100 FORMATIVE ASSESSMENT 1 [100 MARKS] Read the case study below and answer the questions that follow. FORECASTING AT AFROS CAFE With the growth of Afros Cafefrom one pub in Bloemfontein in 1988 to more than 145 restaurants in 60 countries today came a corporatewide demand for better forecasting. Afros Cafe uses long-range forecasting in setting a capacity plan and intermediate-term forecasting for locking in contracts for leather goods (used in jackets) and for such food items as beef, chicken, and turkey. Its short-term sales forecasts are conducted each month, by cafe, and then aggregated for a headquarters view. The heart of the sales forecasting system is the point-of-sale (POS) system, which, in effect, captures transaction data on nearly every person who walks through a cafes door. The sale of each entre represents one customer the entre sales data are transmitted daily to the Orlando corporate headquarters database. There, the financial team, headed by Todd Lindsey, begins the forecast process. Lindsey forecasts monthly guest counts, retail sales, banquet sales, and concert sales (if applicable) at each cafe. The general managers of individual cafes tap into the same database to prepare a daily forecast for their sites. A cafe manager pulls up prior years sales for that day, adding information from the local Chamber of Commerce or Tourist Board on upcoming events such as a major convention, sporting event, or concert in the city where the cafe is located. The daily forecast is further broken into hourly sales, which drives employee scheduling. An hourly forecast of R5,500 in sales translates into 19 workstations, which are further broken down into a specific number of waitstaff, hosts, bartenders, and kitchen staff. Computerized scheduling software plugs in people based on their availability. Variances between forecast and actual sales are then examined to see why errors occurred. Afros Cafe doesnt limit its use of forecasting tools to sales. To evaluate managers and set bonuses, a 3-year weighted moving average is applied to cafe sales. If cafe general managers exceed their targets, a bonus is computed. Todd Lindsey, at corporate headquarters, applies weights of 40% to the most recent years sales, 40% to the year before, and 20% to sales 2 years ago in reaching his moving average. An even more sophisticated application of statistics is found in Afros Cafs menu planning. Using multiple regression, managers can compute the impact on demand of other menu items if the price of one item is changed. For example, if the price of a cheeseburger increases from R7.99 to R8.99, Afros Cafe can predict the effect this will have on sales of chicken sandwiches, vegetarian sandwiches, and salads. Managers do the same analysis on menu placement, with the center section driving higher sales volumes. When an item such as a hamburger is moved off the center to one of the side flaps, the corresponding effect on related items, say french fries, is determined. Afros Caf Polokwane Branch Month 1 2 3 4 5 6 7 8 9 10 G u e s t C o u n t (thousands) 21 24 27 32 29 37 43 43 54 66 Advertising (R thousand 14 17 25 25 35 35 45 50 60 60 Extracted from: Heizer and Render, 2018 Question 1 (40 Marks) 1.1 With reference to the case study provided, discuss the variables that could be used as good predictors of daily sales in each caf. (10) 1.2 In the context of Afros Caf, critically discuss the significance of forecasting and suggest the types of forecasting approaches that need to be prioritised. Use relevant examples (20) 1.3 The manager of Afros Caf in Polokwane is trying to evaluate how a new advertising campaign affects guest counts. Using data for the past 10 months (as provided in the table) develop a least-squares regression relationship and then forecast the expected guest count when advertising is R65,000.