Demand Forecasting

CASE: FORECASTING - YANKEE FORK & HOE COMPANY

1. Comment on the forecasting system used by Yankee. Suggest changes or improvements that you believe are justified.

a. Haphazard Inventory Management and Inefficient Utilization of Processes: When marketing ramps up the product demand to achieve end-of-year targets, then some processes like ‘forging’ are heavily pressurized beyond their maximum capacity and cannot keep up with it.

Suggestion: Maintenance of more immediate stock towards the end of the year to help reduce the demand pressures. This can also be aided by revaluating the raw material purchase orders with the suppliers for some sort of a “Rate Contract with Fixed Discount” to provide for the fluctuating demand.

b. Use of Judgmental Demand Forecasting Technique: The sole method used for forecasting demand is not a standard formal method, where the marketing department uses Shipment data for forecasting instead of the actual demand data. The production department then uses an arbitrarily 10% deducted data for their purposes.

Suggestion: Since it is a mature industry with a stable demand, and demand history is also available, Quantitative Analysis should be used along with Qualitative Analysis.

For Qualitative Analysis, we suggest the Delphi method, where an external coordinator (ex: a management consultancy) can be brought in to evaluate the proposed solutions, as well as to address the concerns of inventory management and capacity utilization. According to historical data for the past 4 years, the demand falls in seasonal pattern with minimal changes. Hence, sufficient accuracy of forecasting can be achieved through the Seasonality method with Linear Trend Equation technique. Simple Exponential Smoothing Technique can also be used for an initial forecast.

c. Lack of Collaboration between the Marketing and Production Departments: They have trust and communication issues, indicated by the words “huge egos” by the production manager in...