Description of the Scenario
A-Cat Corporation is an Indian company that specializes in the production of electrical equipment for private and business use. A-Cat Corp. is not a big company, with around 40 employees and the orientation on rural area markets. Its chief product is a VR-500 voltage regulator, which is an insignificant demand as the Vidarbha region is known for voltage fluctuations.
Thus, the company’s profits have been rising for the last several years due to the stable demand for the reliable equipment that can protect the television sets, refrigerators, and other costly appliances from failing. A-Cat Corp’s external stakeholders are the suppliers of the components that are used in most of its products (e.g. the transformers) and the owners of the company. The internal stakeholders are the company’s President, Vice President (Arun Mittra), the operations manager (Shirish Ratnaparkhi), and the staff.
The sales in the budget year 2010-2011 have been 9,8 million rupees (Sharma, 2013a). Despite the stable profits, the management has raised concerns regarding the dynamics of voltage regulators’ sales in the last years. The reason for this was the low reliability of predictions of VR-500 sales, which resulted in either overstocking or shortages of the goods in recent months.
Additionally, some of the crucial components for the appliances produced by A-Cat Corp., chiefly the transformers, were bought from the supplier in quantities determined by the sales of the voltage regulators. Once the sales became volatile and unpredictable, the stock of transformers was impacted as well. As the supplier of the components was likely to raise a price for the transformers once the stability of supply was compromised, this inevitably would result in raising the price of the flagship product, VR-500.
Previously, the predictions of future sales were determined by analyzing the sales figures for the previous years. Since the operation manager only had access to the years 2006-2008, the initial strategy was to calculate the increase in the mean number of transformers in the years 2010-2011 by analyzing the data of previous years (Sharma, 2013b). However, such a strategy has been proven unsuccessful since the incorrect prediction not only created overstocking but has led to compromised cash reserves. Thus, Arun Mittra, A-Cat’s Vice-President, has ordered the operation manager to devise an inventory management plan that would eliminate the unpredictability and increase the stability of supplies and sales.
Analysis Plan
Quantifiable Factors
Two major quantifiable factors can be identified as affecting the operational process. The first is the mean number of the transformers that are used for the production of the equipment, including the VR-500 voltage regulator. As was mentioned above, the mean number obtained from analyzing the sales of years 2006-2008 has adversely affected the sales predictions, so this factor is directly affecting the operational processes. While the rising mean number aligns well with the expectations by Shirish Ratnaparkhi, the resulting discrepancies should serve as a warning that the mean baseline number should be reviewed.
The second quantifiable factor is the sales of merchandise that is sensitive to voltage variations. A refrigerator is a type of equipment that inevitably prompts the demand for a voltage regulator. Thus, having the data on the number of refrigerators bought by the population, as well as trends in purchases, it is possible to adjust the supply of transformers accordingly without compromising the stability of prices or creating a risk of overstocking.
Problem Statement
The inaccurate forecasting of the demand for the A-Cat Corp’s flagship product, VR-500, has created the persistent volatility and unpredictability of both the sales of goods and the supply of crucial components, the transformers, which, in turn, has resulted in logistical problems, such as over- and understocking, and the vulnerability of the company’s cash reserves.
Proposed Strategy
Based on the available data, the recommended strategy is the implementation of a comprehensive statistical analysis of the major quantifiable factors. The intuitive predictions which have shown to be unreliable should be excluded from the planning process, and instead, the hard data based on the processed numbers of sales should be used. First, a hypothesis regarding the significance of the stated factors should be put to the test.
In the case of voltage regulator sales numbers, the analysis of trends should be performed in addition to determining the mean number of sold VR-500s. The statistical analysis can not only eliminate the error resulting from using the outdated data but decrease the volatility by accounting for the trends of seasonal sales. The same can be said about the number of refrigerators sold throughout the five last years. First, the trends of refrigerator sales and the seasonal correlation need to be calculated. Once the operations manager has the trends of both quantifiable factors, the correlation should be sought between the two.
In case such correlation is established, and the hypothesis is confirmed, it will be possible to create a regression equation which can be used to create the sufficiently accurate predictions of sales (Sharpe, De Veaux, & Velleman, 2016). If the subsequent sales show a strong consistency of the obtained data, the descriptive statistics are highly advised for the improved and systematic data analysis (Winkler, 2009). Thus, the prediction model will be gradually established that would guarantee further stability of the analysis and sustainability of the operational processes.
References
Sharma, J. (2013a). A-CAT Corp.: Forecasting. Web.
Sharma, J. (2013b). Addendum. Web.
Sharpe, N., De Veaux, R., & Velleman, P. (2016). Business statistics (3rd edition). Boston, MA: Pearson.
Winkler, O. (2009). Interpreting economic and social data: a foundation of descriptive statistics. New York, NY: Springer Science & Business Media..