What are the issues associated with Playtime’s current forecasting process?
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Playtime, Inc. Playtime, Inc. manufactures toys for children under the age of 12 and has been in business for 50 years. While Playtime does not hold a major share of the toy market, it has experienced significant growth over the last five years because of its collaboration with major movie studios to introduce action figures to coincide with new movie releases. Playtime is a publicly held company. Playtime’s executive council consists of vice presidents of marketing (includes sales), operations (manufacturing), supply chain (procurement, inventory, warehousing, and transportation), and finance. This group is ultimately responsible for approving the forecast for the upcoming year. The forecast is developed using last year’s sales as historical data. This forecast is then given to the supply chain and operations groups to determine if capacity is sufficient to accommodate the new volumes. If capacity is sufficient, the forecast is then moved to finance where it is analyzed to determine if volumes are sufficient to satisfy the needs of the investors. Jim Thomas, manager of supply chain, and Gail Jones, manager of operations, had a meeting to discuss the first version of the forecast. “I know we use last year’s sales to project for next year, but this forecast has me worried,” said Jim. “One of our major movie studio partners is coming out with a blockbuster movie next year and we have no idea what the impact of that might be on our distribution capacity.” Gail agreed, saying “I know. We have the capacity right now based on this forecast, but if volumes surge we are in trouble from a manufacturing perspective.” Jim and Gail also know that if the projected volume does not satisfy the needs of inventors, finance will send the forecast back to marketing to increase volumes until financial goals will be met. This forecast process has resulted in a disconnect among the supply chain, operations, and marketing functions within Playtime. The managers in these functions typically end up developing their own forecasts based on what they think demand will really be, regardless of what finance presents to the investors. Over the last several years, this has presented some problems for the operations and supply chain areas because of manufacturing capacity issues (toys are very seasonal) and inventory issues. Although Playtime has been able to handle these issues, Jim and Gail are very concerned about next year because of the uncertainty the new movie release will have on the demand for their toys. CASE QUESTIONS What are the issues associated with Playtime’s current forecasting process? What impacts, negative or positive, does this process have on the marketing, operations, supply chain, and finance functions? |
Explanation
Company P is a public company. It formulates its sales forecasts using last year's historical data. The forecast is shared with the supply chain and operations groups. Then, they ascertain whether the capacity level is enough to meet the new volumes.
But certain issues are associated with Company P's current forecasting method.
Every department prepares a sales forecast that is based on their own benefits only. There is a lack of connection between the forecasts made by the marketing, manufacturing, logistics, and finance department.
The company is facing difficulty in predicting sales for the next year because of the current forecasting method. The reason for this issue is that the existing methods use historical data. Moreover, the company is currently not able to develop a consensus forecast.
Sample Response
Company P is facing the following issues regarding its current forecasting process:
The process fails to formulate consensus forecasts that can be mutually beneficial for all the functional areas.
Company executives doubt that the existing process may not be effective for predicting sales for the upcoming year.
These issues may have negatively affected the different departments. This is because the existing forecasting process, marketing, operations, and supply chain departments cannot coordinate with the finance department. This has led to insufficient manufacturing capacity and inventory issues.
It may also have positively impacted the various departments of Company P. This is because every department prepares a forecast that benefits their department. Integration of all the departmental forecasts may help achieve an optimum forecast that can benefit all the departments.
Playtime, Inc., a publicly held toy manufacturing company with 50 years of experience, faces challenges in its current forecasting process. The process involves using last year's sales data to develop forecasts, which are then scrutinized by the supply chain, operations, and finance departments.
Key Issues:
- Lack of Consensus Forecast:
- The current forecasting method fails to establish a consensus forecast that aligns with the interests of all functional areas.
- Departments, including marketing, operations, supply chain, and finance, develop their forecasts independently, leading to a disconnect.
- Uncertainty in Sales Prediction:
- Executives express concerns about the effectiveness of the forecasting process in predicting sales for the upcoming year.
- Reliance on historical data may not capture the potential impact of external factors, such as a blockbuster movie release, on distribution capacity and manufacturing demand.
Impacts on Functions:
- Negative Impacts:
- Lack of coordination among departments has resulted in insufficient manufacturing capacity and inventory issues.
- Disconnect in forecasts between marketing, operations, supply chain, and finance may lead to challenges in meeting financial goals and investor expectations.
- The current forecasting method does not account for potential surges in demand, particularly with the uncertainty surrounding the impact of a major movie release.
- Positive Impacts:
- While the current process has created challenges, there is an opportunity for improvement by integrating departmental forecasts.
- Establishing a consensus forecast that considers the perspectives of marketing, operations, supply chain, and finance could lead to a more robust and mutually beneficial forecasting process.
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