Issue of Over-stocking Report | Inventory Management

Added on - 19 Sep 2019

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Executive SummaryThis report aims toward providing an analytical approach forpredicting/forecasting the transformer requirements and sales ofrefrigerators by A-CAT corporation in order to solve the issue of under andover-stocking faced by the inventory department and the sales division forproviding a good measure for the right amount of inventory.This report used different time series forecasting method to predict thefuture sales and the requirements of the primary product of the company.The study uses the data available from January’06 to December’10 tomake the prediction for next year. Three different models namely Auto-Regression (AR model), Moving-Average (MA-model) and ARMA model wasused for the prediction.The MA model or moving average model was found to be the best modelin terms of least error in predicting the already known sales figures.A-CAT CorporationA-CAT was one of the leading producers of electrical appliances in India. Itcompeted with and belonged to the category of medium scale industry,which produced and distributed domestic electrical appliances to the ruralpopulation in and around the Vidarbha region. The company owned andoperated two medium-sized manufacturing units in a sleepy town calledGondia, in one of the remote districts in Vidarbha, ironically a backwardregion in the most progressive state of India, Maharashtra. A-CAT had analliance partnership with Jupiter Inc. for the production of cabinets andhad a collaborative venture with Global Electricals for manufacturing TVsignal boosters and battery chargers.A-CAT's primary flagship product was a voltage regulator of 500 kilovoltamps (KVA) that was branded and sold under the tag of VR-500. Thesevoltage regulators were used for varied purposes but were mostcommonly used in households as a protective device for refrigerators andtelevision sets, so as to protect the latter from the vagaries of loadfluctuations and/or frequent power failures, which were a very commonphenomenon in Vidarbha.Forecasting Process – SignificanceDuring the past few months, the sales of voltage regulators had fallen off.In reaction, A-CAT recently started deliberating on its policy of purchasingand stocking spares and components in the system especially with regardto schedule and stock-in-hand inventory. The firm stored all its spares andcomponents, including the transformers, in its factory store.Orders for the main product of A-CAT - that is, voltage regulators isthroughout the year. Most of the time, these orders were categorized as"rush orders," and the store managers knew that the supplier of thetransformers required for the product needed at least one week, if notmore' for delivery. On top of this, it was likely that the transformer1|P a g e
supplier would raise prices if uniformity and continuity in placing of ordersfor transformers was not guaranteed. Placing orders beyond a certain limitalso stretched the system - whereas A-CAT had previously had access tofour suppliers. now there was only one. Moreover, the blocking of capitalhad a domino effect on the purchase and inventories of other products'spares and components. An increased cost of its primary sparecomponent was the last thing A-CAT needed. The sales division wassupposed to forecast the demand for voltage regulators as a measure fordetermining the right amount of transformers to keep in inventory.JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember02004006008001000120014001600TRANSFORMER REQUIREMENTS20062007200820092010Figure 1: Transformer RequirementsFigure 2A and 2B: Sales Figures of RefrigeratorsFrom the Figure 1, we can observe the trend of transformer requirementsover the period of January’06 to December’10. We can see that there is ahigher requirements during the month of April to July and then a dip nearmonth of September followed by a slight increase during the end of the2|P a g eIIIIIIIV0100020003000400050006000700080009000SALES FIGURES OFREFRIGERATORS20062007200820092010200620072008200920100100020003000400050006000700080009000SALES FIGURES OFREFRIGERATORSIIIIIIIV
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