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    Kokemuller, N. (2017) - The Disadvantage of Excess Inventory. Retrieved July 18, 2017, From Chron

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    Edric Huang
    Ben used a simple average approach to forecast sales of his camera phone in year 4, which ignores seasonal trends in the data from years 1-3 that show declining sales. This could lead to stock surpluses from overestimating demand by 30%. The group recommends Ben use a trend forecasting technique that accounts for seasonality, which would provide a more accurate forecast to minimize errors and avoid issues from excess inventory like increased costs and reduced profits.

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    Kokemuller, N. (2017) - The Disadvantage of Excess Inventory. Retrieved July 18, 2017, From Chron

    Uploaded by

    Edric Huang
    29 views3 pages
    Ben used a simple average approach to forecast sales of his camera phone in year 4, which ignores seasonal trends in the data from years 1-3 that show declining sales. This could lead to stock surpluses from overestimating demand by 30%. The group recommends Ben use a trend forecasting technique that accounts for seasonality, which would provide a more accurate forecast to minimize errors and avoid issues from excess inventory like increased costs and reduced profits.

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    how to mkae a forecast by using excel

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    Ben used a simple average approach to forecast sales of his camera phone in year 4, which ignores seasonal trends in the data from years 1-3 that show declining sales. This could lead to stock surpluses from overestimating demand by 30%. The group recommends Ben use a trend forecasting technique that accounts for seasonality, which would provide a more accurate forecast to minimize errors and avoid issues from excess inventory like increased costs and reduced profits.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    29 views3 pages

    Kokemuller, N. (2017) - The Disadvantage of Excess Inventory. Retrieved July 18, 2017, From Chron

    Uploaded by

    Edric Huang
    Ben used a simple average approach to forecast sales of his camera phone in year 4, which ignores seasonal trends in the data from years 1-3 that show declining sales. This could lead to stock surpluses from overestimating demand by 30%. The group recommends Ben use a trend forecasting technique that accounts for seasonality, which would provide a more accurate forecast to minimize errors and avoid issues from excess inventory like increased costs and reduced profits.

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    Question 1:

    Ben introduced an innovative instamatic camera phone into the Singapore market.
    Quarterly sales (in units) for the past three years are shown in Figure 1. To forecast sales for
    the following year (Y4), he calculated the average quarterly sales in the previous three (3)
    years. The forecast for quarterly sales for the following year (Y4) is shown in Figure 1.

    (a) The likely problems with Bens approach to forecasting.

    From the Bens approach to forecasting, it is the fastest way to forecast the sales
    camera phone into the Singapore market in year 4 but it is not the most accurate way.
    The problems that Ben might face if he uses this approach to forecast are:

    1. Forecast Error: The cause of forecast error here is Ben is not using the seasonal
    trend but simply use the average quarterly sales in the previous 3 years from the
    data. As it is said before, it is not the effective way to predict how many sales are
    going to happen in the following year.
    2. Stock Surplus: stock out and stock surplus are the events which are not expected
    from most of the companies. Having excess inventory is generally regarded as bad
    for business because of what it means for inventory turnover and the costs
    associated with managing it.1
    3. Reduced Profits, storage cost, waste

    From the problems above, we could analyze which the problems that Ben might face
    is more likely a domino effect which can cause disaster to the company just from the
    simply count of the average sales. The way to overcome this problem will be
    explained more detail below.

    1
    Kokemuller, N. (2017). The Disadvantage of Excess Inventory. Retrieved July 18, 2017, from Chron:
    http://smallbusiness.chron.com/disadvantage-excess-inventory-22812.html
    (b) Examination about the demand patterns as show in Figure 1 using an appropriate
    method as well as advice from our group to Ben regarding his forecast.

    Appropriate forecast method for Ben

    Quarterly Sales for Instamatic Camera Phone


    Period Actual Forecasted
    Year, Qtr t Sales Predicted Clean Data Season Index (RAW) Sales Quarter Season Index
    01,1 1 122 108.0278 1.129338929 1 1.146325894
    01,2 2 108 105.2656 1.025976197 2 1.060509622
    01,3 3 81 102.5034 0.79021769 3 0.807233724
    01,4 4 90 99.7412 0.902335244 4 0.986234061
    02,1 5 110 96.979 1.134266181
    02,2 6 100 94.2168 1.061381834
    02,3 7 73 91.4546 0.79821026
    02,4 8 91 88.6924 1.026018013
    03,1 9 101 85.9302 1.17537257
    03,2 10 91 83.168 1.094170835
    03,3 11 67 80.4058 0.833273222
    03,4 12 80 77.6436 1.030348928
    04,1 13 74.8814 85.83848776
    04,2 14 72.1192 76.48310554
    04,3 15 69.357 55.98730938
    04,4 16 66.5948 65.67806007
    05,1 17 63.8326 73.17296223
    05,2 18 61.0704 64.76574683
    05,3 19 58.3082 47.06834541
    05,4 20 55.546 54.78135717
    The first thing that Ben has to do is determine the equation line from the actual sales
    from 3 years data provided. After obtained the equation line, Ben can predict the
    Clean Data by entering the equation and the variable x put as the period begin. From
    the case above we got the equation line: y = -2.7622x + 110.79. For your information,
    the predicted clean data is the same with the trendline.

    After that, Ben has to determine the Seasonal Index by Predicted Clean Data : Actual
    Sales. From, Season Index, Ben would be able to determine the Average Seasonal
    from Quarter 1 to 4. Finally, Ben can do more accurate forecasting by dividing the
    Predicted Clean data with the Average Seasonal Index (with the same quarter).

    The Result

    Ben's Forecast
    Quarter
    Year
    1 2 3 4
    Forecast Y4 111 100 74 87

    Group's Forecast
    Quarter
    Year
    1 2 3 4
    Forecast Y4 86 76 56 65
    Forecast Y5 73 65 47 55

    From the result above, we can see that if Ben using the normal forecast which only
    calculates from the average 3 years data, it will cause stock surplus or excessive
    inventory from the sales about 30% higher. Absolutely it will bring no good for the
    company itself. It is happening because Ben ignored the main factors that increase the
    accuracy of forecasting which are the trends as well as the seasonal. The trend from
    year 1- 3 keep decreasing.

    So, it is advised that it is better for Ben if he uses the trend forecast technique by
    including the seasonal index because it is more accurate to forecast his problem which
    is forecast the sales of instamatic camera phone into the Singapore market. A
    forecast error can be minimized and the effect is save the company from facing the
    problems from excessive inventory such as storage cost, waste, which result in
    reduced profit of the company.

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