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*DAA0.0202*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 months volume and 15% from the previous months 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 months spending and 15% from the previous months 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.

longterm
rising
trend

Month

January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December

Year

Time
index

1983
1983
1983
1983
1983
1983
1983
1983
1983
1983
1983
1983
1984
1984
1984
1984
1984
1984
1984
1984
1984
1984
1984
1984
1985
1985
1985
1985
1985
1985
1985
1985
1985
1985
1985
1985
1986
1986
1986
1986
1986
1986
1986
1986
1986
1986
1986
1986

Time
Index
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48

Sales of
Treat
(cases)*

reaction
to sales of
2 months
later
Consumer
Packs
(cases)*

Sales

CP

425,075
315,305
367,286
429,432
347,874
435,529
299,403
296,505
426,701
329,722
281,783
166,391
629,404
263,467
398,320
376,569
444,404
386,986
414,314
253,493
484,365
305,989
315,407
182,784
655,748
270,483
365,058
313,135
528,210
379,856
472,058
254,516
551,354
335,826
320,408
276,901

0
0
0
0
15,012
62,337
4,022
3,130
422
0
0
0
75,253
15,036
134,440
119,740
135,590
189,636
9,308
41,099
9,391
942
1,818
672
548,704
52,819
2,793
27,749
21,887
1,110
436
1,407
376,650
122,906
15,138
5,532
544,807
43,704
5,740
9,614
1,507
13,620
101,179
80,309
335,768
91,710
9,856
107,172

CP_adj
0
0
0
0
12,760
55,238
12,769
3,264
828
63
0
0
63,965
24,069
116,529
121,945
133,213
181,529
36,357
36,330
14,147
2,209
1,687
844
466,499
127,202
10,297
24,006
22,766
4,227
537
1,261
320,364
160,968
31,303
6,973
463,916
118,869
11,435
9,033
2,723
11,803
88,045
83,440
297,449
128,319
22,134
92,575

CP_lag1

CP_lag2

CP_lag1

CP_lag2

0
0
0
0
12,760
55,238
12,769
3,264
828
63
0
0
63,965
24,069
116,529
121,945
133,213
181,529
36,357
36,330
14,147
2,209
1,687
844
466,499
127,202
10,297
24,006
22,766
4,227
537
1,261
320,364
160,968
31,303
6,973
463,916
118,869
11,435
9,033
2,723
11,803
88,045
83,440
297,449
128,319
22,134

0
0
0
0
12,760
55,238
12,769
3,264
828
63
0
0
63,965
24,069
116,529
121,945
133,213
181,529
36,357
36,330
14,147
2,209
1,687
844
466,499
127,202
10,297
24,006
22,766
4,227
537
1,261
320,364
160,968
31,303
6,973
463,916
118,869
11,435
9,033
2,723
11,803
88,045
83,440
297,449
128,319

reaction to
sales of 2
months
later
Dealer
Allowances
($)

DA
396,776
152,296
157,640
246,064
335,716
326,312
263,284
488,676
33,928
224,028
304,004
352,872
457,732
254,396
259,952
267,368
158,504
430,012
388,516
225,616
1,042,304
974,092
301,892
76,148
0
315,196
703,624
198,464
478,880
457,172
709,480
45,380
28,080
111,520
267,200
354,304
664,712
536,824
551,560
150,080
580,800
435,080
361,144
97,844
30,372
150,324
293,044
162,788

DA_adj
129,452
188,968
156,838
232,800
322,268
327,723
272,738
454,867
102,140
195,513
292,008
345,542
442,003
284,896
259,119
266,256
174,834
389,286
394,740
250,051
919,801
984,324
402,722
110,010
11,422
267,917
645,360
274,238
436,818
460,428
671,634
144,995
30,675
99,004
243,848
341,238
618,151
556,007
549,350
210,302
516,192
456,938
372,234
137,339
40,493
132,331
271,636
182,326

DA_lag1

DA_lag2

DA_lag1

DA_lag2

129,452
188,968
156,838
232,800
322,268
327,723
272,738
454,867
102,140
195,513
292,008
345,542
442,003
284,896
259,119
266,256
174,834
389,286
394,740
250,051
919,801
984,324
402,722
110,010
11,422
267,917
645,360
274,238
436,818
460,428
671,634
144,995
30,675
99,004
243,848
341,238
618,151
556,007
549,350
210,302
516,192
456,938
372,234
137,339
40,493
132,331
271,636

129,452
188,968
156,838
232,800
322,268
327,723
272,738
454,867
102,140
195,513
292,008
345,542
442,003
284,896
259,119
266,256
174,834
389,286
394,740
250,051
919,801
984,324
402,722
110,010
11,422
267,917
645,360
274,238
436,818
460,428
671,634
144,995
30,675
99,004
243,848
341,238
618,151
556,007
549,350
210,302
516,192
456,938
372,234
137,339
40,493
132,331

January
1987
February
1987
March
1987
April
1987
May
1987
June
1987
July
1987
August
1987
September
1987
October
1987
November
1987
December
1987
January
1988
Correlation Matrix

49
50
51
52
53
54
55
56
57
58
59
60
61

455,136
247,570
622,204
429,331
453,156
320,103
451,779
249,482
744,583
421,186
397,367
269,096

299,781
21,218
157
12,961
333,529
178,105
315,564
80,206
5,940
36,819
234,562
71,881
200,000

270,890
63,002
3,316
11,040
285,444
201,419
294,945
115,510
17,080
32,187
204,901
96,283
180,782

92,575
270,890
63,002
3,316
11,040
285,444
201,419
294,945
115,510
17,080
32,187
204,901
96,283

22,134
92,575
270,890
63,002
3,316
11,040
285,444
201,419
294,945
115,510
17,080
32,187
204,901

Variable

CP_adj

CP_lag1

DA_adj

DA_lag2

Sales

CP_adj
CP_lag1
DA_adj
DA_lag2
Sales
Sindex
TimeIndex

1.000
0.104
-0.292
0.245
0.425
0.303
0.150

1.000
-0.099
-0.183
-0.315
-0.120
0.180

1.000
-0.156
0.538
0.138
0.225

1.000
0.007
0.048
0.245

1.000
0.690
0.149

32,532
23,468
4,503,456
500,904
0
0
46,104
92,252
4,869,952
376,556
376,556
552,536
120,000

Sindex

1.000
-0.142

52,070
24,828
3,831,458
1,101,287
75,136
0
39,188
85,330
4,153,297
1,050,565
376,556
526,139
184,880

TimeIndex

1.000

Regression Statistics
Multiple R

R Square

Adj.RSqr

Std.Err.

# Cases

#Missing

0.962

0.925

0.914

3.56E+04

48

12

Deg.Free

41

Summary
Table
Variable

Coeff.

Std.Err.

t Stat.

P-value

Lower95%

Upper95%

Intercept
CP_adj
CP_lag1
DA_adj
DA_lag2
Sindex
TimeIndex

7.88E+04
0.504
-0.302
0.085
-0.020
3761.353
873.031

4.47E+04
0.052
0.046
0.008
0.007
410.393
436.401

-1.763
9.687
-6.520
10.810
-2.729
9.165
2.001

0.085
0.000
0.000
0.000
0.009
0.000
0.052

-1.69E+05
0.399
-0.396
0.069
-0.035
2932.548
-8.298

1.15E+04
0.609
-0.209
0.100
-0.005
4590.159
1754.361

Analysis of Variance
Source

df

Sum Sqrs

Mean Sqr

P-value

Regression
Residual
Total

6
41
47

6.38E+11
5.20E+10
6.90E+11

1.06E+11
1.27E+09

83.778

0.000

Histogram of Residuals

t(2.5%,41)

2.020

182,326
52,070
24,828
3,831,458
1,101,287
75,136
0
39,188
85,330
4,153,297
1,050,565
376,556
526,139

271,636
182,326
52,070
24,828
3,831,458
1,101,287
75,136
0
39,188
85,330
4,153,297
1,050,565
376,556

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

2.309

24

24

-0.171

0.392

0.151

7th Auto

-0.102

12th Auto

-0.024

Forecasted: Sales
Forecast

CP_adj

CP_lag1

DA_adj

DA_lag2

Sindex

180782.15

96283.15

184880.4

376556

113

TimeIndex

61

Sales

StErrFst

Lower95%

Upper95%

4.69E+05

3.85E+04

3.92E+05

5.47E+05