Process Improvement Plan 1

Production Forecast for Riordan Fans

Riordan Manufacturing plant in Hangzhou, China prepares the forecast for electric fan

sales for throughout the world including Unites States. The future demand of fans is forecast

based on taking average of sales for the last three years and extrapolating it into the next year.

The assumption in using this forecast method is that history will repeat itself within manageable

limits (University of Phoenix, 2010).

The problem with this methodology is the need to continually carry a large amount of

historical data. Also historical occurrences are not a guarantee for future sales. In many

applications , the most recent occurrences are more indicative of the future than those in the

more distant past. Riordan fans should use Exponential smoothing as the future forecast method

for forecasting its electric fan sales. In the exponential smoothing method, only three pieces of

data are needed to forecast the future: the most recent forecast, the actual demand that occurred

for that forecast period, and a smoothing constant alpha (α). The smoothing constant determines

the level of smoothing and the speed of reaction to differences between forecasts and actual

occurrences. The value for the constant is determined both by the nature of the product and by te

manager’s sense of what constitutes a good response rate. In the case of Riordan Manufacturing,

we will be expecting a growth. It is desirable to have a higher reaction rate between 15 to 30

percentage points, to give greater importance to the expected growth (Chase, Jacobs, &

Aquilano, 2006, p. 521).