M&L Manufacturing makes various components for printers and copiers. The company supplies these items to a major manufacturer. The company also distributes these and similar items to office supply stores and computer stores as replacement parts for printers and desktop copiers. In all, the company manufactures about 20 different items to distribute. The two markets (the major manufacturer and the replacement market) require somewhat different handling. Product for the major manufacturer can be shipped in bulk. However, the products for the retail segment must be packaged individually which requires additional handling and expense. Instead of using forecasting for production planning the operations manager decides which items to produce, the batch size (based partly on orders), and the inventory amounts. The products that have the fewest amounts in inventory get the highest priority.
Because of the uneven demand, the company has experienced being overstocked on some items and out of others. Not being able to fill orders has occasionally created tensions with the managers of retail outlets. The company has also seen raw material prices creeping up, although the operations manager thinks this might be a temporary condition. Because of competitive pressures and falling profits, the manager has decided to make several changes. In order to improve production planning and inventory management the manager has decided to introduce more formal forecasting procedures. With that in mind, the manager wants to begin forecasting for two products. These products are important for several reasons. First, they account for a disproportionately large share of the company's profits. Second, the manager believes that one of these products will become increasingly important to future growth plans; and third, the other product has experienced periodic out-of-stock instances. 1.
What are some of the potential benefits of a more formalized approach to forecasting?...
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