SHREYA PGFB1144

ASSIGNMENT

ON

DEMAND FORECASTING & INVENTORY

MANAGEMENT

Submitted To: Submitted By:

Prof. Susmita Paul Shreya

PGFB1144

PGDM 2011-

13

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SHREYA PGFB1144

DEMAND FORECASTING

Introduction

A Demand Forecasting is the prediction of what will happen to the company’s existing

product sales. Demand forecasting is the activity of estimating the quantity of a product or

service that consumers will purchase. It involves techniques including informal methods such as

educated guesses, the use of historical sales data or current data from test market .Demand

forecasting is also used in making pricing decision ,in assessing future capacity requirement and

also in making decision on whether to enter a new market or not. Determination of demand

forecast is done through the following steps-

1. Determine the use of the forecast

2. Select the items to be forecast

3. Determine the time horizon of the forecast

4. Select the forecasting model

5. Gather the data

6. Make the forecast validate and implement the result

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Maruti Suzuki India Limited: Company Overview

Maruti Suzuki India Limited (NSE: MARUTI, BSE: 532500) is a subsidiary company of Japanese automaker Suzuki Motor Corporation. It has a market share of 44.9% of the Indian passenger car market as of March 2011. Maruti Suzuki offers a complete range of cars from entry level Maruti 800 and Alto, to hatchback Ritz, A-Star, Swift, Wagon-R, Estillo and sedans DZire, SX4, in the 'C' segment Maruti Eeco and Sports Utility vehicle Grand Vitara.

It was the first company in India to mass-produce and sell more than a million cars. It is largely credited for having brought in an automobile revolution to India. It is the market leader in India, and on 17 September 2007, Maruti Udyog Limited was renamed as Maruti Suzuki India Limited. The company's headquarters are located in New Delhi. In February 2012, the company sold its 10th million vehicles in India.

Factors Affecting Demand Forecasting In Maruti

1) GEOGRAPHY: In different states People have different choice for different models, so accordingly demand is forecasted keeping in mind the interest of the customers for eg. Maruti swift was not successful in Uttar Pradesh because of its shape, where as in other states it was a big success. Even factors like color play an important role in influencing demand. People in South demand. People in South India avoid black color cars whereas India avoids black color cars whereas in North India it is demanded.

2) TIME PERIOD: a) festive seasons b) marriage seasonc) seasonal factors

3) PRODUCT LEVEL : Different variants of a car have different demands for e.g. People who travel more, for e.g., People who travel more, prefer diesel models of different prefer diesel models of different cars over the petrol version cars over the petrol version.

4) ECONOMIC ENVIRONMENT: Various factors such as GDP, inflation and deflation factors such as GDP, inflation and deflation play an important role.

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Demand Forecasting In Maruti Suzuki India Limited

1. Survey Of Buyer’s Intentions: Gives an insight into what customer’s-gives an insight into what customers want and have the willingness to buy want and have the willingness to buy--respondents may not give realistic respondents may not give realistic and rational responses and rational responses. Survey is done to:-Estimate what proportion of the population will ultimately buy their car; they estimate what proportion of the population:

a) Wants to buy a car.b) Has the income to pay.c) Is interested in buying the car which the company has for sale.

2. Hunch Method: Involves field experts like Dealersa) Provide information regarding different enquiries made by people about different

cars. (Conversion rate- 20%).b) Maintain database of past customers.c) Number of car booked in advance Based on these send a demand for cars to

Maruti Suzuki.

3. EXPERT OPINION a) Maruti gathers information from industry experts about where is headed market.b) Advantage of this method is that the information comes from the sources most

involved with the market.

4. PAST SALES ANALYSIS a) It is done by collecting the past sales recorded in different region by Maruti all

over India.b) Different statistical analytical test are performed to forecast the demand.

5. POS SYSTEM: Maruti uses software called POS (Point on sale) system.a) It contains the entire database maintained by Maruti.b) With the help of this software they forecast demand.

Finally demand forecasted using past sales analysis and survey done by Maruti are compared with demand forecasted by dealers compared from all over India and if the demand forecasted varies by 5-10% more or less, production is carried out more or less, accordingly If variation is large, estimation is reconsidered.

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INVENTORY MANAGMENT SYSTEM

Introduction

An Inventory Management System is a process for managing and locating objects or

materials. An inventory management system may be used to automate a sales order fulfillment

process. Such a system contains a list of order to be filled, and then prompts workers to pick the

necessary items, and provides them with packaging .The inventory management system is an

important element in a successful business because it allows business employees to manage and

keep track of the items on hand. It is often composed of a set of hardware and software

components that provide an automated solution to all inventory-related tasks of the business.

These specialized systems can handle a wide range of applications, which include ordering,

tracking of order delivery, receiving new orders, creation or cancellation of job orders and other

purchase and sales tasks.

Some systems specializing in inventory control also allow organization to manage the

manufacturing and distribution process. Inventory control is the act of checking and controlling

all of the items or products that the company has in stock. This can include products ready for

sale or raw materials ready for product development. Inventory control measures are strategies

and procedures implemented by the business or managers to control and protect the items in

inventory, as these valuable items are considered an asset for the business.

McDonalds: Company Overview

McDonalds is one of the most popular fast food chains with a worldwide presence. It can

befound in 119 countries and has about 31,000 restaurants. It employs about 1.5 million people

andis one of the largest fast food chains, serving 47 million customers daily.

Most restaurants offer both counter service and drive through service with indoor

seating. McDonalds has become an emblem of globalization. It’s main line of business is

hamburgers. It primarily sells cheese burgers, hamburgers, French fries, chicken products, ice-

creams and soft drinks.

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Inventory management in McDonalds

McDonalds follows a Just in Time (JIT) system of inventory management. JIT, as the

name suggests, is the system of supplying products to customers as soon as they have ordered for

it, with minimal delay between placing the order and getting it in hand. McDonalds doesn’t

begin to cook or assemble or preheat their stuff until they receive a customer order.

This was not the case earlier. They had a different approach to inventory management

wherein they used to pre-cook a batch of hamburgers and sit under heat lamps. It used to keep

them under the lamps for as long as possible and eventually discard whatever they couldn’t sell.

Hence customers couldn’t enjoy freshly made food. The only way it could happen was by the

customer giving a special order. Hence McDonalds moved to the JIT system of inventory

management. This shift was possible because of the new burger making technology that enabled

them to make burgers faster and keep the time between placing an order and receiving it as

miniscule as possible. This results in the finished product sitting in the inventory for as little as

possible. This enables proper inventory management and reduces wastage while giving

maximum satisfaction to the customer. The customer is made to wait for a very short period and

this is a huge factor while going for such a system of inventory management. Thus, the customer

is happy. But it has also lead to a huge decrease in costs for McDonalds and this is what has

made JIT system such a success. The following have been the apparent advantages the JIT

mechanism has brought to the McDonalds Operations:

1. Improved quality of food : The burgers are made fresh for the customer and thus provide

maximum satisfaction. There is no chance of offering stale food to the customer. Higher

customer satisfaction leads to customer retention and increased sales. The customer resists

the impulse to try out rival brands till he is deriving maximum satisfaction from the brand

in question.

2. Better customer service: McDonalds earlier used to make special orders for customers

while dishing out pre cooked burgers from the inventory to most customers. Hence such

special orders were dreaded by the staff and used to freak them out. The staff, now after

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introduction of the JIT system, is more calm and composed and offers better service to the

customers. This higher customer service is subject to the ability to produce faster burgers.

McDonalds are able to handle the demand a lot better. They don’t have to waste time in

calculating the estimated sales hour by hour and maintain an inventory.

3. Better Costs: The holding costs for the raw material like bread, beef, cheese, chicken is

fairly high because of their spoilage costs. Under the old system, McDonalds used to

maintain a high inventory leading to faster orders but this resulted in a lot of unsold food

because of the low shelf life of non-vegetarian items after being cooked. The food was then

forced to be sold at a higher price to cover up for the losses in scrapping unsold food. This

resulted in lower costs to McDonalds.

4. Better Raw Material Handling: With the new system, McDonalds does not need to

procure the raw materials in bulk advances. This reduces daily expenses considerably and

ensures fresh and high quality raw material all the time. High holding costs and low

ordering costs were the factors that drove the Just in Time system to the market. The ability

to lower the operating costs makes JIT a highly feasible solution. It has also led them to

reduce drastically the safety costs. Safety time exists due to variability in demand and

variability in lead times from suppliers. JIT helps reducing the lead times and hence safety

stock. JIT provides for an attractive and cost cutting mechanism but it is very important to

weigh the risks and analyze the associated consequences that might happen. A very fast

burger making technology makes JIT a viable option for McDonalds but this might not be

the case in other organizations and they might face problems in handling bulk orders

through JIT system.

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