Question

Supply management Case on Sales Forecasts: Fact or Fiction Vignette in Chapter 20. Be sure to address the following:

1. How critical is the sales forecast in this situation? How does this set of numbers affect MRP systems? 2. What are some reasons for changes in the sales forecast? 3. What factors might account for inaccurate inventory files? 4. What action steps and/or plans should these three managers take to solve this problem? 5. Is the concept of demand management relevant in this situation?

Answer 1

A. How critical is the sales forecast in this situation? How does this set of numbers affect MRP systems?

Ans

Sales forecast is a model about future demand. It is an attempt to predict the future — the result will either be lucky or lousy. Even when it is lucky, it still does not represent what will actually happen

If You Can’t Measure It, You Can’t Manage It

To measure forecast accuracy we need definitions and data. Maybe they are unsure how to define accuracy of the demand forecast.

They Need to manage and control the demand planning and forecasting process. Despite the fact that MRP depends heavily on forecasting, most MRP systems do a poor job of collecting, presenting and reporting the forecasted versus actual performance.

The main reason is that MRP systems are designed around transactional data, and forecasts are rarely transactions.

Customers, sales people and distribution channels share sales forecasts by emailing (or even faxing) spreadsheets (or even –urghh – PDF files).   Everyone has their own format and the data are neither organized nor connected.

Reliable reporting on forecasting performance is highly valuable

2. What are some reasons for changes in the sales forecast?

Ans As they are about to loose large suppliers they would change the sales forecast. It always looks good to beat expectations.

Product changes,ervice changes, type, quality • Shortages, production capability,Price changes • Shortages, inventory .

3. What factors might account for inaccurate inventory files?

Ans: On inventory inaccuracy, i.e. the discrepancy in information between the real inventory and the information system, and the costs directly related to it ( On the other hand, considering the order fulfilment process, the main parameters to be estimated concern the service level in store and the indicators express the accuracy of delivery in terms of lead time, quality and quantity of delivered goods.

4. What action steps and/or plans should these three managers take to solve this problem?

Ans:

The basic responsibilities of a these should be :

(1) Launch (release) orders to purchasing or manufacturing.

(2) Reschedule due dates of open (existing) orders as required.

(3) Reconcile errors and try to find their cause.

(4) Solve critical material shortages by expediting or re-planning.

(5) Coordinate with other planners, master production schedulers, production activity control, and purchasing to resolve problems.

5. Is the concept of demand management relevant in this situation

Ans:Demand Management is a planning methodology used to forecast predict, plan for and manage the demand for products and services. This can be at macro levels and at micro levels . Demand Management has a very defined set of processes, capabilities and recommended behaviors for companies that produce all manner of goods and services. Demand management outcomes are a reflection of policies and programs to influence demand as well as competition and options available to users and consumers. Effective demand management follows the concept of a "closed loop" where feedback from the results of the demand plans is fed back into the planning process to improve the predictability of outcomes. Many practices reflect elements of the theory of Systems Dynamics. Increasingly volatility is being recognized as significant an issue as the focus on variance of demand to plans and forecasts. So the demand management is relevant in this case.