Merriwell Bag Company is a small family owned corporation located in Seattle, Washington. The company's shares are divided equally among five members of the Merriwell family (husband, wife and three children), but the recognized leader is the founder and patriarch, Ed Merriwell. Ed Merriwell formed the company 20 years ago when he resigned as a plant supervisor for a large paper manufacturer. Ironically, the same manufacturer formed a container division five years ago and is now one of Merriwell's competitors.

BUSINESS STRATEGY

The family attributes the success of the Merriwell Bag Company to the fact that it has found a niche market and does not have "serious" competition. Merriwell supplies bags of stock to many small chain stores spread over a wide geographic area. Ship bags directly to small regional warehouses or ship directly to individual stores. The family reasons that the large handbag manufacturers cannot provide a profitable service to accounts on such a small scale. In fact, Ed Merriwell formed the business out of a secondhand bagging machine to provide bags for a small discount store chain and a regional drugstore chain. These two organizations have grown tremendously over the years, and Ed Merriwell is proud to point out that the bag company has grown with them. Today,

The Merriwell family doesn't want their business to become too dependent on one customer. Therefore, they have a policy that no customer can account for more than 15 percent of sales. In fact, Merriwell Bag Company encourages its major customers to establish alternative sources of bag supply to insure against shortages due to paper shortages, loading line difficulties, local trucking/warehouse strikes, and production issues that may affect locally. Merriwell's ability to supply bags.

Merriwell is not aggressively seeking new bag customers, but it does have more than 500 customers. The smallest customers order five bales a year (the smallest order is processed and shipped) and the largest order 15,000 bales a year. The number of bags per bale varies depending on the weight of the paper used and the size of the bag. Merriwell manufactures only pinch bottom general merchandise bags, which range in size from small 2" x 10" pencil bags to large 20" x 2" x 30" bags used for larger store-bought items. They do not make flat bottom bags (groceries) or bags that require fancy printing (specialty bags). Bag tags are restricted to 20 percent face coverage and one ink color placed on one side only. Therefore, Merriwell's core strategy is based on producing low unit cost due to standardization, allowing for competitive selling price with big bag manufacturers. At the same time, Merriwell provides shipping and inventory services that are too small in scale for most large manufacturers. The Merriwell family is proud to “serve” a customer who has an urgent need for additional bags or who wants Merriwell to stock an order of bags for a certain amount of time due to storage issues in the customer's warehouse. Merriwell's core strategy is based on producing low unit cost due to standardization, allowing for competitive selling price with big bag manufacturers. At the same time, Merriwell provides shipping and inventory services that are too small in scale for most large manufacturers. The Merriwell family is proud to “serve” a customer who has an urgent need for additional bags or who wants Merriwell to stock an order of bags for a certain amount of time due to storage issues in the customer's warehouse. Merriwell's core strategy is based on producing low unit cost due to standardization, allowing for competitive selling price with big bag manufacturers. At the same time, Merriwell provides shipping and inventory services that are too small in scale for most large manufacturers. The Merriwell family is proud to “serve” a customer who has an urgent need for additional bags or who wants Merriwell to stock an order of bags for a certain amount of time due to storage issues in the customer's warehouse. Merriwell provides shipping and inventory services that are on a scale too small for most large manufacturers. The Merriwell family is proud to “serve” a customer who has an urgent need for additional bags or who wants Merriwell to stock an order of bags for a certain amount of time due to storage issues in the customer's warehouse. Merriwell provides shipping and inventory services that are on a scale too small for most large manufacturers. The Merriwell family is proud to “serve” a customer who has an urgent need for additional bags or who wants Merriwell to stock an order of bags for a certain amount of time due to storage issues in the customer's warehouse.

DEMAND FORECAST

Providing this personalized service requires strict inventory control and production scheduling at the Merriwell bag plant. A highly accurate demand forecast allows Merriwell to accommodate special customer requests using Merriwell's own warehousing facilities and the company's trucking line route schedules. Until now, Ed Merriwell could manage demand forecasting and production scheduling by "feeling." Due to the increasing number of accounts and staffing changes in client purchasing departments, the accuracy of Merriwell's forecasts has rapidly declined. The percentage of accounts with short shipments for certain types of bags is increasing at an alarming rate. Instead, the warehouse is becoming overloaded with other types of bags. As a result, a severe delay penalty was recently paid on three wagons of incoming paper rolls because the paper warehouse was partially used to store finished bags that spilled from the finished bag warehouse. This caused a delay in unloading the vans until space could be created in the raw material warehouse.

Historically, demand forecasting has been difficult due to the seasonal nature of the product. There is always an increase in the demand for handbags before the holiday season. The exact timing of the surge in demand for certain types of bags depends on customers' stocking policies and the dates when Christmas promotional activities begin. The Merriwell family needs a forecasting method that takes this seasonal factor into account. Also, they want a method that shows stability because their market is relatively stable with a large number of repeat customers. Finally, they want a forecasting method that anticipates the growth patterns of their respective customers. A forecasting method with these specifications would greatly improve the company's ability to service its market profitability. It is believed that if such a method could be applied to forecast aggregate demand, the same method could be used to gain greater accuracy in forecasting demand from your largest customers. By having an accurate forecast of aggregate demand and demand from larger customers, smaller customer requirements could be processed within existing warehousing and shipping flexibility. To develop this method, the Merriwell family compiled the aggregate demand data shown in Exhibit 1. These data show monthly bag sales for the past five years. It is believed that if such a method could be applied to forecast aggregate demand, the same method could be used to gain greater accuracy in forecasting demand from your largest customers. By having an accurate forecast of aggregate demand and demand from larger customers, smaller customer requirements could be processed within existing warehousing and shipping flexibility. To develop this method, the Merriwell family compiled the aggregate demand data shown in Exhibit 1. These data show monthly bag sales for the past five years. It is believed that if such a method could be applied to forecast aggregate demand, the same method could be used to gain greater accuracy in forecasting demand from your largest customers. By having an accurate forecast of aggregate demand and demand from larger customers, smaller customer requirements could be processed within existing warehousing and shipping flexibility. To develop this method, the Merriwell family compiled the aggregate demand data shown in Exhibit 1. These data show monthly bag sales for the past five years. By having an accurate forecast of aggregate demand and demand from larger customers, smaller customer requirements could be processed within existing warehousing and shipping flexibility. To develop this method, the Merriwell family compiled the aggregate demand data shown in Exhibit 1. These data show monthly bag sales for the past five years. By having an accurate forecast of aggregate demand and demand from larger customers, smaller customer requirements could be processed within existing warehousing and shipping flexibility. To develop this method, the Merriwell family compiled the aggregate demand data shown in Exhibit 1. These data show monthly bag sales for the past five years.

Discussion questions

1. Which forecasting method would meet the company's specifications? Please justify.

2. What is the aggregate demand forecast per month for the year 2012?

3. In addition to forecasting larger customer demand and aggregate demand, how could forecast accuracy be improved?

4. What role should Ed Merriwell's market insight play in establishing new sales forecasts?

Answer rating: 100% (QA)

1 Forecasting Method that Meets Specifications A forecasting method that could meet the companys specifications of accounting for seasonality stabilit... View the full answer