Logistics and Operations Management: Evaluating Approaches to Forecasting, Inventory and Capacity Management

This report evaluates approaches to forecasting, inventory and capacity management in logistics and operations management. It includes a detailed master production schedule for weeks 25-35 and a critical evaluation of strengths and weaknesses of the approach.

4/15/2018
Student Name
Logistics and Operations Management

Contents
Introduction............................................................................................................................................. 1
With reference to the exercise evaluates your group’s approach to:................................................................2
Forecasting.............................................................................................................................................. 2
Last Year’s sales trend....................................................................................................................... 2
Inventory management...................................................................................................................... 3
Capacity management........................................................................................................................ 4
Break-even analysis........................................................................................................................... 4
Critically evaluate the strengths and weaknesses of your approach.............................................................5
Produce a detailed Master Production Schedule for weeks 25 – 35................................................................5
Transition Duration period..................................................................................................................... 6
Production Quantities............................................................................................................................ 6
Conclusion.............................................................................................................................................. 7
References............................................................................................................................................... 8

Introduction
For any businesses operation to register progressive and continued growth it is essential to be
able to evaluate and analyse historical data using various tools. These evolutions and
prediction help the business determines important statistics related to sales forecasting which
than allows the business to prepare for other operational related requirements such as
inventory and stock management, capacity management and operation follow. While there
are many sophisticated tools available to perform this analysis this report shall be performed
using Ms. Excel which will help determine important statistics that can be used by the
operation staff to improve expected production demands (Farahani et al., 2011). The business
is also experiencing a transition and change from traditional standard aerials to excel aerials
which also needs to be carefully addressed to avoid disrupting operations and sales volume.
The report shall address each of the points in question and provide important calculation and
approaches used to minimize risk and losses.
With reference to the exercise evaluates your group’s approach to:
Forecasting
Aerial sales are noted to fluctuate considerably for each week thus indicating there is an
external factor which is influencing the sudden demand for new and replacement aerials to be
purchased (Kahn, 2014). Due to the unpredictability of the Aerial sales, it is difficult to
perform a long-term predictive analysis limiting the businesses to performing a maximum of
2 months for the product. With sales rising and falling by up to 300% the businesses are
highly volatile and analysis cannot be performed on a long-term basis.
Last Year’s sales trend
The business sales analysis must begin by plotting the previous year’s sales to help determine
any sales tends the businesses have recorded. Using historical data will help determine
important sales trends and movements which can be used to predict future movements are
stable (Boone & Kurtz, 2014). Reviewing the previous year’s sales quickly revellers the
business has had erratic sales volumes on a weekly basis.
Reviewing the below line chard clearly demonstrates the business lacks a stable market with
certain factors influencing sales thus making it unpredictable to determine over a long-term
prospect.

While reviewed from a 52-week perspective, it’s apparent that the business is registering a
slight increase in the sales but the amount is minimal and required additional marketing
efforts to stabilize the weekly sales (Michael, 2011). As shirt drop is also observed in the last
week with sales jumping by 300% on resuming business in the first week of the New Year.
1
6
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26
31
36
41
46
51
56
61
0
2000
4000
6000
8000
10000
12000
14000
16000
f(x) = 16.5470910138249 x + 4921.19150025602
R² = 0.00776017654869077
Overall Sales
Last Years Sales
Linear (Last Years Sales)
Despite the weekly sales registering erratic movements, the business must be able to predict
future movements so as to determine sales projections as well as prepare the operation
department to handle the sudden demand for aerials. To gain a clearer perspective related to
the businesses sales projections last 63 weeks including both the last and previous years.
With the R2 for sales averaging only 0.0078, it is clear that the aerial sales liner regression is
running dangerously low and major marketing and sales implementation required to stabilize
the business and market. With sales sharply rising and falling on a weekly basis the business
is likely to fail meeting growth projections in the coming months (Mentzer & Moon, 2004).
With unstable product sales doe the standard Aerial the business has developed a new excel
aerial model which better features which will improve stabilize the businesses sales.
Inventory management
The sales of Aerials has registered major fluctuation making it impossible to determine long-
term sales growth but it is clear that the customer remains average during the first 21 weeks
of the year after which sales averages increase till the end of the year. With the business
having only completed 12 weeks of the year, it is advisable for the inventory team to
maintained raw material and aerial components stocks for an average of 4300 aerials per
week. With the average aerial sales per week precisely being 4225 pieces, maintaining an

average of 4300 aerial components for each week for the next 12 weeks is advised to avoid
overstocking (Muller, 2011). With regard to addressing the sales concern, the aerial
businesses must maintain an average aerials raw materials stockpile for 4300 aerials despite
the demand falling in a certain week.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
0
2000
4000
6000
8000
10000
12000
14000
f(x) = − 128.6 x + 6283.33333333333
R² = 0.0320315997626756
15 Week Sales Projection
Series1
Linear (Series1)
While sales and demand may fall in certain weeks the sales projects demo state sales do
rebound after 2 to 3 weeks thus the supplement aerial components and sticks left from the
lean sales week can be utilized. This can be observed by reviewing the below 15 week sales
period commencing week 49 in which sales have been consistently dropping. This trend is
expected to continue through to week 24 when the average weekly sales volume is expected
to begin rising.
Capacity management
Capability Management refers to preparing for production influxes by putting in place the
required equipment and persons who will ensure the business operation are capable of
handling the sales and customer demands during peak production seasons. With sales already
registering major fluctuations the capability management task force would require to utilize
the average quarterly business sales to help determine the businesses performance and
determine precise periods the business will require to increase or decrease is capacity
(Dugmore & Lacy, 2005). Despite the business registering fluctuating sales on a weekly
basis, it’s essential for the business to manage its capacity for as to ensure maximum demand
is catered to.

Break-even analysis
Break-even analysis refers to calculating the minimum number of units a business must
manufacture and sell so as to cover its operating costs. To calculate the break-even rate of a
product the production costs must be divided by the cost per unit. Due to the production rate
and costs varying, the business will again register a fluctuation with regard to each week’s
breakeven point (Cafferky, 2010). To demonstrate how to break even cost is calculated the
breakeven point for week 13 to 24 has been calculated for the standard aerials production.
Week 13 14 15 16 17 18 19 20 21 22 23 24
Production Cost 128300 128300 85000 128300 137972 138482 49102 137972 162204 211682 215876 216874
Unit Cost 37.31304 37.31304 49 37.31304 41.12623 40.75616 123.0502 39.66713 38.67476 37.30412 36.97382 36.31642
Break Even 3438.476 3438.476 1734.694 3438.476 3354.842 3397.817 399.0403 3478.245 4194.053 5674.494 5838.618 5971.789
As observed above, each week attracts a different break-even rate, after which a break-even
average can be calculated to determine the weekly average at which the business can expect
to sell so as to register a profit.
Registering an average of 3696 units to break even, the business can focus on developing
effective marketing campaigns and also help the business determine to break even rates after
which profitability can be achieved. With an average of 5450 units being sold per week the
business producing and selling 1754 units above the breakeven level for which the business is
registering a profit.
Critically evaluate the strengths and weaknesses of your approach
Undertaking a combination of production, sales, profitability and break-even analysis allows
the business analyst to determine important factors influencing the operations. There are
many analysis strategies pending to be done for this project and products, but the above
strategies clearly demonstrate how a business analyst can determine fundamental pillars that
influence the businesses operations and production management (Walsh & Wigens, 2003).
Produce a detailed Master Production Schedule for weeks 25 – 35
Product diversifications and transition promise to deliver major benefits in terms of the
quality of the product and customer satisfaction. On the other hand, the business is also at
high risk of registering huge losses if the transition has not been undertaken in the correct
manner (Reid & Sanders, 2016). New product introduction does not necessarily indicate the

businesses will be registering huge customer satisfaction thus it’s important for businesses to
retain focus on its earlier product versions to avoid disrupting operations and gradually
introduce the new product version or model to the market.
This is especially important with certain products such as Aerials since brands aerial is likely
to remain the same shape and size and be associated with the shape and size of its customers.
The new excel aerial model adopts a Shape and size resulting in customers not recognizing
the aerial which could result in a sudden drop in sales. To prevent customer panic on new
product design and models, it’s advisable to introduce the new product gradually to the
market while retaining the traditional product. Sales and marketing surveys clearly show that
customers are likely to shun a new product when set on purchasing a specific model (Proud,
2012). To prevent this customer shot from affecting the businesses sales negatively the
standard to excel aerial transformation shall be performed gradually to help customers
formularize themselves with the new product while still having the option to buy the old
model if required.
Transition Duration period
The standard to excel aerial model sales transition shall be undertaken over a 6 week period
within which the new excel aerial will gradually replace standard aerial.
Production Quantities
Standard aerial production will remain at their current rate and production will continue at
100% capacity. The new excel aerial model would be added on to the standard production
rate. This is essential as it would ensure the businesses current product remains available for
customers to purchase in the market at the current market demand rate. The new excel aerial
model would be introduced at a 50% addition of the current standard aerial production
quantity and gradually be introduced to the customers. Excel aerial stockpiles and production
shall be maintained at 50% of the standard aerial stocks which would allow retailers to
gradually introduce the new product to dedicated customers while still having the option to
deliver the standard aerial (Annacchino, 2003).
The transition stage shall last 6 weeks in which time the retailed and marketing personnel
shall turn their attention towards introducing and educating customers regarding the new
aerial model which would be expected to gradually replace the smartcard aerials over the
long-term perspective.
After week 27 the new excel aerial production rates would be increased to 80% of total aerial
units produced. This would increase the aerial stocks available in the stored and reduce the

standard aerial production to just 20% for customers who refuse to adapt to the new and more
effect excel aerial model. The excel aerial delivers more attractive features as op[posed to the
standards aerial and it also delivers a higher profit margin as opposed to the standard aerial
which helps the business secure high profits from each unit which helps reduce the number of
units sold for the business to break even (Delbridge & Lowe, 2005).
Prior to Week 21 Weeks 21-27 After Week 27
Excel 50%
Standard 20%
Excel 80%
Standard 100%Standard 100%
The main reason for adopting the gradual transition is to reduce the shock risk associated
with changing the product model suddenly. Standard Aerial production shall continue after
week 27 but will only remain at <20%. This is strategically aimed at creating an intentional
shortage in the market for the standard aerial models which will instigate customers to opt for
the new excel aerial model (Spotts, 2014).
Conclusion
Strategic Planning and product new product introduction play a huge role towards every
business product model transition thus making it essential to plan a strategic model
transformation gradually which will help prevent the business incurring student and major
loses linked to consumer shock when introduced to a new product even when produced by a
brand they well recognize. The same strategy must also be adopted by brands while
considering Logo changes since customers may not associate or correlate to the brand's logo
change which can result in brands registering huge losses before it can regain customer
confidence.

References
Annacchino, M.A., 2003. New Product Development: From Initial Idea to Product Management.
Butterworth-Heinemann.
Boone, L.E. & Kurtz, D.L., 2014. Contemporary Marketing, Update 2015. Cengage Learning.
Cafferky, M., 2010. Breakeven Analysis: The Definitive Guide to Cost-Volume-Profit Analysis. New
York: Business Expert Press.
Delbridge, R. & Lowe, J., 2005. Manufacturing in Transition. London: Routledge.
Dugmore, J. & Lacy, S., 2005. Capacity Management. London: BSI British Standards Institution.
Farahani, R., Rezapour, S. & Kardar, L., 2011. Logistics Operations and Management: Concepts and
Models. Walthum: Elsevier.
Kahn, K.B., 2014. New Product Forecasting: An Applied Approach. Routledge.
Mentzer, J.T. & Moon, M.A., 2004. Sales Forecasting Management: A Demand Management
Approach. SAGE.
Michael, G.C., 2011. Sales Forecasting. Marketing Classics Press.
Muller, M., 2011. Essentials of Inventory Management. AMACOM.
Proud, J.F., 2012. Master Scheduling: A Practical Guide to Competitive Manufacturing. John Wiley &
Sons.
Reid, R.D. & Sanders, N.R., 2016. Operations Management: An Integrated Approach. 6th ed. Wiley.
Spotts, H.E., 2014. Creating and Delivering Value in Marketing: Proceedings of the 2003 Academy of
Marketing Science (AMS) Annual Conference. Washinton: Springer.
Walsh, M. & Wigens, L., 2003. Introduction to Research. Cheltenham: Nelson Thornes.