...[pic] Item Forecasting and Inventory Management MANAGEMENT CONSULTING CASE 2: L. L. BEAN INC. Q1. How do L.L. Bean use past demand data and a specific item forecast to decide how many units of that item to stock? Ans. L. L. Bean use two main methods based on past demand data to determine on the quantities to be ordered for specific items to stock. Method One The First Method of forecasting is based on quite a conservative approach, primarily manual. Product related people sit together and decide on the basis of previous/book record. They look for dollar sales of each item and rank them on this basis. They also look for the forecasted quantity of items and check it with real sold quantity. But when they have to add a new item, they find that this item will create incremental demand or will cannibalize the sales of any other item. If they find cannibalization then they adjust the quantity of items accordingly. But this method is not the same all the time and can be changed accordingly, as per the need. Method Two The Second Method of forecasting uses historical forecast errors which is called the A/F Ratio i.e. (Actual Demand / Forecast Demand). |A/F Ratio |Remarks | |A=F |Forecast was perfect | |A>F ...
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...CHAPTER SEVEN Discussion Questions 1. What role does forecasting play in the supply chain of a build-to-order manufacturer such as Dell? Although Dell builds to order, they obtain PC components in anticipation of customer orders and therefore they rely on forecasting. This forecast is used to predict future demand, which determines the quantity of each component needed to assemble a PC and the plant capacity required to perform the assembly. 2. How could Dell use collaborative forecasting with its suppliers to improve its supply chain? Collaborative forecasting requires all supply chain partners to share information regarding parameters that might affect demand, such as the timing and magnitude of promotions. Dell could share with their components suppliers all of the promotions, e.g., holiday, back-to-school, etc., they have planned. These suppliers could, in turn, notify their suppliers of discrete components that a spike in demand is anticipated. These demand forecasts for end items determine the demand for components and coupled with knowledge of fabrication times, allows all members of the supply chain to provide the right quantity at the right time to their customers. 3. What role does forecasting play in the supply chain of a mail order firm such as LL Bean? LL Bean has historically operated almost exclusively in a make-to-stock mode and with very few exceptions, stocked products that did not go out of style as rapidly as many other clothing...
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...Explanation Forecasting is defined as actively predicting a future event or condition, Many forecasting decision or methods or informal such as a gut feeling or intuition, recent experiences, rule of thumb, advice from a friend or friends, or a combination but some use models and math mathematical methods. Since forecasting informal methods can be highly subjective, those utilized by government or business need to be more formal as informal approaches may problematic and untainted. More systematic methods are often employed as business and government forecasting approaches need to be made in the interest of the public, community or business (McCalman, 2012) This topic was chosen for academic as well professional interest as correct and accurate forecasting can serve as great cost saving methods or revenue generator for an organization. Article Review & Comparison McCalman defines forecasting as the prediction of future events comparing both informal and formal methods both in business and government. The most informal method or formalization discussed by McCalman is forecasting based on most recent observation. Systematic forecasting existing at the opposite extreme uses data and mathematical methods used largely or restricted forty years ago to experts with large computing power. As time has progressed the systematic methods not only utilized technology and data but statistical information and statistical software programs, which has opened forecasting up to those...
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...MAT 540 Week 4 Discussions Please respond to the following: * Choose one of the forecasting methods and explain the rationale behind using it in real-life. Adjusted exponential smooth is the exponential smoothing forecast with a trend factor added to it. It can adjust with the trend factor (Beta) with a high beta reflecting changes more than a low beta. In real life example such as forecasting computer sales based on at least one year of sales data helps management. By using exponential smoother factor (alpha) we will react and adjust more slowly as the value reaches 0. As alpha gets higher we will have a more positive effect on demand and the forecast will be for an increase. The initial smoothing constant alpha and the trend factor beta are set by the manager with a value from 0 to 1. It is adjusted accordingly and a comparison of the results is use in the forecast. * Describe how a domestic fast food chain with plans for expanding into China would be able to use a forecasting model. When a fast food chain plans to expand into china the use of forecasting methods will greatly enhance the company’s chances of success. For instance, they include integrated information system and real time exchange of information with its suppliers. Demand can be based on information of its demand for locations with at least 12 months of sales data. A labor management system could also use forecasting methods. What is the difference between a causal model and a time- series model...
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...The Accuracy of Demand Forecasting Between Point of Sale and Order History Supply Chain Management TBS908 Table of Contents 1. Executive Summary 4 2. Company Profile 4 3. Demand 5 3.1 Demand Forecasting 6 3.2 Demand Forecasting Methods 6 3.2.1 Opinion Polling / Qualitative Method (subjective): 6 3.2.2 Statistical Methods/Quantitative Approach (objective): 6 4. Order History Vs. Point-of-sale 8 5. Planning Promotions 8 5.1 Promotion Planning and Supply Chain Contracting in a High-Low Pricing Environment 9 5.1.1 Basic Household Inventory Model: 9 6. Types of demand forecast in GCC and UAE 10 7. Objective 10 8. Methodology 11 Table 3 13 Figure 1 13 9. Result 14 10. Recommendations 14 11. Conclusion: 15 11. References 16 12. Appendixes 17 Appendix I 17 Appendix II 19 1. Executive Summary Demand forecasting is essentially anticipating future prospects by reviewing historical data in the most calculated way in an uncontrollable environment. Foreseeing what and when buyers will purchase has never been a simple procedure for producers or retailers. Troubled by the overwhelming undertaking of correctly coordinating supply with interest, makers are always enhancing procedures to accomplish the most noteworthy estimate exactness that will guarantee when the customer enters a store, the item they are searching for is on the rack. This is getting significantly tricky as the uncertainty level increase. In the below report the demand...
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...Case Study: Forecasting at Hard Rock Café 1. Describe three different forecasting applications at Hard Rock. Name three other areas in which you think Hard Rock could use forecasting models. Hard Rock uses long-range forecasting in sitting capacity plan, intermediate-term forecasting for locking in contracts for leather goods (used in jackets) and for such food items as beef, chicken and pork, and short-term sales forecasts are conducted each month, by cafe, and then aggregated for a headquarters view. Hard Rock could use forecasting for menu items according to season (types of food people generally eat depending on time of year), forecast developing areas where new cafes could be build, and forecast changes in retail as fashion changes. 2. What is the role of the POS system in forecasting at Hard Rock? Point of Sale (POS) system is the heart of the sales forecasting system. POS system captures transaction data on nearly every person who walks through a café’s door. Sale of each entrée represents a customer and everyday those sales are transmitted to the headquarters in Orlando where the financial team begins to forecast monthly guest counts, retail sales, banquet sales, and concert sales in each café. General Managers of each café can also tap into that same information in order to prepare for the daily forecast of their individual cafe. 3. Justify the use of the weighting system used for evaluating managers for annual bonuses. Hard Rock doesn't limit its use of forecasting...
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...break was the innovation that led to the company becoming a major player in the ski wear market. Sport Obermeyer provides a broad line of fashion ski apparel including parkas, vests, ski suits, shells, ski pants, sweaters, turtlenecks and accessories. They categorized their target market into five different groups namely men, women, boys, girls and preschoolers. The company holds a commanding 45% share of the children ski wear and an 11% share of the adult ski wear market. The first production facility was based in China Lo village and through growth Sport Obermeyer opened another production plant in Hong Kong. Klaus Obermeyer and Raymond Tse established Obersport LTD which coordinates the production that currently takes place in Hong Kong and China which is then transported by ship to warehouses in Seattle and then moved by truck to Denver, furthermore, air transport is also used to supplement the transport of goods in order to meet deadlines. The current challenges that are being faced by Sport Obermeyer are firstly, as a result of inaccurate forecasting which has thus led to a mismatch between supply and demand. Secondly the production location decisions between China and Hong Kong has led to inefficiencies in production and inventory management. Problem statement: Sports Obermeyer is experiencing problems with inaccurate forecasting and decisions dealing with factory production allocation. Important variables: ...
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...SIX RULES FOR EFFECTIVE FORECASTING by: Paul Saffo 1. Which is more appropriate to use “accurate forecasting” or “effective forecasting”? Why? The aim of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present so it is more appropriate to use effective forecasting since the primary goal of forecasting is to identify the full range of possibilities, not a limited set of illusory certainties. Accurate prediction is possible only in a world in which events are preordained and no amount of action in the present can influence future outcomes. In the real world nothing is preordained and what we do in present affects how events unfold, often in significant unexpected ways. Whether a specific forecast actually turns out to be accurate is only part of the picture. Above all, the forecaster’s task is to map uncertainty, for in a world where our actions in the present influence the future, uncertainty are opportunity. The forecaster must be able to articulate and defend its logic. Moreover, the consumer of the forecast must understand enough of the forecast process and logic to make an independent assessment of its quality and to properly account for the opportunities and risks it presents. Effective forecasting provides essential context that informs our intuition. A good forecast broadens understanding by revealing overlooked possibilities and exposing unexamined assumptions. It narrows down the decision space in...
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...What does inventory management mean? Inventory management is the supervision of non-capitalized assets (inventory) and stock items. A component of supply chain management, inventory management supervises the flow of goods from manufacturers to warehouses and from these facilities to point of sale. A key function of inventory management is to keep a detailed record of each new or returned product as it enters or leaves a warehouse or point of sale. Breaking down inventory management Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed (but that neither too much nor too little is purchased) and keeping track of existing inventory and its use. Two common inventory-management strategies are the just-in-time method, where companies plan to receive items as they are needed rather than maintaining high inventory levels, and materials requirement planning, which schedules material deliveries based on sales forecasts. Some aspects of inventory CYCLE STOCK Cycle stock is the average amount of inventory a business needs to meet customer demand between the times it orders more inventory from suppliers. A company goes through its cycle stock inventory as it sells products and restocks inventory. It is required in order to meet demand under conditions of certainty ; that is, when the firm can predict demand and replenishment times(lead times). Cycle inventory is also known as “normal inventory” or “batching...
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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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...potential benefits of a more formalized approach to forecasting? The potential benefits for M&L manufacturing are: * Proper production planning in future of two of its most valuable and profitable product lines; * Fewer stock-outs in retail stores; * Less uncertainty with regard to unexpected orders and production failures; * Proper inventory management and control over the stock levels; * Better knowledge regarding which products to continue selling and discontinue selling. Q2. Prepare a weekly forecast for the next four weeks of each product. Briefly explain why you chose the methods you used. Product 1 The demand for product one has risen over the period of 14 weeks which depicts that demand can be expected to rise further in the coming four weeks. The pattern can be illustrated using a line graph, as shown in figure 1, below. Based on the shape of the graph, it can be stated that, except for the unusual order of 90 units in the seventh week, the demand has risen over the period in a rising trend. Because of the size of the order the graph gets put off from an otherwise linear pattern of the rising demand. In order to forecast demand of Product, the following features of the demand of the product need to be noted: * The demand has risen steadily over the period of 14 weeks; * The slight deviation in between has been caused by an unusual order which is not expected in future sales. The forecasting method most suited to the nature of the demand...
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...industry. For that objective to be met it has been determined that changes must occur on a couple of fronts. First an improved forecasting technique must be implemented. Having hot items stock out causing potential customers to purchase competitors product is unacceptable. Taking each buying committee members forecast into account to create an average demand forecast has created a good starting point With the addition of our preferred retailers at the table I feel we would have an even better grip on the customer demands. I would also implement an electronic data communication at the point of sale. This would provide us with real time numbers, numbers that we presently don’t have during our November meetings this would only aid us in our forecasting, as well as during the season we would be able to see which items are selling well early in the season. The second issue is production planning, with long lead times on materials, large minimum orders, a short product life cycle (less than 1 year), and a very large planning cycle (2 years). We must seek out partnerships with raw material providers to facilitate shorter lead times. We must reduce the number of vendors we use. Work with Chinese facilities to reduce minimum orders. With these changes we will see a better understanding of customer demand and the ability to react to demand in a more timely fashion, this is imperative for Sport Obermeyer to continue its succeed. PART TWO ISSUE IDENTIFICATION Immediate issues 1. Committing...
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...International Thompson Business Press, 1999, pp. 92-119. Forecasting for Marketing J. Scott Armstrong The Wharton School, University of Pennsylvania Roderick J. Brodie Department of Marketing, University of Auckland Research on forecasting is extensive and includes many studies that have tested alternative methods in order to determine which ones are most effective. We review this evidence in order to provide guidelines for forecasting for marketing. The coverage includes intentions, Delphi, role playing, conjoint analysis, judgmental bootstrapping, analogies, extrapolation, rule-based forecasting, expert systems, and econometric methods. We discuss research about which methods are most appropriate to forecast market size, actions of decision makers, market share, sales, and financial outcomes. In general, there is a need for statistical methods that incorporate the manager's domain knowledge. This includes rule-based forecasting, expert systems, and econometric methods. We describe how to choose a forecasting method and provide guidelines for the effective use of forecasts including such procedures as scenarios. INTRODUCTION Forecasting has long been important to marketing practitioners. For example, Dalrymple (1987), in his survey of 134 U.S. companies, found that 99 percent prepared formal forecasts when they used formal marketing plans. In Dalrymple (1975), 93 percent of the companies sampled indicated that sales forecasting was one of the most critical' aspects, or a ‘very important’...
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...skiwear market. The production process for Sport Obermeyer’s product lines began a full year and a half before the product actually hits the retail stores. They are using a multi-phase production process. First, production process is received by Obersport in February; the second production phase begins in April/May and continues until August. Sport Obermeyer is starting its initial task for the 1993-1994 skiwear line. They must make a decision on where to source production well before feedback is even received from their previous year’s line. Sport Obermeyer is currently operating in an environment where the planning and production cycle occurs almost two years in advance. This increases the uncertainty of demand, thus making accurate forecasting extremely difficult. By sourcing production in both Hong Kong and China, Obermeyer can benefit from each...
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...Introduction Get There Navigation Technologies (GTNT) has created a new transportation-business navigation device called Get Me There. Sales forecasting indicates that first quarter sales will be 15,000 units per month. Due to poor sales forecasting by the marketing team, GTNT will have a 15,000 units shortfall each month. Below we will discuss our recommendations on how to meet the production and sales requirement of 45,000 units per month for the first quarter while minimizing losses due to the faulty sales forecasting. Inventory Reorder Points and Quantities per Order Inventory should be ordered with the lead-time and transit time in mind along with the amount of inventory to order. The amount to reorder should be based on the anticipated demand for the upcoming quarter in addition to any safety stock for unexpected demand. Materials Resource Planning (MRP) is a useful tool for Get There Navigation Technologies to use in order to keep track of inventory levels and determine reorder points based on demand. The SAP system offers the MRP component needed to execute planning. A master production schedule (MPS) will also be utilized to support the MRP. Included in the MPS is the cumulative lead time which will give the total length of time that will be necessary to complete the manufacturing of the finished products. The lead-time necessary is important for ordering materials in time for manufacturing. Also, with production beginning in sixty days, the extra materials...
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