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Workshop Topic: Forecasting The New Kong Box Company supplies special reinforced boxes for industrial uses to many large and small manufacturing rms in the Hong Kong, Macau and Shenzhen areas. It currently has over 300 customers with orders ranging in size from as low as 50 boxes to large orders for 10,000 per annum. Boxes are produced in more than 20 standard sizes and designs with Special printing to customer's specications. The standardization and special printing exibility allow Kong Box to be priced competitively with big producers but they also provide the service for small and emergency orders that large box manufacturers cannot provide. Such personal service, however, requires tight inventory control and close production scheduling. So far, the Managing Director has always forecasted demand and prepared production schedules through experience. Because of the ever growing number of accounts and changes in personnel in customers' purchasing departments, the accuracy of his forecasting has been declining. The number of back-orders is on the increase, late orders are more common and inventory levels of nished boxes are on the increase. Failure to meet delivery schedules during the peak season will lead to a sales loss to competitors as customers are not prepared to wait. 1) Suppose the following information is available: i. The salesman's estimates for total sales in 2015 is 250,000 boxes. ii. The New Kong Box Company's share of the market is expected to be 6% and the total market for corrugated cartons in 2015 is estimated at 5,300,000 boxes. These gures are supplied by the Sales Manager. iii. Normal production capacity (8 hr workday and 5.5 work-day week) of the New Kong Box Company is limited to 22,000 boxes per month. The salesman expects his estimates to be used as sales quotas and the Sales Manager generally tends to push up sales forecast for performance purposes. You are the Managing Director of the company. You estimate that a downturn of about 5% in business outlook is expected in 2015. a) In the light of the above information, what is your annual sales forecast for 2015? Explain how you have considered and used the above information. b) Comment on your plant capacity. 11) Upon learning the techniques of forecasting based on historical data, hoping to do a better job in forecasting, you have prepared the sales statistics of company (in number of boxes) for the last 5 years and they are shown as follow: a) b) 2.000 8,000 1 2,000 15,000 15,000 8,000 14,000 8,000 12,000 22,000 10,000 18 ,000 1 8,000 14,000 1 8,000 18,000 15,000 1 3,000 18,000 1 8,000 14,000 16,000 14,000 15,000 1 6,000 10,000 18 ,000 1 8,000 18,000 20,000 16,000 14,000 1 7,000 20,000 26,000 18,000 28,000 2 0,000 22,000 2 8,000 20,000 22,000 2 5,000 26,000 20,000 22,000 27 ,000 2 8,000 28,000 2 8,000 24,000 26,000 2 1,000 20,000 2 13,000 18,000 10,000 1 8,000 22,000 26,000 185,000 216,000 212,000 230,000 264,000 i) Forecast the annual demand of boxes for the company in 2015 using the \"least mean square" method. ii) Check the accuracy of this forecast method using the \"tracking signal method\" with a 95% condence level (control limits = +l- 2.45MAD, n=3 for MAD). Comment on the appropriateness in using this method for forecasting the annual sales. i) Determine the annual sales forecast for 2015 using the exponential smoothing method with u = 0.3. Assuming that the annual sales forecast for 2014 was 250,000 boxes. ii) The Sales Manager is considering using an a = 0.? for the forecast. With the data provided in the table (Q 11) and using the MAD method, suggest which of the two a should be used to obtain a better sales forecast accuracy. Assuming that the annual sales forecast for 2010 was 185,000 boxes Using the \"least mean square method" as the basis for discussion, what do you suggest the company can do to design a better forecasting system to help the planning of production in the company? Explain your reasoning