Question 1:

Ben introduced an innovative instamatic camera phone into the Singapore market.
Quarterly sales (in units) for the past three years are shown in Figure 1. To forecast sales for
the following year (Y4), he calculated the average quarterly sales in the previous three (3)
years. The forecast for quarterly sales for the following year (Y4) is shown in Figure 1.

(a) The likely problems with Bens approach to forecasting.

From the Bens approach to forecasting, it is the fastest way to forecast the sales
camera phone into the Singapore market in year 4 but it is not the most accurate way.
The problems that Ben might face if he uses this approach to forecast are:

1. Forecast Error: The cause of forecast error here is Ben is not using the seasonal
trend but simply use the average quarterly sales in the previous 3 years from the
data. As it is said before, it is not the effective way to predict how many sales are
going to happen in the following year.
2. Stock Surplus: stock out and stock surplus are the events which are not expected
from most of the companies. Having excess inventory is generally regarded as bad
for business because of what it means for inventory turnover and the costs
associated with managing it.1
3. Reduced Profits, storage cost, waste

From the problems above, we could analyze which the problems that Ben might face
is more likely a domino effect which can cause disaster to the company just from the
simply count of the average sales. The way to overcome this problem will be
explained more detail below.

1
Kokemuller, N. (2017). The Disadvantage of Excess Inventory. Retrieved July 18, 2017, from Chron:
http://smallbusiness.chron.com/disadvantage-excess-inventory-22812.html
(b) Examination about the demand patterns as show in Figure 1 using an appropriate
method as well as advice from our group to Ben regarding his forecast.

Appropriate forecast method for Ben

Quarterly Sales for Instamatic Camera Phone

Period Actual Forecasted
Year, Qtr t Sales Predicted Clean Data Season Index (RAW) Sales Quarter Season Index
01,1 1 122 108.0278 1.129338929 1 1.146325894
01,2 2 108 105.2656 1.025976197 2 1.060509622
01,3 3 81 102.5034 0.79021769 3 0.807233724
01,4 4 90 99.7412 0.902335244 4 0.986234061
02,1 5 110 96.979 1.134266181
02,2 6 100 94.2168 1.061381834
02,3 7 73 91.4546 0.79821026
02,4 8 91 88.6924 1.026018013
03,1 9 101 85.9302 1.17537257
03,2 10 91 83.168 1.094170835
03,3 11 67 80.4058 0.833273222
03,4 12 80 77.6436 1.030348928
04,1 13 74.8814 85.83848776
04,2 14 72.1192 76.48310554
04,3 15 69.357 55.98730938
04,4 16 66.5948 65.67806007
05,1 17 63.8326 73.17296223
05,2 18 61.0704 64.76574683
05,3 19 58.3082 47.06834541
05,4 20 55.546 54.78135717
The first thing that Ben has to do is determine the equation line from the actual sales
from 3 years data provided. After obtained the equation line, Ben can predict the
Clean Data by entering the equation and the variable x put as the period begin. From
the case above we got the equation line: y = -2.7622x + 110.79. For your information,
the predicted clean data is the same with the trendline.

After that, Ben has to determine the Seasonal Index by Predicted Clean Data : Actual
Sales. From, Season Index, Ben would be able to determine the Average Seasonal
from Quarter 1 to 4. Finally, Ben can do more accurate forecasting by dividing the
Predicted Clean data with the Average Seasonal Index (with the same quarter).

The Result

Ben's Forecast
Quarter
Year
1 2 3 4
Forecast Y4 111 100 74 87

Group's Forecast
Quarter
Year
1 2 3 4
Forecast Y4 86 76 56 65
Forecast Y5 73 65 47 55

From the result above, we can see that if Ben using the normal forecast which only
calculates from the average 3 years data, it will cause stock surplus or excessive
inventory from the sales about 30% higher. Absolutely it will bring no good for the
company itself. It is happening because Ben ignored the main factors that increase the
accuracy of forecasting which are the trends as well as the seasonal. The trend from
year 1- 3 keep decreasing.

So, it is advised that it is better for Ben if he uses the trend forecast technique by
including the seasonal index because it is more accurate to forecast his problem which
is forecast the sales of instamatic camera phone into the Singapore market. A
forecast error can be minimized and the effect is save the company from facing the
problems from excessive inventory such as storage cost, waste, which result in
reduced profit of the company.