Brief Summary of the Case

M & L Manufacturing
1. M & L Manufacturing makes various components for printers and copiers.
2. The company also distributes these and similar items to office supply stores
and computer stores as replacement parts.
3. The company makes about 20 different items.

Answer to the case study questionnaire

Q1. What are some of the potential benefits of a more formalized approach to
forecasting?
The potential benefits for M&L manufacturing are:
Proper production planning in future of two of its most valuable and profitable
product lines;
Fewer stock-outs in retail stores;
Less uncertainty with regard to unexpected orders and production failures;
Proper inventory management and control over the stock levels;
Better knowledge regarding which products to continue selling and discontinue
selling.
Q2. Prepare a weekly forecast for the next four weeks of each product. Briefly
explain why you chose the methods you used.
Product 1
The demand for product one has risen over the period of 14 weeks which depicts
that demand can be expected to rise further in the coming four weeks. The pattern
can be illustrated using a line graph, as shown in figure 1, below.
Based on the shape of the graph, it can be stated that, except for the unusual
order of 90 units in the seventh week, the demand has risen over the period in a
rising trend. Because of the size of the order the graph gets put off from an
otherwise linear pattern of the rising demand.
In order to forecast demand of Product, the following features of the demand of the
product need to be noted:
The demand has risen steadily over the period of 14 weeks;

 The slight deviation in between has been caused by an unusual order which is
not expected in future sales.
The forecasting method most suited to the nature of the demand of Product 1 is
Trend Analysis using a regression model. Trend analysis is a method of forecasting
whereby the data is assumed to show a linear behavior over a long period of time
and based on the linear nature of the growth in sales, a linear equation, obtained
through regression analysis is established to make predictions about sales and
demand in future and make forecast. The method is suited for long term forecasts
as well as short term forecasts.
Using the data obtained from the case study which has been presented in a graph
form in Figure 1, regression analysis is conducted to formulate a linear equation
based on the existing demand trend. This is done using calculations.
However, rather than manual calculations, MS EXCEL provides a faster mode of
calculating and plotting the historic demand figures to develop a regression trend
line.. EXCEL allows creating a chart of the demand units against weeks. The chart
generates a linear representation of the data which can be further projected for
forecasting future sales of the next four weeks using a trend line. EXCEL allows the
linear equation to be developed for the trend line as well as produces the figure of
R-squared, denoted by r in the above set of formulas.
In the Trend Analysis method of forecasting sales, R-squared value allows
estimating the accuracy of the forecast. It represents the deviation that the trend
line has from the data. The larger this figure is and the closer it is to 1, the more
accurate the forecasts are as they follow the trend in the sales data.
The linear Trend Analysis in the form of a graph is shown in Figure 2, below.
The trend line equation generated by EXCEL is y = 3.457x + 48.28, were y
represents the units of the product and x represents the week. This equation shows
the total demand never falls below 48 units and the company can expect this much
minimum demand to exist in the coming weeks even in the hard times. The rsquared is 0.889 which is highly close to 1 depicting that the trend line follows the
pattern of the demand data. This figure is mainly due to the unusual order placed by
a customer of 90 units. Therefore, it can be concluded that the Trend Analysis is
suitable for the forecasting of the future demand of Product 1 produced by the
company as it shows strong accuracy.
Product 2
The data present in the case study is used to create a graph using EXCEL, which is
shown in Figure 3, below.
Based on the nature of the spread of the data, it can be safely said that the data
shows variations and seldom progresses in a linear fashion.

The exponential smoothening method of forecasting is most suitable to determine

the future demand of the product because it would allow smoothening these
variations. It is a simple method compared with the regression model and places
value in the most recent values of the demand of the product to predict the future
demand values.
EXCEL is used to generate the exponential smoothening graph and equation
necessary to forecast the future demand of Product 2. The findings are shown in
Figure 4, below.
The exponential equation drawn by EXCEL for the data is y + 40.04e0.008x.
The forecasted values of Product 1 using linear Trend Analysis and Product 2 using
Exponential Smoothening method are shown below in Table 1.
|Table 1: Forecasted Demand of Product 1 and Product 2
|Week

|Product 1

|15

|100

|45

|16

|103

|46

|17
|18

|107
|110

|Product 2

|46.5
|47

Central Problem
The company does not use the forecasts for production planning, instead the
operations manager decides which items to produce and the batch size based partly
on orders and the amount in inventory (The products that have the fewest amounts
in inventory get the highest priority.) As a result, the company being overstocked on
some items and out of stock in others. The price of raw materials has been
increased.

Evaluation and Assessment

1. According to product 1, we can see that there is a gradual increase of 3 pieces
every week, despite that there is an extraordinary order in one of the 14 weeks.
2. For product 2, we cant find a trend, so it would be found easily by taking the
average of the 14 weeks.

Conclusion
Because of competitive pressures and falling profits, the manager has decided to
undertake a number of actions depending on formal forecasting procedure in order

to improve production planning and inventory management. The manager must

focus on the two products.

Recommendations
We recommend that the manager will use formal forecasting to overcome the
periodic out of stock situation. One of these products will become increasingly
important to future growth plans and enhance the company profit.

M & L Manufacturing
Case Analysis
Members:
Blessed Viswanathan J. Fundador