De La Salle University

Ramon V. del Rosario College of Business

Management and Organization Department

An Action Research:
Addressing the Control of Bad Order Goods of Company A
Through Promoting Best Business Practices that are Useful in the Society

In partial fulfillment
of the Course requirements in
Quantitative Methods for Decision Making (MSC530M)
3rd Term, Academic Year 2018-2019

Submitted By:

Florendo, Patricia Marie C.

Lim, Shainna Alexis
Reyes, Mark Lester

Submitted to:

Dr. Dennis Berino

July 8, 2019

DETERMINATION OF A BUSINESS SITUATION OR PROBLEM

Company Background

In a food Company A, basic portfolio of biscuits that generations of Filipinos have loved and now
carries a wide variety of snack food ranging from nuts and seeds, cakes, wafers, bread, chips and curls,
candies and gums, and chocolates. Company A serves a wide variety of customers all over the
Philippines and also exporting products to different parts of the world. One of the concerns of company
A is the increasing number of Bad Order Products from distributors/customers and it is needed to be
addressed. Bad Order Products are those products that are expired, lacking quantity (ex. Only nine
packs instead of 10 packs per bag), damaged packaging (no expiration/batch code printed, deflated
pack), damaged products (crushed biscuits, contaminated items) and others. For the purpose of an
actual action research paper, the company name will not be revealed and would be identified as
Company A due to the confidentiality of the data.

Objective of the Action Research

● To communicate practices that manufacturers, retailers, wholesalers, and sales agencies can use
to reduce the amount of date-expired and unsaleable products. This is expected to result in
increased customer satisfaction with the total supply chain.
● To explore ways of providing consumers with products that have increased product life -
without compromising safety or quality and without changes to products or packaging - and to
develop a business case, in terms of waste prevention, for change.

INITIAL QUALITATIVE/QUANTITATIVE ANALYSIS OF PROBLEM TO DETERMINE

DATA AND INFORMATION NEEDED

● Time- Series Forecasting Model

The researchers aim to predict the future sales of Distributors of Mindanao Area using historical sales
data. The model makes an assumption that what happens in the future has a correlation of what has
happened in the past. The researchers will use Seasonal Variations to analyze the trend of data over a
series of time. The seasonal index will be established to compare a particular season. The average
demand in each month will be computed, and these values are divided by the overall average to find
the seasonal index for each month. The result of the forecast will be beneficial in limiting the production
on low seasons to avoid Bad Order or return of nearly expired goods.

● Sales Force Composite

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Salesforce composite method is the bottom-up approach where the sales force gives their opinion on
sales trend to the top management. Sales agents have the most direct interaction with customers and
they can provide valuable insights on which products are highly moving. Each salesperson estimates
what sales will be in their region/territory and which is then consolidated to develop an overall company
sales forecast. Researchers will gather data on sales and bad orders as a support to the observation of
sales agent in each territory.

DATA COLLECTION

There are 10 Distributors/Customers who are assigned in Mindanao Area to provide sales and bad
orders for year 201*. A year worth of data will be used in the analysis which will be sourced from
Company A itself. For academic purposes, the figures that were provided are not the exact amount as
the actual figures. Data will include the following:

● Estimated monthly and yearly sales of customers/distributors;

● Estimated monthly and yearly bad orders of customers/distributors.

DATA ANALYSIS USING APPROPRIATE QUANTITATIVE OR QUALITATIVE METHOD

A. Time- Series Forecasting Model (Multiplicative)

- Based on the information gathered from company A, it is expected that the average
monthly sales from the following year are at 800,000,000 (see annex 2). Using Time
Series seasonal indexes for forecasting, the expected monthly sales is adjusted in order
to get the forecast for the following year. And as a result, there will be a 9,600,000,000
total sales for the following year, which is about 11.76% higher than the previous year.
- On the other hand, it is expected that the average monthly bad orders from the following
year are at 8,000,000 (see annex 2). Using Time Series seasonal indexes for forecasting,
the expected monthly bad order is adjusted in order to get the forecast for the following
year. And as a result, there will be 9,600,000,000 total bad orders for the following year,
which is about 10.96 % higher than the previous year.
- With the increase in the expected sales for the following year, it is also expected that
there would be an increase in the bad orders.

B. Sales Force Composite

- Sales for the year 201x were gathered and compared per distributor in Company A. The
month of July has the highest sales for year 201x amounting to 807,549 while the lowest

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 sale is for the month of April amounting to 661,851. According to Order Management
Department, the peak of sale is during the month of July because of the resumption of
classes and one of the Company’s target customers are the students which the products
serve as their snacks. While the lowest sale is during the month of April due to Holy
Week and summer break of students.

- Analyzing the bad orders for the 10 distributors in Mindanao Area for the same year,
the month of April has the highest Bad Orders amounting to 9,594. while the lowest in
the month of December 4,345. According to the Order Management Department, during
the Christmas season Company A gets a high sale as people tend to spend more during
the holidays. It shows that the lowest sale and highest bad order is for the month of
April. Sales agents may recommend to the management to anticipate and limit the batch
production for April to avoid date- expired and unsalable products. (see annex 1: Data
Source)

INTERPRETATION OF RESULTS AND APPLICATION TO THE COMPANY,

LIMITATIONS, AND OVERALL CONCLUSION AND RECOMMENDATION

This paper utilized information from Company A’s sales and bad order report for the year 201x in
Mindanao. The researchers have used the data of 10 distributors in Mindanao Area to develop this
research paper and other insider information such as Financial Report is not included in this study. As
Company A offers a variety of products and due to limited resources and restrictions on each Stock
Keeping Unit (SKU), the researchers used all SKUs manufactured by Company A in determining the
bad orders. Also, details on the expiry date on each product line and the quantity in the production is a
limitation in this paper. The researchers interviewed two employees from Order Management
Department in support of the qualitative method of this paper.

The use of time series forecasting is necessary to have a look at the trend data over a series of time
observation. (Render et al, 2012). Forecasting is a good method if a company would like to anticipate
problems such as bad orders. Forecasting is subjected to thorough scrutiny for validation. The use of
numbers makes the analysis more exacting. Trend analysis can be replicated, checked, updated and
refined when necessary. (Metcalf, n.d.). With the increase in the expected sales for the following year,
it is also expected that there would be an increase in the bad orders and if the sales decrease, then the
bad order also decreases.

In using the sales force composite method, management or researchers must be careful in using this
technique as a sales agent may have a too optimistic or pessimistic approach based on their latest
experience. The macroeconomic event might be neglected as insider feedback and reports are readily

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available and forecasted. The researchers recommend this qualitative method of research if a company
wants to combine the sales force composite forecast with the top-down forecast. Sales agents have the
most interaction with their clients/ distributor hence, their feedback is also valuable insight in
addressing the company’s goal and current issues.

The researchers recommend that the distributors have their routine checking of products not only for
nearly expired products but also for all the products in the market since the products are for
consumption and it needs to be properly served in the market. It is also recommended to continue the
inventory management of First-Expired-First-Out because as shown in the forecasting, there’s a direct
relationship between the number of sales and number of bad order products. If there’s an increasing
number of sales, there is an increasing number of Bad Order Products and if there’s a decrease in the
number of sales, there is also a decreasing number of Bad Order Products. Also, for nearly expired
products, Company A should be creative in doing promos and marketing to its customer in order for
the products to be sold before the expiration. If there are lacking quantity, damaged packaging,
damaged products, the researchers recommend proper disposal of it. In addition to that, Quality Control
must be maintained and improved if needed.

ETHICAL CONSIDERATIONS

● Employee Relations Shifting schedules, overtime works, working on a holiday, double shift
and minimum-wage earner employees, these will lead to a possible trade-off between food costs
and quality.

● Food Safety Company A should prioritize more in food safety in order to enforce the highest
quality standards because at the end of the day, the product line is food and it is consumed by
almost all people within or outside the area. Safety improves quality.

● Supplier Standards Some companies minimizing their costs in order to increase profit without
them realizing that the quality of their products decreases.

References:

MBAskool.com. (n.d.). Sales Force Composite. Retrieved from:

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 https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/12544-sales-

force-composite.html

Metcalf, T. (n.d.). The pros and cons of trend analysis in forecasting. Retrieved from:

https://smallbusiness.chron.com/pros-cons-trend-analysis-forecasting-58786.html

Render, B., Stair, R. M., & Hanna, M. E. (2012). Quantitative analysis for management (12th ed.).

New Jersey: Pearson Education.

ANNEX 1: DATA SOURCE FROM COMPANY A

I. Sales for the year 201*

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II. Bad Order for the year 201*

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ANNEX 2: QUALITATIVE/QUANTITATIVE METHODS APPLICATIONS/
COMPUTATIONS

Monthly Sales Projection

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 Average Monthly Sales= Grand Total / 12 Months
Average Seasonal Index= Monthly Total Sales/ Average Monthly Sales

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Highly Confidential and For Learning Purposes Only