Answer to Question #207690 in Management for Gloria

Question

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

Qualitative Forecasting Methods

           Sales force polling - Pillay might take this strategy, in which he contacts people who interact with regular customers and can accurately estimate consumption trends in order to provide him with information on how and when to resupply based on demand. This method is useful for forecasting the future since it provides the projected consumption tendencies of clients, which the owner can use to determine the amount of inventory to stock in the future.

           Executive opinions - He may use this strategy to get subjective opinions from experts about his sales. This could include opinions on his purchases, finances, and upcoming sales. However, in order to obtain the best projections, it is utilized in conjunction with other quantitative forecasting methodologies.

           Delphi method - He may interrogate a group of specialists about their individual perspectives. They don't get together to prevent being manipulated in their decisions. In this situation, forecasts might be compiled and examined by an outside observer before being returned to the experts for further scrutiny.

Quantitative Forecasting Techniques

           The average approach - The owner of a business calculates an average of past sales made to clients over a set period of time. The primary assumption is that the future forecast is based on an average of previous data. The average of the orders is expected to be equal to the future projection because the owner has used overstocking and understocking strategies. There is an understocking choice if the owner chose in the past to order 1000 pieces of a particular product and the customers needed more than 1000 units, perhaps 1500 units. The owner may decide to expand the next stock to 2000 units, but buyers only need 1750 units, resulting in him having more stock than is required. When the owner learns this about the market, he chooses to do an average and order 1500 units to address the overstocking and understocking issues.

           The straight-line method - This is the most basic way for forecasting future sales based on historical data. It entails the application of a straight-line equation to calculate growth or future predictions in percentages. Past data is gathered and analyzed in order to determine the trend that customers may follow in their subsequent purchases. Once they've been determined, the projection for raising or lowering inventory is made using a percentage increase or reduction. For example, if demand is expected to rise, the seller will select what percentage of inventory to order to meet the new demand.