Learning Team #6

David Epstein
Yusuke Fujita
Michael Kim
Liana Kohn-Gardner
Alice Sheng
Brian White

HARMON FOODS, INC. ASSIGNMENT

1) Develop and estimate a model that you think makes the most sense to use for
forecasting monthly shipments of Treat cereal. How did you arrive at this model?

Our formula to forecast sales is:

Sales=-78,790+0.5036*CPA-0.3023*CP1+0.0846*DAA-
0.0202*DA2+3761.3533*SI+873.0313*TI

Where:
CPA = Consumer pack volume in a given month accounting for the fact that 85% is
attributed to that month’s volume and 15% from the previous month’s volume.
CP1 = CPA from one month prior.
DAA = Dealer Allowance spending in a given month accounting for the fact that 85% is
attributed to that month’s spending and 15% from the previous month’s spending.
DA2 = DAA from two months prior.
SI = Seasonal index for shipments of breakfast cereals each month.
TI = Time index- period number starting in January 1983.

We created an excel sheet with columns that examined several factors:

a) Time in order to incorporate the long term underlying growth of the Treat
cereal brand
b) The adjusted effects of consumer pack volume and dealer allowance spending
in each month given that the canvassing period lasts five weeks and a month
lasts four
c) In order to account for cannibalization, we looked at the lag effect of consumer
pack volume and dealer allowance spending in a given month on the
subsequent time periods.

We tested these variables with respect to sales as the dependent variable and found that
the independent variables in our equation had high t-values. However, we eliminated the
variables, CP2 and DA1, because they had high p-values and ran a subsequent regression.

2) Use the model you developed above to forecast shipments for January 1988
assuming that 200,000 consumer packs (cases) are shipped in that month and
 $120,000 in dealer allowances are provided. Give a 95% prediction interval for
your forecast.

The forecasted number of units sold is 469,459 and the 95% prediction interval for this
forecast is 391,695 to 547,223 units.

3) Use your estimated model to comment on the impact/effectiveness of consumer

promotions relative to dealer promotions. What is the expected change in sales
for a $1 increase in dealer allowances? What is the expected change in sales for a
$1 increase in consumer packs? You may make a reasonable assumption about
the price Harmon receives for a box of cereal.

To convert CPA into cases per dollar, we must multiply its coefficient by 1 over 4.8 which
accounts for 24 boxes per case and each box costing $.20. So for every dollar we spend
on Consumer packs, we sell .1049 more cases of Treat. To convert CP1 into cases per
dollar, we multiply its coefficient by 1 over 4.8 and arrive at -0.063. Summing these two,
the cumulative impact of $1 spent on Consumer Promotions is an increase of .0419 in the
number of cases sold. For Dealer Promotions, the net impact of $1 spent on promotions is
a .0644 increase in the number of cases sold.

4) Should Harmon increase or decrease its expenditures on dealer allowances and/or

consumer packs?

Based on the net impact of consumer pack promotions versus dealer allowance
promotions, Harmon should increase its promotion expenditures on dealer allowances.
This is because the net increase in sales from $1 spent on dealer promotions is .0644,
which is greater than the .0419 increase from a $1 increase in consumer pack promotion.
 long- reaction reaction to
term to sales of sales of 2
rising 2 months months
trend later later
Sales of Consumer Dealer
Time Treat Packs Allowances
Month Year index (cases)* (cases)* CP_lag1 CP_lag2 ($) DA_lag1 DA_lag2

Time
Index Sales CP CP_adj CP_lag1 CP_lag2 DA DA_adj DA_lag1 DA_lag2
January 1983 1 0 0 396,776 129,452
February 1983 2 0 0 0 152,296 188,968 129,452
March 1983 3 0 0 0 0 157,640 156,838 188,968 129,452
April 1983 4 0 0 0 0 246,064 232,800 156,838 188,968
May 1983 5 15,012 12,760 0 0 335,716 322,268 232,800 156,838
June 1983 6 62,337 55,238 12,760 0 326,312 327,723 322,268 232,800
July 1983 7 4,022 12,769 55,238 12,760 263,284 272,738 327,723 322,268
August 1983 8 3,130 3,264 12,769 55,238 488,676 454,867 272,738 327,723
September 1983 9 422 828 3,264 12,769 33,928 102,140 454,867 272,738
October 1983 10 0 63 828 3,264 224,028 195,513 102,140 454,867
November 1983 11 0 0 63 828 304,004 292,008 195,513 102,140
December 1983 12 0 0 0 63 352,872 345,542 292,008 195,513
January 1984 13 425,075 75,253 63,965 0 0 457,732 442,003 345,542 292,008
February 1984 14 315,305 15,036 24,069 63,965 0 254,396 284,896 442,003 345,542
March 1984 15 367,286 134,440 116,529 24,069 63,965 259,952 259,119 284,896 442,003
April 1984 16 429,432 119,740 121,945 116,529 24,069 267,368 266,256 259,119 284,896
May 1984 17 347,874 135,590 133,213 121,945 116,529 158,504 174,834 266,256 259,119
June 1984 18 435,529 189,636 181,529 133,213 121,945 430,012 389,286 174,834 266,256
July 1984 19 299,403 9,308 36,357 181,529 133,213 388,516 394,740 389,286 174,834
August 1984 20 296,505 41,099 36,330 36,357 181,529 225,616 250,051 394,740 389,286
September 1984 21 426,701 9,391 14,147 36,330 36,357 1,042,304 919,801 250,051 394,740
October 1984 22 329,722 942 2,209 14,147 36,330 974,092 984,324 919,801 250,051
November 1984 23 281,783 1,818 1,687 2,209 14,147 301,892 402,722 984,324 919,801
December 1984 24 166,391 672 844 1,687 2,209 76,148 110,010 402,722 984,324
January 1985 25 629,404 548,704 466,499 844 1,687 0 11,422 110,010 402,722
February 1985 26 263,467 52,819 127,202 466,499 844 315,196 267,917 11,422 110,010
March 1985 27 398,320 2,793 10,297 127,202 466,499 703,624 645,360 267,917 11,422
April 1985 28 376,569 27,749 24,006 10,297 127,202 198,464 274,238 645,360 267,917
May 1985 29 444,404 21,887 22,766 24,006 10,297 478,880 436,818 274,238 645,360
June 1985 30 386,986 1,110 4,227 22,766 24,006 457,172 460,428 436,818 274,238
July 1985 31 414,314 436 537 4,227 22,766 709,480 671,634 460,428 436,818
August 1985 32 253,493 1,407 1,261 537 4,227 45,380 144,995 671,634 460,428
September 1985 33 484,365 376,650 320,364 1,261 537 28,080 30,675 144,995 671,634
October 1985 34 305,989 122,906 160,968 320,364 1,261 111,520 99,004 30,675 144,995
November 1985 35 315,407 15,138 31,303 160,968 320,364 267,200 243,848 99,004 30,675
December 1985 36 182,784 5,532 6,973 31,303 160,968 354,304 341,238 243,848 99,004
January 1986 37 655,748 544,807 463,916 6,973 31,303 664,712 618,151 341,238 243,848
February 1986 38 270,483 43,704 118,869 463,916 6,973 536,824 556,007 618,151 341,238
March 1986 39 365,058 5,740 11,435 118,869 463,916 551,560 549,350 556,007 618,151
April 1986 40 313,135 9,614 9,033 11,435 118,869 150,080 210,302 549,350 556,007
May 1986 41 528,210 1,507 2,723 9,033 11,435 580,800 516,192 210,302 549,350
June 1986 42 379,856 13,620 11,803 2,723 9,033 435,080 456,938 516,192 210,302
July 1986 43 472,058 101,179 88,045 11,803 2,723 361,144 372,234 456,938 516,192
August 1986 44 254,516 80,309 83,440 88,045 11,803 97,844 137,339 372,234 456,938
September 1986 45 551,354 335,768 297,449 83,440 88,045 30,372 40,493 137,339 372,234
October 1986 46 335,826 91,710 128,319 297,449 83,440 150,324 132,331 40,493 137,339
November 1986 47 320,408 9,856 22,134 128,319 297,449 293,044 271,636 132,331 40,493
December 1986 48 276,901 107,172 92,575 22,134 128,319 162,788 182,326 271,636 132,331
January 1987 49 455,136 299,781 270,890 92,575 22,134 32,532 52,070 182,326 271,636
February 1987 50 247,570 21,218 63,002 270,890 92,575 23,468 24,828 52,070 182,326
March 1987 51 622,204 157 3,316 63,002 270,890 4,503,456 3,831,458 24,828 52,070
April 1987 52 429,331 12,961 11,040 3,316 63,002 500,904 1,101,287 3,831,458 24,828
May 1987 53 453,156 333,529 285,444 11,040 3,316 0 75,136 1,101,287 3,831,458
June 1987 54 320,103 178,105 201,419 285,444 11,040 0 0 75,136 1,101,287
July 1987 55 451,779 315,564 294,945 201,419 285,444 46,104 39,188 0 75,136
August 1987 56 249,482 80,206 115,510 294,945 201,419 92,252 85,330 39,188 0
September 1987 57 744,583 5,940 17,080 115,510 294,945 4,869,952 4,153,297 85,330 39,188
October 1987 58 421,186 36,819 32,187 17,080 115,510 376,556 1,050,565 4,153,297 85,330
November 1987 59 397,367 234,562 204,901 32,187 17,080 376,556 376,556 1,050,565 4,153,297
December 1987 60 269,096 71,881 96,283 204,901 32,187 552,536 526,139 376,556 1,050,565
January 1988 61 200,000 180,782 96,283 204,901 120,000 184,880 526,139 376,556
Correlation Matrix
Variable CP_adj CP_lag1 DA_adj DA_lag2 Sales Sindex TimeIndex
CP_adj 1.000
CP_lag1 0.104 1.000
DA_adj -0.292 -0.099 1.000
DA_lag2 0.245 -0.183 -0.156 1.000
Sales 0.425 -0.315 0.538 0.007 1.000
Sindex 0.303 -0.120 0.138 0.048 0.690 1.000
TimeIndex 0.150 0.180 0.225 0.245 0.149 -0.142 1.000

Regression Statistics
Multiple R R Square Adj.RSqr Std.Err. # Cases #Missing Deg.Free t(2.5%,41)
0.962 0.925 0.914 3.56E+04 48 12 41 2.020

Summary
Table
Variable Coeff. Std.Err. t Stat. P-value Lower95% Upper95%
-
Intercept 7.88E+04 4.47E+04 -1.763 0.085 -1.69E+05 1.15E+04
CP_adj 0.504 0.052 9.687 0.000 0.399 0.609
CP_lag1 -0.302 0.046 -6.520 0.000 -0.396 -0.209
DA_adj 0.085 0.008 10.810 0.000 0.069 0.100
DA_lag2 -0.020 0.007 -2.729 0.009 -0.035 -0.005
Sindex 3761.353 410.393 9.165 0.000 2932.548 4590.159
TimeIndex 873.031 436.401 2.001 0.052 -8.298 1754.361

Analysis of Variance
Source df Sum Sqrs Mean Sqr F P-value
Regression 6 6.38E+11 1.06E+11 83.778 0.000
Residual 41 5.20E+10 1.27E+09
Total 47 6.90E+11

Histogram of Residuals
Line Fit Plot

Residual vs. Predicted Plot

CP_adj Residual Plot

CP_lag1 Residual Plot

DA_adj Residual Plot

DA_lag2 Residual Plot

Sindex Residual Plot

 Time Index Residual Plot

Residual Statistics
Durbn-Watsn #Res.>0 #Res.<=0 1st Auto 2nd Auto 4th Auto 7th Auto 12th Auto
2.309 24 24 -0.171 0.392 0.151 -0.102 -0.024

Forecasted: Sales
Forecast CP_adj CP_lag1 DA_adj DA_lag2 Sindex TimeIndex Sales StErrFst Lower95% Upper95%
1 180782.15 96283.15 184880.4 376556 113 61 4.69E+05 3.85E+04 3.92E+05 5.47E+05