Le Club Français Du Vin

Forecasting and Procurement at Le Club Français du Vin

Business 361 B- Technology and Operations Management Armine Kalan & Triska Lee 5 May 2011

Kalan & Lee |1 Honors Pledge: As a student of the Dr. Robert B. Pamplin Jr. School of Business Administration I have read and strive to uphold the University’s Code of Academic Integrity and promote ethical behavior. In doing so, I pledge on my honor that I have not given, received, or used any unauthorized materials or assistance on this examination or assignment. I further pledge that I have not engaged in cheating, forgery, or plagiarism and I have cited all appropriate sources.

Student Signature:

Armine Kalan & Triska Lee

Kalan & Lee |2

Problem

As Directeur Général of the Club Français du Vin, Stéphane Zanella must forecast the demand for particular bottles of wine and place orders with the wine growers, while attempting to maximize profit. In the past, Le Club’s forecasting has not aligned with consumer demand, illustrated by the many outliers (See Figure 1 below). Ideally, he must minimize the difference between the order quantity and the forecast, based on historical customer demand.

Forecasts and Actual Demand

7000 6000 5000 Actual Demand 4000 3000 2000 1000 0 0 1000 2000 3000 Forecast 4000 5000 6000

Figure 1. Forecasted and Actual Demand from January 2004: All wines.

Analysis

Principles Applicable

This problem calls for the Newsvendor forecasting model, applicable because there is only one procurement opportunity several months before the release of the catalog. The Newsvendor model balances the cost of ordering too much against the cost of ordering too little.

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Implementation

First, the A/F Ratios from historical data were calculated to provide a measure of the forecast accuracy from the January 2004 catalog. Then, the wines were ranked from lowest to highest A/F ratio and assigned a ranking (from 1 to 45). Additionally, each wine was assigned a percentile...