Important components to each planning bill

There are five important components to each planning bill. First, the planning bill contains the sales history for each product within the family. We have quarterly sales history that goes back to 1989. If I dig into the old files, I can go back even further. Second, for the last four quarters, the planning bill calculates the average number of units sold within that product family each day within each quarter. For example, for our first fiscal quarter of 2005, which started on October 1, 2004, we sold 48,159 units within the PVB product family [as shown in Exhibit 2]. Since the quarter had 58 days, the planning bill will calculate that we sold a daily average of 830 units. We will also calculate the average daily sales for the last four quarters; for the PVBs, it was 1,205. Do N

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Third, the planning bill contains our projection on the average daily sales for that family that we think we will sell in the next 12 months. This number came from the forecast master and is one of the key determinants of the forecast by product. With the PVB product family, for example, we think our sales will have a moderate growth rate predominantly due to industry growth and some problems at one of our competitor’s manufacturing facilities. Last quarter, we forecasted that we would sell an average of 1,400 units each business day in the next 12 months [as shown in the far right column of Exhibit 3]. Fourth, we disaggregate the family forecast into each product based on the per cent of sales of the product family. To do this, we first calculate the proportion of unit sales that each product currently represents within the family. We call this the “raw per cent.” Then, we try to forecast the percent of family sales that the product will represent in the future, which we call the “planning bill per cent.” It can get pretty complicated. If we have new products, we have to factor in the effect that they may have on our existing products. Plus, with new products, we also have to project growth without any historical data.

The fifth key piece of information in the planning bill is the calculation of the annual sales forecast for each product within the family. We use a couple of key pieces of information: The planning bill per cent is multiplied by 250 days in a year and by the daily sales forecast for the family, which are 1,400 units in this situation.

The sales history for a select group of products is shown in Exhibit 2. The planning bills for the PVBs and fire valves, as of October 2004, which was the beginning of the 2005 fiscal year, are shown in Exhibit 3 and 4, respectively. FORECASTING PERFORMANCE When contemplating the forecast accuracy, Barge said, “I don’t have a clue on how well we have been doing. I think we are doing OK at the aggregate level, but we probably have some swings in our accuracy level at the individual product level.” For the first quarter of 2005, Connors and Fields had forecasting sales of 53,560 PVB units and 559 five valve units. According to Exhibit 2, actual sales were 48,159 PVB units and 580 fire valve units. Do

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This document is authorized for educator review use only by Gokcen Ogruk, HE OTHER until February 2016. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

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