FAR EASTERN UNIVERSITY

Case: ACJ Manufacturing

Operations Management
MBA 703
FEU-Manila

Submitted by:
Critiquing Group
RALPH ADRIAN H. MIEL
MA. THERESA M. MAMAUAG
EMMANUEL OJUOLA
AMRO AHMED ABDELRAZIG

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I. Case Background
ACJ manufacturing makes 20 different items of various components for
printers and copiers and distributes these and similar items to office supply stores
and computer stores as replacement parts for printers and desktop copiers. The
company does not use forecasts for production planning because the operation
manager is the who decides which items to produce and the batch size based on
orders and the amounts in inventory. Thus, there are instances that the company
experience several production and inventory issues such as being overstocking
and understocking of products. With that, the manager decided to introduce a
number of changes because of competitive pressure and falling profit, one is to
introduce more formal forecasting procedures in order to improve production
planning and inventory management.

II. Statement of the Problem

The company ACJ Manufacturing is experiencing several problems in
production planning and inventory management due to the absence of forecasting
procedures. Thus, the management must adhere to their commitment to utilizing
the formal forecasting procedures to help mitigate arising challenges in
operations.

1. What techniques or ways should the company enforce to avoid

previous production planning and inventory management issues?
2. What is the most appropriate method of forecasting to be adopted
in the production planning of Product 1 and Product?
3. What are the potential benefits of the given forecasting method to
be used?

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III. Assumptions
1. We assumed that ACJ Manufacturing Company was a newly established
company hence, the reason why they lack formal forecasting procedures
for production planning and inventory management.
2. We assumed that ACJ Manufacturing gets falling profits because of poor
production planning resulted in overstocked and out-of-stock products.
3. We assumed that other costs such as storage cost, maintenance cost, utility
cost, etc. are factors affecting the company’s revenue.

IV. Areas of Consideration

a. Human Resource and Development

The Human Resource and Development failed to provide proper

training to the employees, most especially to the operation manager
regarding the appropriate strategy for planning and decisions in
production. Also, hiring a consultant that is an expert in making
significant decisions in forecasting to help the operations manager
achieving desired results that can contribute to the company’s goals.

b. Operations

The current operations did not include formal forecasting

procedures in the process which results in poor production planning and
inventory mismanagement.

c. Finance

The Finance Department inadequately calculated periodically the

inventory levels (per unit), resulted to some dropping of the company’s

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profit. Also, because of lack in technology, processing and collecting of

payment hinder the efforts of the company to increase its revenue.

d. Marketing

The marketing department has not considered adjusting the prices

of the products to align with the sudden fluctuation of the raw materials’
prices to be able to reach the target profit from sales. Also, they
encountered problems with other retail managers whenever they
experience understocking of needed products.

e. IT / R & D Business Development etc.

The company lacks technology and forecasting procedures to

improve operations and processes.

V. Framework
Strengths Opportunities
 Maintains Supplier –  Improvement of procedures
Manufacturer relationship through the evolvement of
and established a good technology.
rapport with the clients Well  Growing industry because of
established product advanced technology
distribution strategy  Large customer base to target
 Wide variety of product line
Weaknesses Threats
 Low production planning  New competitors entering the
 Lack of formal forecasting market
procedures  Price fluctuations of raw
 Inventory Mismanagement materials
 Inflation

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VI. Alternative Courses of Action (at least 4)

1. Using Naive Forecasting Method
Advantages:

1. The model is simple and flexible.

2. Works best in the short term.
3. Provides a baseline to measure other models.

Disadvantages:

1. Not suitable for long run forecasting.

2. Does not work with data that is trended.

2. Using Moving Average Forecasting Method

Advantages:

1. Easy to interpret.

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2. Cheap to run
3. Simple

Disadvantages:

1. Will not work when there’s trend/seasonal data

3. Using Linear Trend Forecasting Method

Advantages:

1. Easy to learn and apply.

2. Produces more accurate forecasts.
3. Gives more significance to recent observations.
4. Trend analysis is based on verifiable data
5. Can be subjected to thorough scrutiny for validation
6. Provides a quick assessment potential results

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Disadvantages:

1. Accuracy and reliability of such forecasts suffer when the business

environment changes
2. Historical data may not give a true picture of an underlying trend

4. Improve Product Segmentation.

Advantages:

1. Proper choice of target market

2. Tapping a particular market
3. Efficient and economic marketing efforts
4. Benefits to the customer

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Disadvantages:

1. Expensive proposition
2. Promotional expenses, cost of keeping adequate inventory of each
variety of goods.
3. High administrative expense

5. Hire a consultant expert in making forecasting procedures.

Advantages:

1. Could implement exemplary forecasting plans

2. Leveraging new skills.
3. Outside market knowledge

Disadvantages:

1. Promotes limited control over the consultant

2. Risk of tax problems
3. Additional expense to pay for the consultant.
4. Possibility of communication and quality concerns

VII. Action Plans

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Activity Responsible Person/s, or Timeline

Department/s, Team/s, etc
Planning and Formulation Operations Manager, Day 1 – 3
of the introduction of a Operations Department,
Formal Forecasting Finance Department, and
Method Human Resource
Selecting the appropriate Operations, and Procurement Day 4
Forecasting Method to use Department
in Production
Implementation of the Operations, and Procurement Day 5-11
Formal Forecasting Department
Method
Monitoring and Evaluation Operations, and Procurement Day 12 - 30
of the Formal Forecasting Department
Method applied

VIII. Recommendation
We recommend that the ACJ Manufacturing must implement the Linear
Trend Equation as a method in formal forecasting procedures to help the
operations minimize the risks and dilemmas coming from the poor decisions
made in production planning and inventory management. The company might as
well provide in-depth training with the people, department and team that will be
included in this project regarding the proper procedure in enforcing this method
to be able to achieve the target results which could generate higher profit.

IX. Conclusion

It is essential for an organization to have an exemplary production

planning and control system for efficient, effective and economical operations.

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Therefore, the best way to avoid previous production planning and inventory
management issues specifically the mismanagement of numbers of units to
produce is forecasting. Forecasting is a technique that uses historical data as
inputs to make informed estimates that are predictive in determining the direction
of future trends. This technique could help the operations team foresee anticipate
the upcoming demands of the clients to properly allocate their budgets or plan to
be able to generate higher profits.

The most appropriate method of forecasting to be adopted in production

planning of Product 1 and Product is the Linear Trend Equation because it helps
the organization forecast better production needs. This method uses trend analysis
from valid data, therefore can be validated thoroughly.

The Linear Trend Equation as a forecasting procedure method can help the
operation manager discern a more precise number of units to produce which can
provide better sales to the organization.

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