Strategic Planning and Transition Forecasting and Inventory Management in Aerial Production: An Analytical Approach
Question
Task: How can effective Forecasting and Inventory Management strategies enhance production efficiency and mitigate risks in the aerial manufacturing industry?
Answer
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 Forecasting and Inventory Management, capacity Forecasting and Inventory 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.
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 Forecasting and 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.
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 Forecasting and Inventory Management
Capability Forecasting and Inventory 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 Forecasting and Inventory 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.
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 Forecasting and Inventory 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).
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 Forecasting and Inventory 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 Forecasting and Inventory Management. London: BSI British Standards Institution.
Farahani, R., Rezapour, S. & Kardar, L., 2011. Logistics Operations and Forecasting and Inventory 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 Forecasting and Inventory Management: A Demand Forecasting and Inventory Management Approach. SAGE.
Michael, G.C., 2011. Sales Forecasting. Marketing Classics Press.
Muller, M., 2011. Essentials of Inventory Forecasting and 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 Forecasting and Inventory Management: An Integrated Approach. 6th ed. Wiley.
