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Chapter 4: Q.9DQ (page 475)

Question: Let鈥檚 say you work for a company that makes prepared breakfast cereals like corn flakes. Your company is planning to introduce a new hot breakfast product made from whole grains that would require some minimal preparation by the consumer. This would be a completely new product for the company. How would you propose forecasting initial demand for this product?

Short Answer

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Answer

Demand forecasting refers to using predictive analysis of historical data to estimate and predict customers鈥� future demand for a product or service.

Step by step solution

01

Initial demand forecasting  

An initial demand forecasting for a brand new product will be an actual forecast from a previous period, the actual demand from a previous period, or it is estimated by averaging all or a part of the past data.

02

Forecasting of initial demand for a new product

The best step to require in forecasting initial demand for a brand new product is to use sales volumes of existing products and services. This method is especially useful since a brand new product could be a variation of an existing product.

For example, a brand new hot breakfast product made of whole grains will require some minimal preparation by the consumer. Since it is a brand new product within the line of breakfast cereals, their variations can be available in the form of a distinct color, size, or flavor to extend marginal utility, bearing in mind that the market segment continues to be identical. Based on this forecast, you'll make sales projections.

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Most popular questions from this chapter

Discuss the meaning of MRP terms such as planned order release and the scheduled order receipt.

Dunstreet鈥檚 Department Store would like to develop an inventory ordering policy with a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets. The demand for white percale sheets is 5,000 per year. The store is open 365 days per year. Every two weeks (14 days) inventory is counted and a new order is placed. It takes 10 days for the sheets to be delivered. The standard deviation of demand for the sheets is five per day. There are currently 150 sheets on hand. How many sheets should you order?

Gentle Ben鈥檚 Bar and Restaurant uses 5,000-quart bottles of imported wine each year. The effervescent wine costs \(3 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben FIgures that it costs \)10 each time an order is placed, and holding costs are 20 percent of the purchase price. It takes three weeks for an order to arrive. Weekly demand is 100 bottles (closed two weeks per year) with a standard deviation of 30 bottles. Ben would like to use an inventory system that minimizes inventory cost and will provide a 95 percent service probability.

a. What is the economic quantity for Ben to order?

b. At what inventory level should he place an order?

Assume that you are using exponential smoothing with an adjustment for trend. Demand is increasing at a very steady rate of about five units per week. Would you expect your alpha and delta parameters to be closer to one or zero?

CU, Incorporated, (CUI) produces copper contacts that it uses in switches and relays. CUI needs to determine the order quantity, Q, to meet the annual demand at the lowest cost. The price of copper depends on the quantity ordered. Here are price-break and other data for the problem:

Price of copper

\(0.82 per pound up to 2,499 pounds

\)0.81 per pound for orders between 2,500 and 5,000 pounds \(0.80 per pound for orders greater than 5,000 pounds

Annual demand

50,000 pounds per year

Holding cost

20 percent per unit per year of the price of the copper

Ordering cost

\)30

Which quantity should be ordered?
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