EP 3.9 Appendix VI 04-06-17 Q(1) Which forecasting approach ECAR Automotive currently using? Justify your ans answer Q(2) Is this type of forecast appropriate or would an alternative method produce more accurate results? Why or why not? Q(3) Which measure should Peter use to assess and reduce the forecast error rates? Why? 2.500 to Jun-08 Jul-08 99,00 99.00 115.00 106.00 16 7 0.94 1.29 8.44 8.35 2537 2586 16.16 7.07 1340 158.56 152.12 Peter Goodson is the inventory manager at ECAR and has historically prepared the forecasts. Peter usually just takes the sales numbers from last year and adjusts them upward or downward based on his "gut feeling." This has worked well in the past, but Mike has told him to look into other forecasting methods. Peter is preparing the September 2008 sales forecast for ECAR and is not sure where to start. For the August forecast, Peter used the sales numbers from August 2007. The August 2007 forecast was off by 10 cars and Peter hoped the 2008 version would fare better. Peter assumed the sales representatives would always work a little harder if sales were low and they could always take vacation time if they were above target. Mike has told Peter to look into the different forecasting models, but Peter is not sure of the difference. Mike also wants Peter to determine the amount of profit being lost due to poor forecasting. Peter has access to sales and forecast data from the past 18 months and has already calculated various measures of error in Excel. Read the case following case and answer the following questions: UD Policies & Procedures Educational Program EP 3.9 Appendix VI 04-06-17 ue maurer for the vehicles. If sales are high, ECAR loses potential customers due to lack of inventory, Mike has decided that he needs to be able to forecast this new variability to keep the business healthy ECAR Automotive Sales Forecast History Mean Sum of Absolute Mean Month Mean Sales absolute squared Forecast Error percentage squared error crror crror errer errer Mar-07 100.00 103.00 3 3.00 3.00 9 3.00 Apr-07 9.00 119.00 120.00 1 2.00 2.00 10 0.84 May-07 478.00 5.00 441.00 -37 - 11.00 13.67 1379 7.74 Jun-07 98.00 459.67 118.00 20 -3.25 15.25 1779 20.41 44.75 Jul-07 110.00 104.00 -6 -3.80 13.40 1815 5.45 363.00 Aug-07 93.00 103.00 10 -1.50 12.83 1915 10.75 319.17 Sep-07 104.00 105.00 1 -1.14 1916 0.96 273.71 Oct-07 96.00 101.00 5 -0.38 10.38 1941 5.21 242.63 Nov.07 96.00 98.00 2 -0.11 944 1945 2.08 216.11 Dec-07 103.00 109.00 6 0.50 9.10 1981 5.83 198.10 Jan-08 944.00 99.00 5 0.91 8.73 2006 5.32 182.36 Feb-08 102.00 105.00 3 1.08 8.25 2015 2.94 167.92 Mar-08 98.00 101.00 3 1.23 7.85 2024 3.06 155.69 Apr-08 120.00 119.00 1.07 7.36 2025 0.83 144.64 May-08 469.00 453.00 -16 -0.07 7.93 2281 3.41 152.07 Jun-08 99.00 115.00 16 0.94 8.44 2537 16.16 158.56 Jul-08 99.00 106,00 7 1.29 8.35 2586 7.07 152.12 11.14 Times New Roman 12 B I It is August 2008 and ECAR Automotive is one of four car dealerships located in rural Atlanta. The residents in the area replace their vehicles roughly every eight years. When they do replace their vehicles, they tend to visit the same dealership that sold them the first one, building a relationship with the dealership. This has kept sales relatively stable for all the dealerships in the area. Recently, however, customers have begun expanding their shopping options. ECAR Automotive believes this is due to the rise of the Internet. Customers have begun coming to the dealership with an exact idea of what car they would like and have a price in mind. When ECAR Automotive does not have the model available or cannot meet the price, customers have started going to competitors. This trend has the general manager of ECAR, Mike Leavy, worried. Mike runs the dealership like a small business and relies on repeat customers. ECAR is not a chain and has little access to outside capital, so cash flow is critical. If sales are low, Mike has to take out a loan to pay the manufacturer for the vehicles. If sales are high, ECAR loses potential customers due to lack of inventory. Mike has decided that he needs to be able to forecast this new variability to keep the business healthy. ECAR Automotive Sales Forecast History