Comment on the forecasting system being used by the Franklin Fan Company and sug
ID: 430668 • Letter: C
Question
Comment on the forecasting system being used by the Franklin Fan Company and suggest changes or improvements that you believe are justified. Suggest changes or improvements that you believe are justified. (Based on the Yankee Fork & Hoe Case in Operations Management textbook)
Case Study:
The only way for Franklin Fan to generate new sales and retain old customers is to provide superior customer service and produce a product with high customer value. This approach puts pressure on the manufacturing system, which has been having difficulties lately. Recently, Dan Block has been receiving calls from long-time customers, such as Sears and Home Depot, complaining about late shipments. These customers advertise promotions for fans and require on-time delivery. Block knows that losing customers like Sears and Home Depot would be disastrous. He decides to ask consultant Sharon Place to look into the matter and report to him and Ed Spriggs in one week. Block suggests that she focus on the window fan as a case-in-point because it is a high-volume product and has been a major source of customer complaints. In the mean-time, Sue McCaskey is working on modifications to the inventory management system that should also improve product availability. A window fan’s main components consist of molded fan blades (5 per fan), a molded motor housing (1 per fan), an electric motor (1 per fan), and various hardware items. Place decides to find out how Franklin Fan plans window fan production. She goes straight to Phil Stanton, the Production Manager, and Joe Donnell, the Purchasing Manager, who give the following account: Planning is informal around here. To begin, marketing determines the forecast for window fans by month for the next year. They then pass it along to us. Quite frankly, the forecasts are usually inflated – must be their big egos over there. Joe Donnell mentions that he has to be careful because Franklin Fan enters into longterm purchasing agreements for plastic resins, and having it just sitting around is expensive. So Phil and I usually reduce the forecast by 10% or so. We then use the modified forecast to generate a monthly final-assembly schedule which determines what materials we need from suppliers and what products we need from the molding and assembly areas. The system works well if the forecasts are good. But when marketing comes to us and says they are behind on customer orders, as they often do near the end of the year, it wreaks havoc for the schedules. Molding gets hits the hardest. For example, the molding machines that mold the fan blades and motor housings from the plastic resin can only produce about 7,000 housings and 30,000 blades per day, and the assembly department can do only 5,000 fans per day. Both operations are also required for many other products. Derived from the Yankee Fork & Hoe Case; Chapter 14; Page 502; Operations Management by Krajewski, Ritzman, & Malhotra (10th) 2013 Page 2 Because the marketing department provides crucial information to Stanton and Donnell, Place decides to see the marketing manager, Ron Adams. Adams explains how he arrives at the window fan forecast. Things do not change much from year to year. Sure, sometimes we put on a sales promotion of some kind, but we try to give Phil and Joe enough warning before demand kicks in – usually a month or so. I meet with several managers from the various regions to go over shipping data from last year and discuss anticipated promotions, changes in the economy, and shortages we experienced last year. Based on these meetings, I generate a monthly forecast for the next year. Even though we take a lot of time getting the forecast, it never seems to help us avoid customer problems.
The Problem
Place ponders the comments from Stanton, Donnell, and Adams. She understands Stanton’s and Donnell’s concerns about costs and keeping inventory low. She also understands Adams’ concern about having enough window fans on hand to make timely shipments. All are somewhat concerned about capacity. She decides to check actual customer demand for the window fan over the past four years, from the table below, before making her final report to Block and Spriggs.
The demand figures shown in the table are the number of units promised for delivery each month. Actual delivery quantities differed because of capacity or shortages of material. Month 2011 2012 2013 2014 1 61294 44261 35720 69238 2 63659 71182 42846 73816 3 17144 52895 27772 34858 4 30831 47786 56943 40519 5 23763 43688 35287 18746 6 19001 11452 35631 20989 7 20011 50165 66414 39405 8 22070 51648 34121 56888 9 17534 24537 53058 38232 10 59568 45899 82018 75578 11 92429 51087 66824 75674 12 81020 46460 61272 67821Explanation / Answer
The drawbacks of the forecasting system of Franklin Fan Company that can be improved are:
- informal style of forecasting is used without involving mathematical figures.
-Forecasts are done based on qualitative analysis and quantitative approach is not implemented.
- shipment figures are considered for forecasting rather than demand figures.
- no proper liaising and communication in production, purchasing and marketing managers.
- inefficient inventory management based on an adjusted forecast.
The changes and improvements that can help in increasing sales and growth of the company can be as follows:
- usage of various quantitative analysis for forecasting the demand for production.
- analyze past demands and forecast future demands based on it.
- scheduling production line based on forecasts of actual demands in the market.
- anticipation to be done with more sales in upward trends and no losses in the downward trends.
- forecasting considering past shortages and future anticipated demands.
- conducting proper formal meetings of production, purchasing and marketing department.
- the economy changes and raw materials shortage should be avoided by anticipating actual demands.