Labtec Incorporated makes various components for its wireless technology division. In all, the company makes about 200 different items. The two markets (the major manufacturer and replacement market) require somewhat different handling. For example, replacement products must be packaged individually whereas products are shipped in bulk to the major manufacturer.
The company does not use forecasts for production planning. Instead, the operations manager decides which items to produce, and the batch size, based partly on orders, and the amounts in inventory. The products that have the fewest amounts in inventory get the highest priority. Demand is uneven, and the company has experienced being overstocked on some items and out of stock on others. Being understocked has occasionally created tensions with the manger of retail outlets. Another problem is that prices of raw materials have been creeping up, although the operations manager thinks that this might be a temporary condition.
Because of competitive pressures and falling profits, the manager has decided to undertake a number of changes. One change is to introduce more formal forecasting procedures in order to improve production planning and inventory management. With that in mind, the manager wants to begin forecasting for two products. These products are important for several reasons. First, they account for a disproportionately large share of the company’s profits. Second, the manager believes that one of these products will become increasingly important to future growth plans; and third, the other product has experienced periodic out-of-stock instances. The manager has compiled data on product demand for the two products from order records for the previous 14 weeks. These are shown in the following table:
Product Product Product Product
Week 1 2 Week 1 2
1 50 40 8 76 47
2 54 38 9 79 42
3 57 41 10 82 43
4 60 46 11 85 42
5 64 42 12 87 49
6 67 41 13 92 43
7 90* 41 14 96 44
* unusual order due to damage at customer’s warehouse
1. What are some of the potential benefits of a more formalized approach to forecasting? I’m looking for at least 5 benefits.
2. Prepare a weekly forecast for weeks 15 through 18 for each of Product 1 and Product 2. You must plot the data for the first 14 weeks for both products and then plot it again for all 18 weeks after you have prepared your forecast. In explaining the technique that you decided to use for each product, look at your plotted data. Do the forecasted weeks make sense visually from what you observed in the first 14 weeks? If not, you likely did not choose the correct technique. And remember one real world hint – the formulas are very useful to help guide you with forecasting but as a manager you have the authority to adjust the forecasted numbers if you think it makes sense to do so. If you do adjust your numbers you must still tell me the technique you used but why you chose to adjust some of your forecasted numbers.