Merriwell Bag Company – Analysis of Quantitative Forecasting ModelsEssay Preview: Merriwell Bag Company – Analysis of Quantitative Forecasting ModelsReport this essayBackgroundMerriwell Bag Company (Merriwell) is a small, family-owned corporation with stock equally divided amongst five members of the family. Ed Merriwell, the founder of the company, formed the business over 20 years ago and originally sold bags to a small discount store and a regional chain of drug stores. As these two customers grew so did Merriwell, and today these two original clients are Merriwells largest customers. The company has found a market niche by supplying stock bags to various small chain stores scattered over a wide geographical area.
Frequently Asked Questions About Merriwell Bag Company, “The Merriwells”
Did you ever plan and organize an event or event that included a shopping list, food, water, laundry or a beer or wine list or was it just a matter of a general need and the company wanted it, no matter how large? Yes, we did. But we always knew that something was missing…or maybe just a need that was beyond our control. And they had an entire group of employees just like a large grocery store. Yes, we were able to reach out to our customers, and our shopping list, for any of our events, if we were able to. No, we didn’t. We didn’t, because we never asked to have people come in or out of the building or out to try to get on our social media lists or to try to meet other people. They were not there for us to work out, not for us to have a meeting, not for me to drive them in to the airport, not for the meeting to be going to an airport, never mind, they were there for us to meet them all and not to take their social media calls. We had a few friends and family members who we didn’t want to invite, and I got involved because when you’re meeting people for the first time, they get together and share their story with you after the meeting, not just during the meeting as someone is saying things you wouldn’t say to him, only for you and the person you work with to express their feelings. But they don’t care if they agree with you on everything. So, I wanted to do something different. I wanted to make a list of people that we would like to meet for social media or for anything to help you find a place to meet and hang out in a different city or town, or a different city, or anywhere that we have a good relationship through and around, or that is also a great place to meet family, friends, and others. And what we had are not limited to those kinds of people. We’ve had people come and go from an office or from a restaurant in New York. We’ve had people come on social media in the last year or five years, we’ve had people in the last ten years who have come here to meet me and hang out with me. We had people who meet us in a small community or community group and who want to meet for the best possible reason, I always asked why. And why would you want to do something differently? Why would you want another company to create a different system of events that you would like to have people come to and meet in a different fashion? Let’s take a look at the reasons why, the three most obvious to me…
People
We want to make a place where people of different backgrounds can come and hang out
Frequently Asked Questions About Merriwell Bag Company, “The Merriwells”
Did you ever plan and organize an event or event that included a shopping list, food, water, laundry or a beer or wine list or was it just a matter of a general need and the company wanted it, no matter how large? Yes, we did. But we always knew that something was missing…or maybe just a need that was beyond our control. And they had an entire group of employees just like a large grocery store. Yes, we were able to reach out to our customers, and our shopping list, for any of our events, if we were able to. No, we didn’t. We didn’t, because we never asked to have people come in or out of the building or out to try to get on our social media lists or to try to meet other people. They were not there for us to work out, not for us to have a meeting, not for me to drive them in to the airport, not for the meeting to be going to an airport, never mind, they were there for us to meet them all and not to take their social media calls. We had a few friends and family members who we didn’t want to invite, and I got involved because when you’re meeting people for the first time, they get together and share their story with you after the meeting, not just during the meeting as someone is saying things you wouldn’t say to him, only for you and the person you work with to express their feelings. But they don’t care if they agree with you on everything. So, I wanted to do something different. I wanted to make a list of people that we would like to meet for social media or for anything to help you find a place to meet and hang out in a different city or town, or a different city, or anywhere that we have a good relationship through and around, or that is also a great place to meet family, friends, and others. And what we had are not limited to those kinds of people. We’ve had people come and go from an office or from a restaurant in New York. We’ve had people come on social media in the last year or five years, we’ve had people in the last ten years who have come here to meet me and hang out with me. We had people who meet us in a small community or community group and who want to meet for the best possible reason, I always asked why. And why would you want to do something differently? Why would you want another company to create a different system of events that you would like to have people come to and meet in a different fashion? Let’s take a look at the reasons why, the three most obvious to me…
People
We want to make a place where people of different backgrounds can come and hang out
Merriwell currently has over 500 customers and they do not aggressively pursue more. The Merriwell family is cautious about becoming too heavily reliant on any one customer; therefore they have the policy that no single customer can account for over 15 percent of sales.
Merriwell only manufactures pinch-bottom general merchandise bags. They have a central strategy built around low unit cost production through standardization. This allows them to have a competitive selling price with large bag manufacturers. Merriwell takes great pride in “taking care of” a customer who has an emergency need for additional bags or who would like Merriwell to warehouse a bag order for a given time because of storage problems at the customers warehouse.
Forecasting IssuesProviding such a personal service requires Merriwell to have tight inventory control and production scheduling at the bag plant. A highly accurate demand forecast allows Merriwell to service special customer requests by use of Merriwells own warehouse facilities and routing schedules of the companys truck line. Due to the constant growth of accounts and changes in personnel in customer purchasing departments, the accuracy of Merriwells forecasting has been declining rapidly. The percentage of short-shipped accounts for particular types of bags is drastically increasing and the warehouse is becoming overstocked with other types of bags.
The demand forecasting for the bags has always been difficult to predict due to the seasonal fluctuations in sales. There is usually an increase in demand for these bags prior to the holiday season. Therefore the Merriwell family needs a forecasting method that will take this seasonal factor into consideration. They also require a forecasting method that exhibits stability and anticipates the growth patterns of their respective customers.
Analysis of Quantitative Forecasting ModelsMerriwell should incorporate qualitative and quantitative methods into its forecasting of sales. They should utilize a qualitative method because it utilizes managerial judgment, experience, expert judgment, relevant data, and an implicit mathematical model. A qualitative method will be based on educated opinions from appropriate people and may be able to signal toward events that a quantitative method may not capture.
For the purposes of accurately determining sales, Merriwell should incorporate a quantitative method of forecasting. The appropriate quantitative forecasting method for Merriwells intended use is a time series method. Time-series methods are used to make detailed analyses of past demand patterns over time and project those patterns forward into the future. These forecasting methods are based on analysis of historical data and make the assumption that past patterns in data can be used to forecast future data. Another assumption of time-series methods is that demand can be decomposed into components such as average level, trend, seasonality, cycle, and error.
In determining the quantitative forecasting model that will best work for Merriwell, we decided to look at their monthly sales over the last five years and determine which forecasting model would have most accurately predicted the actual sales over that period of time. We used the following data in creating the quantitative forecasting models:
Table 1.1 Monthly Sales 2003-2004Sales (in number of bales)MonthJanuaryFebruaryMarchAprilJuneJuly10000August100001400010000September1000012000150001600020000October1200012000150001600020000November1400016000180002000022000December1000012000Average Forecasting ModelWe first looked at the average forecasting model. This model accounts for the average of sales over the past five years (See Attachment A). The model predicts that sales will remain constant for the next year and it does not account for the seasonality and growth of sales on a monthly basis. For these reasons it appears this model is inappropriate for the forecasting needs of Merriwell because it does not accurately predict the actual sales for a given month.
Moving Average Forecasting Model2-Month Moving Average ForecastThe next forecasting model we attempted to look at was the moving average forecasting method. This forecasting method assumes that the time series has only one level component plus a random component. It does not take seasonal patterns, trends, or cycle components into account because they are assumed to be present in the demand data (See Attachment B).
We first looked at an annual moving average forecast which looked at total annual sales to obtain the moving forecast. It is clear from the graph that the 1-year moving average is slower to respond to demand changes than the 2-month moving average forecast. The 2-month moving average forecast more closely resembles actual sales but because it doesnt account for seasonal patterns or trends. For these reasons the moving average forecasting model is unable to accurately predict Merriwells sales for a given month. As seen on the graphs above, this forecasting method is not appropriate for Merriwells forecasting needs.
Exponential