M&L Manufacturing makes various components for printers and copiers. In addition to
supplying these items to a major manufacturer, 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 decides which items to produce and the batch size, based 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 others. Being understocked 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.
Questions
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 naive/intuitive approach, would be preferable to a technical
approach in view of the manager’s disdain of more technical methods.)