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Model Selection and Forecasting

   

Added on  2019-09-19

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A-CAT CORPORATIONForecastingUNIVERSITY NAMEStudent Name
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Executive SummaryThis report aims toward providing an analytical approach for predicting/forecasting the transformer requirements and sales of refrigerators 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 the future sales and the requirements of the primary product of the company. The study uses the data available from January’06 to December’10 to make 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 model in 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. It competed 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 and operated two medium-sized manufacturing units in a sleepy town called Gondia, in one of the remote districts in Vidarbha, ironically a backward region in the most progressive state of India, Maharashtra. A-CAT had an alliance partnership with Jupiter Inc. for the production of cabinets and had a collaborative venture with Global Electricals for manufacturing TV signal boosters and battery chargers. A-CAT's primary flagship product was a voltage regulator of 500 kilovolt amps (KVA) that was branded and sold under the tag of VR-500. These voltage regulators were used for varied purposes but were most commonly used in households as a protective device for refrigerators and television sets, so as to protect the latter from the vagaries of load fluctuations and/or frequent power failures, which were a very common phenomenon 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 purchasing and stocking spares and components in the system especially with regard to 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 is throughout the year. Most of the time, these orders were categorized as "rush orders," and the store managers knew that the supplier of the transformers required for the product needed at least one week, if not more' for delivery. On top of this, it was likely that the transformer 1 | P a g e
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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 to four suppliers. now there was only one. Moreover, the blocking of capital had a domino effect on the purchase and inventories of other products' spares and components. An increased cost of its primary spare component was the last thing A-CAT needed. The sales division was supposed to forecast the demand for voltage regulators as a measure for determining 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 requirements over the period of January’06 to December’10. We can see that there is a higher requirements during the month of April to July and then a dip near month of September followed by a slight increase during the end of the 2 | P a g eIIIIIIIV0100020003000400050006000700080009000SALES FIGURES OF REFRIGERATORS20062007200820092010200620072008200920100100020003000400050006000700080009000SALES FIGURES OF REFRIGERATORSIIIIIIIV
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