Answer to Question #204162 in Management for Manish

Question

Kumaran Pillay has a vegetable stall at the Suva Market. His business has been plagued with under-stocking and over-stocking problems for some time now. When he under-stocks, he loses sales as customers move to competing stalls. When he over-stocks, is left with unsold vegetables. These are perishable and cannot be kept long for later sales. Pillay is concerned with how he can minimize these losses stemming from under and over-stocking.

1.     Identify and explain how he could use 3 qualitative forecasting methods to improve his stocking. Note that you will need to justify your proposals and link it to the business being discussed. (10 marks)

 

2.     Identify and explain how he could use 2 quantitative forecasting methods to improve his stocking. Note that you will need to justify your proposals and link it to the business being discussed. (10 marks)

Answer 1

using the 3 qualitative forecasting methods

• Executive opinions- in this methods, he could seek subjective views from experts concerning his sales. This could be views on his purchasing, finance and future sales. However, it is used in conjunction with other quantitative forecasting methods in order to achieve the best forecasts.
• Delphi method- here, he could question a group of experts about their views individually. They do not meet to avoid manipulation in judgments. Forecasts in this case could be compiled and analyzed by an external observer and returned to the experts for further questioning.
• Sales force polling- he could use this approach whereby he reaches out to people who are in contact with the regular customers and who can correctly predict the trends of the customers' consumption in order to give him insights on how and when to restock depending on demand. This method is good for future forecasting since it gives the expected consumption trends of the customers that could be used by the owner to decide on the amount of inventory to stock in future.

Using the 2 quantitative forecasting methods

• The straight-line method- This is the simplest method of calculating future sales based on past data. It involves the use of a straight-line equation this measures the growth or future predictions in form of percentages. Here, past data is collected and some analysis is done to determine the trend that customers might adopt in their subsequent purchases. once they are known, the forecast on increasing or decreasing the inventory is based on percentage increase or reduction respectively. For example, once demand is forecasted to grow, the seller will decide the percentage they would order to cover the increase in demand.
• The average approach- Here, the owner of a business conducts an average of the past sales they have made to customers over a specific period. The main assumption is that the future forecast is the average of the past data. Since the owner has been making overstocking and understocking methods, it is assumed that the average of the orders is equal to the future forecast. For example, if the owner decided in the past to order 100 units of a particular product and the customers demanded more than 100 units maybe 150 units, there is an understocking decision. The owner might decide to increase the next stock to 200 units and this time, the customers only demand 175 units making him to have more stock than it was required. On learning this concerning the market, the owner then decides to conduct an average and order 150 units to take care of the overstocking and under-stocking problems.