speciality packaging corperation case study part a Julie Williams had a lot on her mind when she left the

conference room at Specialty Packaging Corporation

$($SPC$).$ Her divisional manager had informed her that she

would be assigned to a team consisting of SPC$$s marketing

vice president and staff members from their key

customers. The goal of this team was to improve supply

chain performance, as SPC had been unable to meet

demand effectively over the previous several years. This

often left SPC$$s customers scrambling to meet new client

demands. Julie had little contact with SPC$$s customers and

wondered how she would add value to this process. She

was told by her division manager that the team$$s first task

was to establish a collaborative forecast using data from

both SPC and its customers. This forecast would serve as

the basis for improving the firm$$s performance, as

managers could use this more accurate forecast for their

production planning. Improved forecasts would allow SPC

to improve delivery performance.

SPC

SPC turns polystyrene resin into recyclable$/$disposable

containers for the food industry. Polystyrene is purchased as a commodity in the form of resin pellets. The

resin is unloaded from bulk rail containers or overland

trailers into storage silos. Making the food containers is a

two$-$step process. First, resin is conveyed to an extruder,

which converts it into a polystyrene sheet that is wound

into rolls. The plastic comes in two forms$$clear and

black. The rolls are either used immediately to make

containers or are put into storage. Second, the rolls are

loaded onto thermoforming presses, which form the

sheet into containers and trim the containers from

the sheet. The two manufacturing steps are shown in

Figure $7-11.$

Over the past five years, the plastic packaging

business has grown steadily. Demand for containers

Chapter $7$ Demand Forecasting in a Supply Chain $209$

made from clear plastic comes from grocery stores,

bakeries, and restaurants. Caterers and grocery stores

use the black plastic trays as packaging and serving

trays. Demand for clear plastic containers peaks in the

summer months, whereas demand for black plastic

containers peaks in the fall. Capacity on the extruders is

not sufficient to cover demand for sheets during the peak

seasons. As a result, the plant is forced to build inventory

of each type of sheet in anticipation of future demand.

Table $7-4$ and Figure $7-12$ display historical quarterly

demand for each of the two types of containers $($clear

and black$).$ The team modified SPC$$s sales data by

accounting for lost sales to obtain true demand data.

Without the customers involved in this team, SPC would

Table $7-4$ Quarterly Historical Demand for Clear and Black

Plastic Containers

Year Quarter

Black Plastic

Demand $(000$ lb$)$

Clear Plastic

Demand $(000$ lb$)$

$2005$ I $2,2503,200$

II $1,7377,658$

III $2,4124,420$

IV $7,2692,384$

$2006$ I $3,5143,654$

II $2,1438,680$

III $3,4595,695$

IV $7,0561,953$

$2007$ I $4,1204,742$

II $2,76613,673$

III $2,5566,640$

IV $8,2532,737$

$2008$ I $5,4913,486$

II $4,38213,186$

III $4,3155,448$

IV $12,0353,485$

$2009$ I $5,6487,728$

II $3,69616,591$

III $4,8438,236$

IV $13,0973,316$

never have known this information, as the company did

not keep track of lost orders.

Forecasting

As a first step in the team$$s decision making, it wants to

forecast quarterly demand for each of the two types of

containers for the years $2010$ to $2012.$ Based on historical trends, demand is expected to continue to grow until

$2012,$ after which it is expected to plateau. Julie must

select the appropriate forecasting method and estimate

the likely forecast error. Which method should she

choose? Why? Using the method selected, forecast

demand for the years $2010$ to $2012.$

$($continued$)$

$210$ Chapter $7$ Demand Forecasting in a Supply Chain

$16000$

$18000$

$14000$

$12000$

$10000$

$8000$

$6000$

$4000$

$2000$

$0$

Demand

$200520062007200820092010$

Year

Black Plastic Demand

Clear Plastic Demand

FIGURE $7-12$ Plot of Quarterly Demand for Clear and Black Plastic Container