Conduct a Sales Forecast

A sales forecast is a prediction based on past sales performance and an analysis of expected market
conditions. The true value in making a forecast is that it forces us to look at the future objectively. The
company that takes note of the past stays aware of the present and precisely analyzes that information to
see into the future.

Conducting a sales forecast will provide your business with an evaluation of past and current sales levels
and annual growth, and allow you to compare your company to industry norms. It will also help you
establish your policies so that you easily can monitor your prices and operating costs to guarantee profits,
and make you aware of minor problem

Production planning

The function of a manufacturing enterprise responsible for the efficient planning, scheduling, and
coordination of all production activities. The planning phase involves forecasting demand and translating
the demand forecast into a production plan that optimizes the company's objective, which is usually to
maximize profit while in some way optimizing customer satisfaction. These twin objectives are not always
synonymous. During the scheduling phase the production plan is translated into a detailed, usually day-
by-day, schedule of products to be made. During the coordination phase actual product output is
compared with scheduled product output, and this information is used to adjust production plans and
production schedules. 

If the production or manufacturing process is viewed as an input-output process, then the production
planning function can be viewed as a control process with feedback (see illustration). The control is in the
form of schedules and plans, while the feedback results from the comparison of the production reports
with the production schedules.

MATERIAL BUDGET

Schedule showing how much material will be required for production and how much material must be
bought to meet this production requirement. The purchase depends on both expected usage of
materials and inventory levels. For example, assume expected production of 790 units, 3 lbs. Of
material needed per unit, desired ending inventory of material 216 lbs., beginning inventory of
material 237 lbs., and unit cost per lb. Of $2. Then lbs. Of material to be purchased and purchase cost
follow:

Inventory forecasting in my opinion is a proactive and futuristic strategy aimed at providing

estimated stock level to meet demand at a particular point in time. Proactiveness can be interpreted
as a step taken, prelude to a known event. Forecasting involves estimating what will be needed based
on certain assumptions. It can also be viewed as projections of some sort.
A number of factors can determine the turn of demand for a particular product. They include but not
limited to price, availability of close substitutes, market trends, season and advertising strategy. My
concern in this posting is not to emphasize demand as a concept but the perception of inventory
forecasting as a tool that can either make or mar an entrepreneur.

In analyzing the subject matter, it is worthy to briefly mention two important concepts namely "over
stocking" and "under stocking". Inventory forecasting can give rise to the duo especially when it is
faulty and the consequences can be grave as asserted in a prior posting titled: Increasing Profitability
through Inventory and Financial Reports Analysis: A case for SAP Business One
I belong to the school of thought that believes that forecasting is usually wrong simply because it's an
estimate and can be misleading. Can an estimate be exact? (It is debatable!). However it is not enough
to rule it out as an invaluable strategy for decision making especially when the metrics and estimation
are objective. The question therefore is what is the rationale behind the estimate? And how objective
is the method used.

Broadly, three methods can be adopted when forecasting. They are Intuitive, Intrinsic and Extrinsic.
The intuitive method is based on subjective judgement and informed opinions that are not historical
based. The intrinsic method is historical based and works on the premise that a prior event might
repeat itself. The extrinsic approach is dependent on happenings in another sector and adopts the
theory of proportionality. For example, the sale of exercise books is proportional to the number of
students. (I presume an in-depth analysis of these methods requires a separate posting).

By and large, in appreciating forecasting as a tool for optimizing business process via objective decision
making as opposed to the otherwise, it is pertinent to make allowances for reasonable estimation
error. Forecasting for a group of product is encouraged because it is usually more accurate than for
individual product. The forecasting horizon should be reasonably small, say a week. This is because the
father the timeline, the more error prone forecasting becomes. However, long period forecast can be
adopted if the metrics are relatively true. For example, I'd forecast for an item like Christmas tree in
December when I'm in September. 

An order scheduling system providing a method for distributing product orders to multiple
fulfillers is described. This method, which solves the common business problem of scheduling order
shipments, is optimal because it minimizes the number of orders across fulfillers, thus minimizing shipping
costs. It is also fair because orders are distributed equally across fulfillers if that fulfiller has the product
available. To schedule orders, a data structure is defined whose rows are represented by a hash table of
Fulfillers (HF), where each column is a hash table of Products (HP) and where each index of HP is itself a
bit vector (VPi). This gives a three-dimensional data structure. The method operates by performing bitwise
ANDing (&) operations of the bit vectors, to generate an Order bit vector representing the optimized
fulfillment (per system configuration/constraints) for a particular received order.

ABC analysis is a business term used to define an inventory categorization technique often used
in materials management.

ABC analysis provides a mechanism for identifying items which will have a significant impact on overall
inventory cost [1] whilst also providing a mechanism for identifying different categories of stock that will
require different management and controls[2]
When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity
issued/consumed in period) with the results then ranked. The results are then grouped typically into three
bands[3]. These bands are called ABC codes.

ABC codes

1. "A class" inventory will typically contain items that account for 80% of total value, or 20% of total
items.
2. "B class" inventory will have around 15% of total value, or 30% of total items.
3. "C class" inventory will account for the remaining 5%, or 50% of total items.

ABC Analysis is similar to the Pareto principle in that the "A class" group will typically account for a large
proportion of the overall value but a small percentage of the overall volume of inventory. [4]

AQL - Acceptable Quality Level

This is usually defined as the worst case quality level, in percentage or ratio,

that is still consideredacceptable. QA,  (Quality Assurance), may be in charge
of monitoring AQLs'.

If a produced unit can have a number of different defects, then demerits can

be assigned to each type of defect and product quality measured in terms of
demerits. As an AQL is an acceptable level, theprobability of acceptance for
an AQL lot should be high. (Typical values between 92.74% to 99.999996%
for six sigma, see Cpk compares to PPM for value reasons)

Some sources characterize an acceptable quality level as the highest

percent defective that should be considered reasonable as the process
average.

Usually monitored using SPC,  (Statistical Process Control), at the production

levels by Quality inspection.

Standard military sampling procedures, (MIL-STD), have been used for over

50 years to achieve these goals. The MIL-STD defines AQL as...

 "the maximum percent defective (or the maximum number of defects per

hundred units) that, for purposes of sampling inspection, can be considered
satisfactory as a process average."
 LTPD - Lot Tolerance Percent Defective

The LTPD of a sampling plan is a level of quality routinely rejected by the sampling plan. It is
generally defined as that level of quality (percent defective, defects per hundred units, etc.) that
the sampling plan will accept 10% of the time. This means lots at or worse than the LTPD are
accepted at most 10% of the time. In other words, they are rejected at least 90% of the time. The
LTPD can be determined using the OC curve by finding that quality level on the bottom axis that
corresponds to a probability of acceptance of 0.10 (10%) on the left axis.

Associated with the LTPD is a confidence statement one can make. If the lot passes the sampling
plan, one can state with 90% confidence that the quality level (defective rate, etc.) is below the
LTPD. In other words, passing the sampling plan demonstrates that the LTPD has been meet.

The probability of acceptance at the LTPD can be reset using the Definitions of AQL and
LTPD dialog box. The associated confidence statements are also displayed in this dialog box.

The LTPD is used to help describe the protection provided a sampling plan. But it only provides
half the answer. It describes what the sampling plan will reject. We would also like to know what
the sampling plan will accept. The answer to this second question is provided by the AQL.

Inspection Methods to Fulfill Quality

Requirements
by Ron Kurtus (revised 27 May 2008)

Whenever work is done or a product or part is made—whether it is a piece of hardware

manufactured on the assembly line, a memo typed by a secretary, or code developed by
software programmers—it should be inspected to see that it fulfills the requirements and
specifications. This is certainly a wise business practice. Some companies accept a certain
failure rate, while others try to correct the problems they see from their inspection.
Inspecting and then correcting will save a company money.

Sorting out failures

The most common type of inspection that has been done for years on the assembly lines
involves sorting the defective items from the acceptable product. This method is sometimes
referred to as "creating quality by inspection" and is not considered an effective quality
management approach.

Production line inspection

For example, at the end of a production line the inspector gives final approval whether or
not parts are good. The rejects are put into scrap or are re-worked. This assures only
quality material reaches the next stage, but it does not address the cause of the failed parts
nor does it correct that problem.
Office work inspection

In another situation, office workers may complete reports only to have their manager reject
many of them as unacceptable. Those reports must be re-done until acceptable. Again, the
reason for the failures is not addressed, and the rejection rate remains constant.

Not a good approach

In both cases, sorting out failures can be a wasteful and expensive method to get quality
goods.

Another thing it does is to accept a certain level of failure. That acceptance subtly creates
an atmosphere of accepting failure in all work that is done by the company.

Gathering failure information

A more effective method to inspect consists of gathering information and using data gained
from inspection to control the process and prevent future defects. Statistical Process Control
(SPC) is a type of this type of  inspection.

Inspections at intermediate stages

Since work-in-process undergoes many operating steps as it is moved through a

manufacturing facility, inspections are often conducted at intermediate stages in the
process. The inspections give statistical information necessary to determine the cause of the
quality problem, so that it can be prevented in the future. SPC does not aggressively seek
to eliminate defects and in some cases changes may be implemented too slowly to be fully
effective.

White collar examples

One example in the office is that the boss may inspect a report at various stages, making
corrections. He may then see that perhaps there was a communication problem in stating
the requirements that may be rectified.

In the office, the engineering manager may monitor the designs of his engineers, making
corrections along the way. The engineers learn from his changes and the final design is
relatively free of errors.

This method of making inspections at intermediate stages is certainly better than waiting
until the product in completed to inspect for acceptance or rejection.

Inspection by workers
One other inspection method is to have workers inspect the item from the prior operation
before proceeding. In this way quality feedback can be given on a much timelier basis. Each
operation performs both production and quality inspection.
By monitoring where most problems occur in a production line, a quality manager can
pinpoint causes—whether it is a drunk worker or a defective piece of equipment.

In an office environment, there is no individual monitoring the quality of the work, as there
often is in a factory. Perhaps there should be. Typically, when a piece of work gets passed
from one person to another, informal corrections are told to the pervious worker.