Basics 4 | Supply Chain | Forecasting

Zalatan & Chapman: LINKS Tutorial #4 Page 1 Revised January/2009

LINKS Tutorial #4:
Forecasting



Katrina A. Zalatan & Randall G. Chapman



In LINKS, your firm is evaluated by financial, operating, and customer-related results.
Planning is the process you go through to make decisions to achieve these results.
Forecasting is a critical part of the planning process.

This tutorial is divided into two parts. Each part ends with a "hands-on" exercise.
Here is an outline of tutorial and the questions that comprise each exercise:

Starting On Page:


PART 1: What is Forecasting? 3

Exercise
Question:
Topic: Page:
1 Inputs to forecast sales 3
2 Input sources 3
3 Inputs to forecast parts 3
4 Forecast accuracy implications 3
5 Gross margin forecasting 3


PART 2: How Does Sales Forecasting Relate to Other
Supply Chain Management Decisions? 7

Exercise
Question:
Topic: Page:
1 Costs of underestimation 8
2 Underlying demand patterns 8
3 Forecasting assumptions 9
4 Safety stock 9
5 Costs of overestimation 9

Zalatan & Chapman: LINKS Tutorial #4 Page 2 Revised January/2009



Forecasting Decisions Firm Month

Short-Term (i.e., Next Round)
Sales Volume Forecast, Channel #1

Region 1

Region 2

Region 3
Product 1
Product 2

Short-Term (i.e., Next Round)
Sales Volume Forecast, Channel #2

Region 1

Region 2

Region 3
Product 1
Product 2

Long-Term (i.e., 2- and 3-Rounds
Hence) Sales Volume Forecasts

2-Rounds Hence

3-Rounds Hence
Total Sales Volume, Product 1
Total Sales Volume, Product 2




1. What is Forecasting?



In LINKS, forecasting refers to your ability to predict sales volumes. Every simulation
round, you’ll prepare sales volume forecasts for each of your products. You'll create the
following forecasts
1
:












…sales forecasts for next
round ("the short-term") by
channel, by region, by
product and…


…the next two rounds
after that ("the long-term")
by product.






In all cases, great forecasts are very close estimates of what actually happens in the
future. For example, you forecast that you'd sell 100 units of product 1-1 in channel 1 in
region 1 in round 4, and when round 4 came around, you sell exactly that. You were
100% accurate. That's the ideal. But forecasts could also be too high or too low in
varying degrees, with consequent accuracy of less than 100%.

1
Some LINKS simulation variants require only short-term sales volume forecasts; other LINKS
simulation variants require both short-term and long-term sales volume forecasts.


Zalatan & Chapman: LINKS Tutorial #4 Page 3 Revised January/2009

Your LINKS reports summarize your forecasting accuracy in two places:
1. An overall "forecasting accuracy" score that's one of the operational metrics
on your Performance Evaluation Report (page 1 of your financial reports).
2. A more detailed Forecasting Accuracy Report that reports the accuracy of
your sales volume forecasts individually and in aggregate for your firm as a
whole.
This tutorial focuses on the process of sales forecasting and the implications that
forecasting accuracy has for your firm's supply chain performance.






Work through each of the following questions, then check out the "answers" on the next
page.


1. Inputs to Forecast Sales: What "inputs" should you consider when making your
sales volume forecasts?




2. Input Sources: Where can you find this information (from answer to question 1)?





3. Inputs to Forecast Parts: What inputs should you consider when forecasting
replacement part requirements?




4. Forecasting Accuracy Implications: Assume you have an 80% "Forecasting
Accuracy" score on your Performance Evaluation Report during a simulation round.
What are the effects of this 80% “Forecasting Accuracy” performance level?







EXERCISE #1: Your Own Forecasting Process
Zalatan & Chapman: LINKS Tutorial #4 Page 4 Revised January/2009






1. Several things. You should probably start by looking at your sales volume history.
What were your results? What was the size and variability (degree of change) of
demand in each region for each product and channel? Do you see any trends? Do
they appear to be long-term?

Eventually, you should seek to predict cause-and-effect relationships between
demand and the variables that impact it, variables like:
Price and
Customers' perceptions of your product quality, service quality, and
availability.
… variables that relate to your firm's marketing and operational strategies. Of
course, competitors' actions should also be discussed and anticipated. These
generate demand variables and the factors that influence them are detailed in your
LINKS manual.

2. Some information just needs to be deduced from experience and your reports. For
example, what happened when you increased price during the last simulation round?
Would you get the same results next time, or do you expect conditions to change?
What other variables influenced your sales?

Spreadsheets that track decisions, results, and other information from round to
round may also help you see trends. Other information could be obtained directly
(for a price) through research studies detailed in your LINKS participant’s manual.

3. Replacement parts requirements are predominantly a function of estimated failure
rates times historical sales through the warranty period. Failure rates vary by
supplier and by sub-assembly component.

4. A direct result is an increase in "Administrative Overhead (O/H)"—in this case by
20% (a 1% O/H increase for every 1% inaccuracy). Other supply chain management
areas are also adversely affected.










EXERCISE #1: ANSWERS
Zalatan & Chapman: LINKS Tutorial #4 Page 5 Revised January/2009


2. How does sales forecasting relate to other
supply chain management decisions?



Each simulation round, you and your team will discuss and develop strategies (broad
courses of action) and decisions relative to each supply chain management area in
LINKS, including:

Product Development
Procurement
Manufacturing
Distribution
Transportation
Service
Generate Demand
Information Technology.


Ideally, customers should drive your generate demand strategies and the design of
your entire supply chain. Generate demand strategies should also drive your sales
forecasts:























Customers/Markets
Wants, needs, &
priorities
Size & underlying
demand trends
Anticipated
Competitors' Strategies
Your Firm's Plan



1. Generate Demand Strategies
Product OIIering
Service OIIering

2. Supply Chain Management
Strategies
ManuIacturing/Finished
Goods (FG) Inventory
Procurement
Distribution
Transportation
InIormation Technology

Your Sales Forecasts
Zalatan & Chapman: LINKS Tutorial #4 Page 6 Revised January/2009

These sales forecasts have implications for many other supply chain management
decisions upstream (shaded diamond boxes, below):

































Accurate sales forecasts could enable all supply chain elements to work together as an
integrated system, something critical to the success of your company. So what exactly
is the impact of sales forecasting? Explore this by working through EXERCISE 2 - A
LINKS Case.

SALES
FORECASTS
Starting FG and
parts
inventories
Inventory
strategies
(saIety stock
policies)
Vendor
delivery &
parts Iailure
rates
REPLACEMENT
PARTS
FORECASTS
Component
Procurement

Historical sales
inIormation
("the base")
Finished Good
Production

Zalatan & Chapman: LINKS Tutorial #4 Page 7 Revised January/2009







Please read the scenario about Firm Z's Region #3, and answer the questions that
follow. Check your responses by referring to the answers starting on page 10.




SCENARIO: Firm Z just completed round 5. They currently sell both Products Z-1
and Z-2 in Region 3, both in channel 1 only. To date, Firm Z has made only three
changes to its initial starting position decisions (as of round #3) in Region 3. They:
Added a DC3 that they've owned and operated since round 4 (there was no
DC3 to start). They added it to try postponement and "see what happens."
Reduced FG and parts inventories to absolute minimums to cut
"unnecessary" costs.

All of the following have remained constant since round #1:
Products configurations.
Channels.
Prices.
Marketing budgets.

Recent Set-Top Box Industry Bulletins and some round #4 research has revealed
that some competitors have:
Opened channel 2 for both product lines.
Reconfigured products.
Changed prices and marketing budgets.

Here is an excerpt from one of Firm Z's spreadsheets that shows their sales results
since round #1):








Continued…
EXERCISE #2: A LINKS Case
Round #1 Round #2 Round #3 Round #4 Round #5
Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual
Z-1 15,000 15,000 15,000 10,500 15,000 15,120 15,000 11,300 12,000 6,000
Z-2 6,600 6,600 6,600 4,620 6,600 6,930 6,600 5,300 5,400 3,300

Zalatan & Chapman: LINKS Tutorial #4 Page 8 Revised January/2009






Firm Z's forecasts were just slightly above round #4 actuals because they explained,
"We're not making any generate demand changes in this region, so sales probably
won't change much." They forecasted increases of 6% and 2% for Products Z-1 and
Z-2, respectively. Other data from Firm Z's rounds #4 and #5 follow:













1. Costs of Underestimation: Assume that Firm Z ordered exactly the number of Z-1
and Z-2 products they forecasted for round #3 (15,000 and 6,600 units respectively).
Assume that there were no finished goods inventories for either product at the start
of round #3. What was the likely cost implication(s) of this underestimation?






2. Underlying Demand Patterns: Finish calculating the percentage changes in actual
sales for both products in rounds #4 and #5 in the table below. What do you notice
(if anything) about demand for each product?

Round
#1
Actuals
Round
#2
Actuals
%
Change
Round
#3
Actuals
%
Change
Round
#4
Actuals
%
Change
Round
#5
Actuals
%
Change

Z-1

15,000

10,500

-30%

15,120

+44%

11,300

6,000


Z-2

6,600

4,620

-30%

6,930

+50%

5,300

3,300









EXERCISE #2: continued…
DC3 FG Inventory:
Product Z-0, Round #5

Beginning Inventory 700
Plant Shipments, SurIace 16,200

Original ManuIacturing Cost:
Product Z-0, Round #5

Alpha 18.00
Beta 27.00
Production Cost 34.00
LaborCost 23.00
102.00
Zalatan & Chapman: LINKS Tutorial #4 Page 9 Revised January/2009







3. Forecasting Assumptions: What appear to be the primary reasons for Firm Z's lousy
round #5 forecast accuracy? Explain.












4. Safety Stock:
a. How much Product Z-0 safety stock did Firm Z have in round #5?


b. Was this a good decision? Explain.







5. Cost of Overestimating: Firm Z forecasts of unit sales were obviously too high in
round #5. What was the cost impact of this poor forecasting from a DC3/Product Z-0
inventory standpoint? Assume a beginning inventory of 700 units and that 16,200
units arrive on-time (about a 93% on-time arrival rate) of the original DC3 Z-0
shipment order of 17,400 units. (Show your calculations!)











EXERCISE #2: continued…
Zalatan & Chapman: LINKS Tutorial #4 Page 10 Revised January/2009





1. They had to pay a premium for emergency production and the emergency shipment
of this production. If there wasn't enough procurement inventory on hand to
accomplish this emergency production, they had to pay a premium for emergency
procurement, too.

2. Round #3 to Round #4:
Z-1: (11,300 - 15,120)/15,120 = -0.25 (actual sales were down 25%)
Z-2: (5,300 - 6,930)/6,930 = -0.24 (actual sales were down 24%)
Round #4 to Round #5:
Z-1: (6,000 - 11,300)/11,300 = -0.47 (actual sales were down 47%)
Z-2: (3,300 - 5,300)/5,300 = -0.38 (actual sales were down 38%)

It appears that the demand for products Z-1 and Z-2 tends to vary together, and
swings tend to be fairly large. Five rounds is a rather short time period, but if Firm Z
continues to track this information, they may be able to discern predictable demand
patterns. While no demand pattern is guaranteed to last forever, and no two
channels can be guaranteed to be the same from region to region or simulation
industry to simulation industry, the information may prove useful.

3. One reason appears to be their naïve assumption that their sales will only be
influenced by their own generate demand strategies, i.e., "We're not making any
generate demand changes in this region, so sales probably won't change much."
What about competitors? They also didn’t appear to consider underlying variability in
the demand patterns for this channel in this region. (That's what you calculated in
question #1, above … the "variability" or round-to-round changes in "pure" demand
in the first three rounds of the simulation when all firms made the same decisions,
i.e., no generate demand strategy variation between firms).

4. a. None. They forecasted that they'd sell 17,400 total units in Region 3, and the
DC3 FG Inventory: Product Z-0, Round #5 Report shows they had only 16,900
Product Z-0's on hand, that's 500 fewer units than they needed to meet their round
#5 sales forecasts. This also indicates that Firm Z forgot that surface shipments do
not necessarily have 100% of the order available for use in production that round,
meaning those 500 units they needed were probably part of a "delayed shipment"
they received after production at the end of the round.

b. In hindsight, yes, because they sold so much fewer than they expected. Their
ending inventories would have been even higher. Given the apparent variability of
demand in this channel in this region, however, they could probably benefit by
considering higher safety stock levels in the future when their understanding of
generate demand strategies, competitors, and forecasting improves.
EXERCISE #2: ANSWERS
Zalatan & Chapman: LINKS Tutorial #4 Page 11 Revised January/2009






5. (1) First, calculate Region 3's ending inventory of Product Z-0 for round #5:
Beginning Inventory 700
+ Plant Shipments, Surface 16,200
+ Plant Shipments, Air 0
+ Plant Shipments, Emergency 0
Postponed Production -9,300
= Available Inventory 7,600
- Sales, Region 3: 0
+ Plant Shipments, Delayed 1,200 (17,400 ordered - 16,200)
= Ending Inventory 8,800

(2) Calculate the inventory value = 8,800 x $102/unit = $897,600
Plus a 3% carrying cost = $897,600 x 1.03 = $924,528

That's a carrying cost of $26,928 ($924,528 - $897,600) that was caused by Firm
Z's poor forecasts. And that $26,928 and the inventory stored is cash that Firm Z
could not use for other value-producing uses in round #5.

To put this waste into perspective, consider that the just the carrying cost of
$26,928 was:
$5,486 (roughly 25%) more than they paid for service in Region 3 in round #5.
Twice their total Region #3 replacement parts cost in round #5.
25% of their Region #3 marketing budget.

Put that way, their round #5 carrying cost was one big chunk of change, and one
good reason to improve their forecasting!
EXERCISE #2: ANSWERS, continued…

That' the ideal. 2.1. great forecasts are very close estimates of what actually happens in the future. Next Round) Region 1 Region 2 Region 3 Long-Term (i. you forecast that you' sell 100 units of product 1-1 in channel 1 in d region 1 in round 4. Sales Volume Forecast. forecasting refers to your ability to predict sales volumes. by region. Channel #1 Region 1 Region 2 Region 3 …sales forecasts for next round ("the short-term") by channel. and when round 4 came around. Channel #2 Product 1 Product 2 Short-Term (i. Every simulation round. Some LINKS simulation variants require only short-term sales volume forecasts.. with consequent accuracy of less than 100%.. you sell exactly that. Next Round) Product 1 Product 2 Firm Month Sales Volume Forecast. other LINKS simulation variants require both short-term and long-term sales volume forecasts.e. you’ll prepare sales volume forecasts for each of your products. 1 Zalatan & Chapman: LINKS Tutorial #4 Page 2 Revised January/2009 . You were 100% accurate. Product 1 Total Sales Volume.. But forecasts could also be too high or too low in s varying degrees. Product 2 2-Rounds Hence 3-Rounds Hence In all cases. What is Forecasting? In LINKS.e. For example.and 3-Rounds Hence) Sales Volume Forecasts Total Sales Volume. You' create the ll 1 following forecasts : Forecasting Decisions Short-Term (i. by product and… …the next two rounds after that ("the long-term") by product.e.

Inputs to Forecast Sales: What "inputs" should you consider when making your sales volume forecasts? 2. Input Sources: Where can you find this information (from answer to question 1)? 3. Inputs to Forecast Parts: What inputs should you consider when forecasting replacement part requirements? 4.Your LINKS reports summarize your forecasting accuracy in two places: 1. 1. Forecasting Accuracy Implications: Assume you have an 80% "Forecasting Accuracy" score on your Performance Evaluation Report during a simulation round. This tutorial focuses on the process of sales forecasting and the implications that forecasting accuracy has for your firm' supply chain performance. 2. A more detailed Forecasting Accuracy Report that reports the accuracy of your sales volume forecasts individually and in aggregate for your firm as a whole. What are the effects of this 80% “Forecasting Accuracy” performance level? Zalatan & Chapman: LINKS Tutorial #4 Page 3 Revised January/2009 . s EXERCISE #1: Your Own Forecasting Process Work through each of the following questions. An overall "forecasting accuracy" score that' one of the operational metrics s on your Performance Evaluation Report (page 1 of your financial reports). then check out the "answers" on the next page.

… variables that relate to your firm' marketing and operational strategies. Failure rates vary by supplier and by sub-assembly component. Replacement parts requirements are predominantly a function of estimated failure rates times historical sales through the warranty period. 2. variables like: Price and Customers' perceptions of your product quality.EXERCISE #1: ANSWERS 1. and other information from round to round may also help you see trends. service quality. competitors' actions should also be discussed and anticipated. Other supply chain management areas are also adversely affected. These generate demand variables and the factors that influence them are detailed in your LINKS manual. A direct result is an increase in "Administrative Overhead (O/H)"—in this case by 20% (a 1% O/H increase for every 1% inaccuracy). you should seek to predict cause-and-effect relationships between demand and the variables that impact it. 3. or do you expect conditions to change? What other variables influenced your sales? Spreadsheets that track decisions. Several things. results. what happened when you increased price during the last simulation round? Would you get the same results next time. 4. Zalatan & Chapman: LINKS Tutorial #4 Page 4 Revised January/2009 . Of s course. Other information could be obtained directly (for a price) through research studies detailed in your LINKS participant’s manual. You should probably start by looking at your sales volume history. Some information just needs to be deduced from experience and your reports. What were your results? What was the size and variability (degree of change) of demand in each region for each product and channel? Do you see any trends? Do they appear to be long-term? Eventually. and availability. For example.

How does sales forecasting relate to other supply chain management decisions? Each simulation round. Ideally.2. you and your team will discuss and develop strategies (broad courses of action) and decisions relative to each supply chain management area in LINKS. Generate demand strategies should also drive your sales forecasts: ! " $ # $ % & ' () ! & # * + ) + # Zalatan & Chapman: LINKS Tutorial #4 Page 5 Revised January/2009 . customers should drive your generate demand strategies and the design of your entire supply chain. including: Product Development Procurement Manufacturing Distribution Transportation Service Generate Demand Information Technology.

something critical to the success of your company. So what exactly is the impact of sales forecasting? Explore this by working through EXERCISE 2 .These sales forecasts have implications for many other supply chain management decisions upstream (shaded diamond boxes.A LINKS Case. Zalatan & Chapman: LINKS Tutorial #4 Page 6 Revised January/2009 . ( . below): & ! & # )! ' . '# * / ! / ( Accurate sales forecasts could enable all supply chain elements to work together as an integrated system.

They currently sell both Products Z-1 and Z-2 in Region 3. Check your responses by referring to the answers starting on page 10.400 Continued… Zalatan & Chapman: LINKS Tutorial #4 Page 7 Revised January/2009 ." Reduced FG and parts inventories to absolute minimums to cut "unnecessary" costs. They added it to try postponement and "see what happens.000 4.000 3.000 6.600 6. To date.000 15. both in channel 1 only. and answer the questions that follow.000 15. Prices.620 6. Here is an excerpt from one of Firm Z' spreadsheets that shows their sales results s since round #1): Round #1 Z-1 Z-2 Forecast 15.930 6.600 Actual Forecast Actual Forecast 10.300 12.600 Actual Forecast 11. Channels. Changed prices and marketing budgets. Firm Z has made only three changes to its initial starting position decisions (as of round #3) in Region 3. All of the following have remained constant since round #1: Products configurations. Recent Set-Top Box Industry Bulletins and some round #4 research has revealed that some competitors have: Opened channel 2 for both product lines.300 Actual Forecast 15.000 6.120 15.000 5.600 Round #2 Round #3 Round #4 Round #5 Actual 6.EXERCISE #2: A LINKS Case Please read the scenario about Firm Z's Region #3.600 6.300 5. Reconfigured products. Marketing budgets. SCENARIO: Firm Z just completed round 5. They: Added a DC3 that they' owned and operated since round 4 (there was no ve DC3 to start).500 15.

300 6. Assume that there were no finished goods inventories for either product at the start of round #3.500 4. so sales probably re won'change much.300 Zalatan & Chapman: LINKS Tutorial #4 Page 8 Revised January/2009 .000 6.600 10.000 3. What was the likely cost implication(s) of this underestimation? 2.000 and 6. Costs of Underestimation: Assume that Firm Z ordered exactly the number of Z-1 and Z-2 products they forecasted for round #3 (15." They forecasted increases of 6% and 2% for Products Z-1 and t Z-2. s "We' not making any generate demand changes in this region. respectively.600 units respectively).EXERCISE #2: continued… Firm Z' forecasts were just slightly above round #4 actuals because they explained.300 5.930 +44% +50% 11. Other data from Firm Z' rounds #4 and #5 follow: s $ 234 5 # 8 =* 1 67 . What do you notice (if anything) about demand for each product? Round #1 Actuals Round #2 Actuals % Change Round #3 Actuals % Change Round #4 Actuals % Change Round #5 Actuals % Change Z-1 Z-2 15.120 6. Underlying Demand Patterns: Finish calculating the percentage changes in actual sales for both products in rounds #4 and #5 in the table below.620 -30% -30% 15.4 4 " 4 9 4 0 4 < 4 " 4 0 4 4 4 " 4 0& ) ! 234 5 8 # )! 1 67 94 4 :" 4 4 1.

How much Product Z-0 safety stock did Firm Z have in round #5? b. Safety Stock: a. Forecasting Assumptions: What appear to be the primary reasons for Firm Z' lousy round #5 forecast accuracy? Explain.200 units arrive on-time (about a 93% on-time arrival rate) of the original DC3 Z-0 shipment order of 17. What was the cost impact of this poor forecasting from a DC3/Product Z-0 inventory standpoint? Assume a beginning inventory of 700 units and that 16. Was this a good decision? Explain.EXERCISE #2: continued… s 3. Cost of Overestimating: Firm Z forecasts of unit sales were obviously too high in round #5.400 units. 4. (Show your calculations!) Zalatan & Chapman: LINKS Tutorial #4 Page 9 Revised January/2009 . 5.

Given the apparent variability of demand in this channel in this region. "We' not making any re generate demand changes in this region.930 = -0.120)/15.300 = -0. meaning those 500 units they needed were probably part of a "delayed shipment" they received after production at the end of the round.24 (actual sales were down 24%) Round #4 to Round #5: Z-1: (6. however. yes. competitors. too. If there wasn'enough procurement inventory on hand to t accomplish this emergency production. In hindsight. While no demand pattern is guaranteed to last forever. that' 500 fewer units than they needed to meet their round s s #5 sales forecasts. and swings tend to be fairly large. 4. 3. They had to pay a premium for emergency production and the emergency shipment of this production. they may be able to discern predictable demand patterns. Five rounds is a rather short time period.300 .900 Product Z-0' on hand.e. Round #3 to Round #4: Z-1: (11. and no two channels can be guaranteed to be the same from region to region or simulation industry to simulation industry.47 (actual sales were down 47%) Z-2: (3. One reason appears to be their naïve assumption that their sales will only be influenced by their own generate demand strategies." t What about competitors? They also didn’t appear to consider underlying variability in the demand patterns for this channel in this region.400 total units in Region 3. Round #5 Report shows they had only 16.300)/11.930)/6. Their ending inventories would have been even higher. i. but if Firm Z continues to track this information.15.300)/5.11.300 = -0. This also indicates that Firm Z forgot that surface shipments do not necessarily have 100% of the order available for use in production that round. they could probably benefit by considering higher safety stock levels in the future when their understanding of generate demand strategies. None. the information may prove useful. above … the "variability" or round-to-round changes in "pure" demand in the first three rounds of the simulation when all firms made the same decisions.EXERCISE #2: ANSWERS 1. they had to pay a premium for emergency procurement. Zalatan & Chapman: LINKS Tutorial #4 Page 10 Revised January/2009 .38 (actual sales were down 38%) It appears that the demand for products Z-1 and Z-2 tends to vary together.. i..5.120 = -0.300 . because they sold so much fewer than they expected. and forecasting improves. and the d DC3 FG Inventory: Product Z-0.000 . so sales probably won'change much.e.6. They forecasted that they' sell 17. no generate demand strategy variation between firms).300 .25 (actual sales were down 25%) Z-2: (5. a. 2. (That' what you calculated in s question #1. b.

And that $26. consider that the just the carrying cost of $26.$897.03 = $924. calculate Region 3' ending inventory of Product Z-0 for round #5: s Beginning Inventory 700 + Plant Shipments. Air 0 + Plant Shipments.928 ($924. their round #5 carrying cost was one big chunk of change.200 (17. Surface 16.800 (2) Calculate the inventory value = 8. Delayed 1. Put that way. (1) First.EXERCISE #2: ANSWERS.800 x $102/unit = $897. Emergency 0 Postponed Production -9.486 (roughly 25%) more than they paid for service in Region 3 in round #5.200 + Plant Shipments.300 = Available Inventory 7.928 was: $5.928 and the inventory stored is cash that Firm Z s could not use for other value-producing uses in round #5. and one good reason to improve their forecasting! Zalatan & Chapman: LINKS Tutorial #4 Page 11 Revised January/2009 .Sales.600) that was caused by Firm s Z' poor forecasts.600 Plus a 3% carrying cost = $897. continued… 5. Region 3: 0 + Plant Shipments. Twice their total Region #3 replacement parts cost in round #5. To put this waste into perspective.528 That' a carrying cost of $26.600 x 1.600 .400 ordered .200) = Ending Inventory 8. 25% of their Region #3 marketing budget.528 .16.

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