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    Potential Benefits of a More Formalized Approach to Forecasting

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    M&L Manufacturing makes various components for printers and copiers. In addition to supplying these items to a major manufacturer of printers and copiers, the company distributes these and similar items to office supply stores and computer stores as replacement parts for printers and desktop copiers. In all, the company makes about 20 different items. The two markets (the major manufacturer and the 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 decide which items to produce, and the batch size, based partly on orders, and the amounts 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 others. Being under-stocked has occasionally created tensions with the managers 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. Week Product 1 Product 2 1 50 40 2 54 38 3 57 41 4 60 46 5 64 42 6 67 41 7 90 * 41 8 76 47 9 79 42 10 82 43 11 85 42 12 87 49 13 92 43 14 96 44
    *Unusual order due to flooding of customer's warehouse

    Benefits of Forecasting

    Read the M & L Manufacturing case on page 126 in your text. Prepare a weekly forecast clearly labeling your calculations. Explain some of the potential benefits of a more formalized approach to forecasting using course related principles.

    1. What are some of the potential benefits of a more formalized approach to forecasting?

    2. Prepare a weekly forecast for the next four weeks for each product. Briefly explain why you chose the methods you used. (Hint: For product 2, a simple approach, possibly some sort of naïve/intuitive approach, would be preferable to a technical approach in view of the manager's disdain of more technical methods.) References: Stevenson, W.J. (2009). Operations management (10th ed). New York: McGraw Hill/Irwin. Read more:

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    Solution Preview

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    A forecast is a statement about the future value of a variable of interest such as demand (Stevenson, 2009). Benefits of forecasting include more accurate planning. For example, given a sales forecast, a company then can plan its production; hence its requisition of resources needed in producing said products. After that, it can then plan for its cash flows specifically when it will need external funding.

    As ...

    Solution Summary

    The solution discusses the potential benefits of a more formalized approach to forecasting.