Northcutt Bikes: The Forecasting Problem
Jan Northcutt is the owner of bike shop named after her. She has been owner this business for over 20 years. She started to notice that the quality of her bikes that she was purchasing for her to sale were declining while the prices she was paying was going up. The features that she preferred on the bikes were impossible obtain quickly. Instead of panicking or placing blame on somebody else she met the problem head on. Jan started to buy all the necessary parts needed for her bike and rented a separate garage assisted by two helpers. She ended selling the bike shop as demand grew and lease a fairly large facility to house her inventory. As the operation increase, she backward integrated ...view middle of the document...
Multiple regression or MR (Y is forecast, X’s are period and base) MAD ≈ 45.096
Simple regression or SR (deseasonalize demand, seasonal forecast, X is period) MAD ≈ 32.403
Exponential Smoothing or ES (adjusted for trend and seasonality) MAD ≈ 13.258
Forecast for January – April 2012
Month | Mean Base | Period | MR | SR | ES |
January | 0.61 | 49 | 825.27 | 745.12 | 720.56 |
February | 0.88 | 50 | 1107.05 | 1082.68 | 1039.50 |
March | 0.87 | 51 | 1105.66 | 1078.04 | 1027.69 |
April | 1.05 | 52 | 1296.43 | 1310.32 | 1240.31 |
Exponential smoothing forecast will provide lowest MAD. The disadvantages with this method is it has to be updated frequently once a month.
Jan’s knowledge of the market could be used to add additional variable to multiple regression. Also, she can other cautiously adjust forecasts and ad monthly increments to the forecast to react to latest information, provided that is not too costly.
The approach that may be the most feasible in Jan’s situation is quicker response may lead to reduce lead times. She could possibly implement online ordering. For her supplier, she could reduce lead times and set contracts. Jan could upgrade her information systems allowing her information to get to the right customer. The people that she employs she can increase flexibility and when needed hire temporary work.
Jan operation in my personal opinion has not grown too large she can control if she does these things. Delegate effectively task that need to be accomplished. Improve her information systems and improve lead times. Utilize different method of operation to best fit each style of bike that she sales. If all these suggestion is used effectively Jan should have no problem managing her large operation.