Company's Forecasting and ERP - Case Study Example

Q1. A. As one can see from the table, the Company can use the given data for both, time-series as well as causal forecasting method. As data is available for 17 months, it offers the using of causal forecasting for comparison from March 2007 to July 2007 with corresponding figures made available from March 2008 to July 2008, the explanatory variables. Data is given to be analysed using time series forecasting, as the history of demand is provided. B. Although the type of forecasting methods practiced by COOL Air-Cond. are suitable but an alternative way needs to be found to approximate the intermittent and erratic demand design. As taken from the case study, the reason of intermittent demand design is the variation in the customer demand because of the internet. Customers are well aware about the arrival in the market of new models of air-conditioners. COOL Air-Cond. is not financially strong enough to keep a stock of all latest models of the air-conditioners. For measuring the changing customer demands, the Company should approximate the customer requests by the co-efficient of variation of the demand of customers seeking new models. Customer requests for different new models of wide range air-conditioners are the root cause of erratic demand. For this, it is preferable to employ a totally time series approach, which is normally connected to a demand distribution so that stock levels could attain increased percentages of target customers. C. For approximating forecast error rates, Bill should use Croston’s method, which fulfils the intermittent demand needs. It is a relatively correct way in terms of mean square errors when the average demand interval crosses 1.25 review times. It is noticed that forecast perfection in totality is strong to the selection of break-points above 1.25 but very less to values below 1.25 (Boylan & Syntetos, 2008). D. In such a scenario when forecasts can be regularly intermittent, high or low, in the absence of any early pointer, demand distribution measure can be the most suitable alternative. It is because it can help in setting stock levels for achieving high percentages in accurate forecasting. It is done by making distributional assumptions of demand by classifying demand as ABC. For instance, A and B product types could be normally distributed as their demand is forecasted accurately but C product types could be Poisson. In actuality some product types have relatively erratic demand than Poisson, which is scattered. By using the Poisson dispersion index, which is the ratio of the difference to the mean of demand, the direction of demand can be ascertained. Depending on the index, if it is near to unity, a Poisson distribution is suited. If it is more than unity, then other measures like the negative binomial or a non-parametric measure should be selected (Boylan & Syntetos, 2008). E. For measuring the lost profit on poor forecasting when the average sale price and the average cost price is given to be $10,000 and $7,000, we needs to take help from the data given in the table. As per the table, we know the actual sales units and forecast units from March 2007 to February 2008, which are 1,593 units and 1,606 units. It derives that after deducting forecast units from the actual sales units that 13 units were forecasted on the up side. Taking the average of 13 units in a year, it comes to al least 1 unit was sold at a discount of 10% at on the 31st of a month. As per calculation, the difference between sale price and cost price is $3,000; therefore, COOL Air-Cond. will be losing profit of $3,000 each month. F. As based on the observations, Bill can improve the forecasting by registering historical demand data in selected time periods, which can be divided into days, week and months. Assuming that forecasted demand can either exceed upward or decrease downwards, the change in both the possibilities should be measured. Depending on the last marked demand, a chain of zero/non-zero values can be created over the forecast period. One lead time demand value can be forecasted by totaling all the values. This procedure should be repeated many times to improve forecasting (Boylan & Syntetos, 2008). Q2 A. Relationships between the purchase department managed by Mr. Venga and other functions in Beyond Electronics are not smooth and fully functional. Mr. Venga is worried about not meeting the order deadlines. Bulk customer orders are informed to him at the nick of the time, burdening him with tension on arranging raw material, timely delivery, and fulfilling production needs. Forecasts made by Mr. Venga on the basis of sales team inputs about production and sales had to be changed at the last moment at the recommendation of the sales force. Accounting functions of processing invoices also get delayed because of getting confirmation through email from the sales manager to reduce the mistakes. Lack of communication among accounting, sales and purchase departments is affecting the production, resulting in late deliveries of orders. B. The trade-offs of implementing an ERP system by Beyond Electronics, as informed by one of its leading customers for its suppliers will help the Company in integrating the manufacturing functions, resulting in better communication and timely supply of ordered products. The alternative of depending on Middleware software with the current functionalities can be a cost-effective way in the short term only. Keeping the interests and stakes involved in serving one of the leading customers allowing just one year for the ERP integration, wisdom lies in planning a long-term strategy of improving and updating with the leading technology. Cost is the only big factor, as implementing an ERP system relatively to a Middleware software will come at a cost higher than the second option of buying best of breed software. C. Implementing an ERP system by Beyond Electronics will develop a smooth navigation between the Company’s suppliers and customers. It will be very important that the suppliers of Beyond Electronics also implement an integrated ERP system for assisting the Company in providing information about the provision of raw material. The chain will remain incomplete if the raw material supplying companies do not implement an ERP system on the lines of their buyer companies such as Beyond Electronics and its customers. IT systems of two or for that matter all stakeholders of the product life cycle should be comprehensive and innovative. Functionalities will result in better performance only if communication level increases for the benefit of all departments internally as well as outside stakeholders, such as customers and suppliers. Therefore, ERP system installation will help both customers and suppliers. In the case of Beyond Electronics, performance of various departmental functionalities will improve if the same technology is being used at the raw material supplier side also. D. Staying with the current system might affect the Company’s operations’ efficiency. Already, Mr. Kok, the CIO, is fully aware of the issues arising from obsolete and redundant systems installed at Beyond. He knows that performance level at the purchase department handled by Mr. Venga is going down just because of lack of communication caused by obsolete systems. Orders are placed at the nick of time, making it difficult to arrange raw material. The reason behind is the obsolete mainframe system. Remaining with the outdated mainframe system would also affect cash-flow, as it is a time consuming process of managing accounts through invoices to be sent via email. Any mismatch of the data between accounts department and the sales team, as both are using different systems, can realise in blurred view of the actual financial position of the Company. Some payments received by the sales team won’t get updated in a timely way, may cause a cash crunch on the surface, necessitating change in any financial decision-making, not suited to the Company interests. Biggest risk lies in making such purchases that can add to the redundant stock only, thus blocking the purchase of fresh raw material as well as creating the risk of non-payment or late payment to the supplier. E. The current environment of economic slowdown, the increasing competition in the semiconductor industry and the kind of business the Company is in; all these factors encourage the management to take a long-term decision. As it is a semiconductor supplier company to some of the leading names like IBM, Motorola and Compaq, it should update its IT architecture by implementing an ERP system rather than going for Middleware software. It should not compromise its stakes because of obsolete mainframe system, which has become outdated; it is slow and time-consuming, retarding the progress of Beyond Electronics. Cost can be a big factor besides the recessionary trends causing delay in decision-making by Mr. Kok to go for an ERP system for better functioning and communication in the internal functions as well as interfacing with the end-customers. Seeing the past four years’ financial position of the Company, this decision is not risky considering the bigger risk that an obsolete system can present to the overall stakes of the Company. Therefore, it is highly recommended to Beyond Electronics to go for the implementation of an ERP system. Reference Boylan, J. E., Syntetos, A. A., 2008. Forecasting for inventory management of service parts. Complex System Maintenance Handbook. Available from: http://www.springerlink.com [Accessed 12 December 2012]. Read More