opportunity to work with your company. As requested, we have examined HF76’s sales functions and critically evaluated the current sales incentive as well as the newly proposed plan as you requested. While I understand that the newly proposed system is to gear up profitability towards HF76’s targets, I believe that there are still some issues that are yet to be resolved. The unresolved issues are; • Has the new system actually resolved the problem of sales forecast? • How can this new incentive system motivate salespersons in the negative and low margin products? • What about the sales assistants, how does the new system motivate them in line with the company’s goal? This memo aside examining the current and newly proposed system, will also analyze these unresolved issues in the newly proposed system and attempt to offer recommendations where possible. An Overview of Current Incentive Plan The current system as rightly pointed out by M.S Lee, there is a “mismatch between our company objectives and our sales force incentives because our commission is based on sales, not product profitability.” This as well as inaccurate sales forecast to bank on are the major problems in the current system. Besides, other issues include: salespersons attitude towards getting new customers. Salespersons hardly reach out to new customers; lack of communication between departments especial the sales and operations departments; commission paid out to salespersons...
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...Problem Set Problem 1 The local distribution center of a major grocery chain sources frozen vegetable packets from a supplier in Lexington, Kentucky. The vegetable packets are packed in 500-packet cartons and the distribution center sources them at the rate of $375 per carton. The distribution center estimates the annual demand for the frozen vegetables to be 60000 cartons. The fixed cost of placing an order, including transportation costs, is $700. Given the warehousing and cold storage costs, the grocery chain estimates the holding cost of inventory to be about 8% of the unit cost (in cartons). Determine the economic order quantity, the time between placement of orders and the total annual cost (i.e., sum of holding and ordering costs). Solution to problem 1 EOQ =2 * Annual Demand*Ordering CostUnit Holding Cost =2 * 60000 *7000.08*375 = 1673.32 Thus, EOQ (Q*) = 1673.32 cartons The time between order placements = EOQ / Annual Demand = 1673.32 / 60000 = 0.028 years Annual Holding Cost = (Q* /2) * Unit Annual Holding Cost = (1673.32/2) * (0.08 * 375) = 25099.8 Annual Ordering Cost = (Annual Demand / Q* )*Ordering Cost = (60000/1673.32)*700 = 25099.8 Total Annual Cost = Annual Holding Cost + Annual Ordering Cost =$50199.6 . Problem 2 Shoe House is a footwear retail chain operating in the Pittsburgh area. The company needs to plan for the...
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...feel line foreman feel about their jobs and why? Bespecific about their sources of dissatisfaction. How engaged are the line foreman? How would they respond to Gallup’s 12 Questions of a Strong Workplace? Expand on your position.4. What are the consequences of those feelings? What is the “rippleeffect” of having disengaged line foreman? 5. What are the costs of turnover within the Lima plant? Direct?Indirect? How would you calculate the cost of turnover if you wereAshley Wall making a presentation to top management? (Hint: Lookat number of hours worked per month, salary plus benefits, and howlong it takes to come up to speed in the role) What is the magnitudeof the turnover problem?Here is a formula for calculating the direct cost of...
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...Information Sharing in Supply Chains: An Empirical and Theoretical Valuation Ruomeng Cui, Gad Allon, Achal Bassamboo, Jan A. Van Mieghem* Kellogg School of Management, Northwestern University, Evanston, IL April 10, 2013 We provide an empirical and theoretical assessment of the value of information sharing in a two-stage supply chain. The value of downstream sales information to the upstream firm stems from improving upstream order fulfillment forecast accuracy. Such improvement can lead to lower safety stock and better service. According to recent theoretical work, the value of information sharing is zero under a large spectrum of parameters. Based on the data collected from a CPG company, however, we empirically show that if the company includes the downstream demand data to forecast orders, the mean squared error percentage improvement ranges from 7.1% to 81.1% in out-of-sample tests. Thus, there is a discrepancy between the empirical results and existing literature: the empirical value of information sharing is positive even when the literature predicts zero value. While the literature assumes that the decision maker strictly adheres to a given inventory policy, our model allows him to deviate, accounting for private information held by the decision maker, yet unobservable to the econometrician. This turns out to reconcile our empirical findings with the literature. These “decision deviations” lead to information losses in the order process, resulting in strictly positive...
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...For comments: ehabmes@yahoo.com Chapter 2: Competitiveness, Strategy, and Productivity Definitions: Competitiveness: How effectively the organization meets the needs of the customers relative to others that offer similar goods or services. Strategy: Plans to achieve organization goals. Productivity: Measure of effective use of resources, usually expressed as the ratio of outputs to inputs. Productivity =Output / Input Competitiveness: Organizations compete with each other in various ways including: 1. Price: amount customer must pay for the product or service. If all other factors are equal customers will choose lowest price. 2. Quality: Material, workmanship and design. Quality is related to buyer’s perception. 3. Service: like after-sale such as delivery, setup, warranty, technical support etc. 4. Differentiation: any special feature (design, cost, quality, ease of use, etc) that cause a product or service to be perceived by the buyer as more suitable than competitor’s. 5. Flexibility: the ability to respond to changes. 6. Time: like, how quickly product is delivered, how quickly product is developed, and rate of product improvement. 7. Managers and workers: people are the heart and soul of an organization. Their skills can be a competitive edge. Skills example is answering the phone: persons handling calls should be helpful, cheerful, prompt. Global 1. 2. 3. 4. 5. 6. competition criteria: Changing in nature. Quality, service and prices competition. Continued growth...
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...1. Question Supply Chain Resources definition are Materials, People, Information, Money or any other such resources that must be managed for profitable business operations. Define and describe brief information of the resources defined. Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses are involved in the provision of products and services required by end customers in a supply chain. Supply chain management has been defined as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally. SCM draws heavily from the areas of operations management, logistics, procurement, and information technology, and strives for an integrated approach. Commonly accepted definitions of supply chain management include: • The management of upstream and downstream value-added flows of materials, final goods, and related information among suppliers, company, resellers, and final consumers. • The systematic, strategic coordination of traditional business functions and tactics across all business functions within a particular...
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...The use of earnings forecasts in stock recommendations: Are accurate analysts more consistent?† Andreas Simon Orfalea College of Business California Polytechnic State University San Luis Obispo, CA (email: ansimon@calpoly.edu) Asher Curtis David Eccles School of Business The University of Utah Salt Lake City, UT (email: asher.curtis@business.utah.edu) This draft: September, 2010. Forthcoming, Journal of Business Finance and Accounting. ABSTRACT: We examine how analysts’ conflicting incentives to be either accurate or optimistic affect their choice to generate stock recommendations with rigorous valuation models or growth-based heuristics. Consistent with prior research the average analyst recommendation is negatively associated with rigorous valuation models and positively associated with growth-based heuristics, we document that these associations are weakest for the most accurate analysts and strongest for the least accurate analysts. We also find evidence consistent with consistency between recommendations and valuation models underlying the positive future returns from trading on the most accurate analysts’ recommendations. Our results are consistent with reputation incentives to be accurate mitigating the use of optimistic growthbased models in generating stock recommendations. Keywords: Forecast Accuracy; Fundamental Valuation; Stock Recommendations; Analyst Reputation. † Andreas Simon and Asher Curtis are, respectively, from the Orfalea College of Business...
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...developed in the industry and it makes baseball bats more durable and powerful. The ISG Company is trying to decide whether to replace the old machines with the new ones or not. Up to now the head of the design group had tested the new product and researched the relevant cost and production process issues that a machine replacement would entail. According to the numbers that is provided to us, Finance Department, we calculated the incremental cash flows and found the NPV as positive which implies that ISGC should accept the replacement. The reason why we had to calculate the cash flows is that according to the Stand-Alone Principle it is crucial to calculate the incremental cash flows in the decision process. By calculating the cash flows we can reach to the NPV(Net Present Value) of the Project which refers to the difference between an investment’s market value and its cost. Basically, NPV can tell us what we can and cannot gain from an investment. While calculating the cash flows, we first calculated the changes in revenues which is the difference between revenues from new and old machine. After that we calculated the change in costs with the information provided to us. We also calculated the Depreciation in order to reach the EBIT values. Finally we calculated the incremental cash flows according...
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