Riordan Week 4 Chain Supply OPS 571 Essay
A linear regression with trend decomposition technique was used. This is based on the intended time horizon (12 months) and 12 months of sales data. Figure 1 plots the average electric fan sales by quarter for 2005. The figure revealed both linear and seasonal trends and justifies the decision to provide a medium-term forecast, as this allows capturing seasonal effects which are useful in identifying major turning points. The seasonal factor for each quarter was calculated using 2005 sales data.
Figure 1. Average Units of Electric Fans Sold by Quarter of 2005
Electric fan sales are driven by dependent demand of the products, and sale of appliances are influenced by housing market strength. According To Riordan’s economic forecast, the data and forecasts related to mortgage rates and housing starts is positive in the near term, suggesting that the demand for electric fans will continue to be strong (Riordan’s Economy Outlook, 2006). Therefore, a 10% increase in sales forecast for 2006 is reasonable. However, our forecast indicates a decrease in sales for 2006.
Table 1. 2006 Sales