Olayan School of Business

Wilkins, A Zurn Company

Demand Forecasting
Managerial Economics
Dr. Rita Mahfouz

Done By:

Nujoud Al- Salem

Dina Faris
Houssam Chahine
Dahlia Hage
Introduction
Wilkins Regulatory Company is a company which was acquired by Zurn Industries and
changed its name to Jacuzzi Brands in 2003. Since then they developed their core competencies and
strengths through selling high quality products revolving around plumbing, municipal waterworks, fire
production and irrigation consumer markets. Although they provide these various products, Wilkins
gains the majority of their revenues from general plumbing (50%) and irrigation demands (25%).

Several factors affect the future demand of Wilkins products, one of which is commercial and
institutional construction activities. Furthermore seasonality, new building initiations, remodeling, the
actual construction of homes and finally the product and price promotions are all key factors that play
a big part when it comes to future demand forecasting. After thorough examination of the company’s
actual demand, we concluded that it is highest in the Spring and Summer seasons which make up the
third and fourth fiscal quarters in the year. In order to increase accuracy and ease of Wilkin’s
forecasting results, it is necessary to assess and improve the current strategy.

SWOT Analysis
Current Forecasting Method Used By Wilkins

Part 1: Wilkins forecasting method

Each quarter the sales/marketing managers develop demand forecasts for each product family for each
product. It is based on their knowledge of industry trends, competitive strategies and sales history.
Two main components of their current method are the Forecast Master and the Planning Bill.

The Forecast Master

It is basically a “spreadsheet that lists the average weekly sales history for each product family by
quarter and year”. This method predicts the average sales per week for each product family, setting up
the required data in a spreadsheet. For the year 2005, Wilkins’ forecast was estimated by plugging in
own expected sales demand.

Planning Bill
Each product family has its own planning bill, and there are five components for each bill:
1- Sales history for each product within the family
2- The average number of units sold within the product family each day within each quarter
3- Average daily sales for that family that their team thinks they will sell in the next 12 months.
4- Each family forecast is disaggregated into products based on the per cent sales of the product
family.
5- Annual sales forecast for each product within the family.

Imprecision of this method:

 Seasonal variations are not taken into consideration while they are aware of it
 Although their forecasts are annually and quarterly, they derive weekly and daily unit sales.
 The quarterly forecasts are not based on any mathematical reasoning but simply on judgment
 The forecasted sales are overestimated and would result in excessive finished goods inventory
 It doesn’t take into account new products, because of the lack of historical data

PVB and Fire Valves

The forecasts achieved for 2005 were obtained based on estimated individual plan bill percentages per
part and estimated total forecast (350000). This was obtained by multiplying the estimated total
forecast by the estimated individual unit plan bill percentages, and then dividing by the number of
working days (250) to calculate the number of units expected to be sold per day (1400). And he same
method was used in forecasting for Fire-valves. Wilkins estimated plan bill percentages for individual
parts and a total estimate of 2550 units. Thus was obtained by multiplying the total by the individual
 plan bill percentages and then dividing by the number of working days. This is shown in the following
tables:

Fire Valves
PVB
Forecast 12-Month
Forecast 12-Month DEMAND
Plan Bill DEMAND Part No Plan Bill % 10.2/DAY
Part No % 1400/DAY
Z2105 21.2% 540
12-720 10.6% 37100
Z3000 38.8% 990
34-720 25.1% 87850 Z3000I
1-720 44.1% 154350 L 11.8% 300
34-420 12.0% 42000 Z3004 8.2% 210
Z3004I
1-420 8.2% 28700
L 20.0% 510

Total 100.0% 350000

Total 100.0% 2550
Days 250
Days 250
UNIT/DA
Y 1400 UNIT/DA
Y 10.2

Proposed Forecast
Unemployment Rate %

After detecting that there is no seasonality we decided to use the three quarter moving average by
adding the first three quarter and dividing it by 3.

Bank Prime Loan Rate %

After we detected that there is no seasonality, we decided to use a three Quarter moving average for
the Loan rate.
Dummy Variables

PVB &Fire Valve

After we detected seasonality, we decided to use the dummy variables. So we used this table to regress
PVB and Fire valve.

For the PVB, we used the Fire valve, Single unit, Multi unit, Bank prime loan rate, unemployment
rate, D1, D2, and D3. Time was used for the x-axis as time is an independent variable. Whereas, PVB
was used for the y-axis as it is the dependent variable in this case.

For the Fire Valve, we used the Fire valve, Single unit, Multi unit, Bank prime loan rate,
unemployment rate, D1, D2, D3, Time for the x-axis and we used Fire Valve for the y-axis.

Single & Multi Unit Housing Starts.

As mentioned above, due to the fact that sales turned out to be seasonal, we decided to use the dummy
variables. Therefore, we used this table to regress the single unit housing starts and the multi-unit
housing starts.

Single unit Housing Starts

We first regressed the Single-unit Housing starts by putting it in the Y-axis and for the x-axis we
used: Time, D1, D2, D3.
Multi-unit Housing Starts
We first regressed the Multi-unit Housing starts by putting it in the Y-axis and for the x-axis we used:
Time, D1, D2, D3.

PVB

The Critical F-Value is 3.67 < 13.486 F-Calculated therefore we reject the null, the variables are
jointly significant.
The R-square is 0.9454; therefore we can say 94.5% is explained by variables.
Fire Valve

The Critical F-Value is 3.67 < 0.444 F-Calculated  therefore we have to accept the null; the
variables are not jointly significant
The R-Squared is 0.3635, therefore we can 36.35% is explained by the variables.

Single unit

The Critical F-Value is 3.259 < 71.93 F-Calculated therefore we reject the null, the variable are
jointly significant.
The R-square is 0.9599; therefore we can say 95.99% is explained by the variables.
Multiple Units

The Critical F-Value is 3.259 < 10.179 F-Calculated therefore we reject the null, the variable are jointly
significant.
The R-square is 0.7723; therefore we can say 77.23% is explained by the variables.

Recommendations
In order to improve demand estimation and avoid potential forecasting errors, there are a few
important issues that need to be highlighted. The method in which Wilkins has forecasted their sales is
inaccurate due to several factors. The first problematic factor is that the basis to their method of
estimation and developing budgets is “Based on their knowledge of industry trends, competitive
strategies and sales history, they would estimate the sales for the next five or six quarters” (Olsen 3).
This shows us that the company is basing a lot of their criteria on personal knowledge and judgment of
individual decision makers like Chris Conners, the General Manager. Wilkins was using a
combination of personal knowledge and the Forecast Master in order to compile forecasts. In order to
decrease the error margin between the estimated and the actual values, we recommend that Wilkins
use both the 3-year moving average and the dummy variable forecasting for better accuracy purposes.
Furthermore, the estimations should then be divided into 3 scenarios, worst case, normal case, and best
case scenarios.

Another essential improvement would be for the management to follow up and compare actual to
projected forecasts. Bernie Barge, Inventory Manager, shows he is not well informed about the
company forecasting precision in general. Therefore, it is obvious that the management is not always
following up with their forecasts and comparing them with the actual results that occur in the future to
assess their forecasting methods.

Not only do they have to compare their actual and estimated values, but Wilkins should also
consider barometric methods. The company’s sales depend drastically on the economic situation of the
country given it’s in the construction sector which tends to boom if the economy is doing well and
vice versa. As a result, due to the fact that Wilkin’s products were not as popular outside of the United
States, therefore we recommend that they use the unemployment rate and the bank loan as indicators
of the US industry. Moreover, Wilkins should also take into consideration other powerful economic
and social cursors from the year 2005.

Not only should the company take the reliable industry indicators into mind when executing the
demand forecast, but it should also account for the uncontrollable factors such as the weather
conditions as well as competitor actions and innovations in order to be prepared for unexpected costs.

In relation to new products, forecasting will not require experienced judgment or historical data as
other products do. The estimation should be based upon rival product sales and market research.
Market research should be conducted in order to find out what gap the new product would be filling, if
any. Viewing industry-specific data such as industry indicators can also be used to predict the need or
popularity of a new product (New Product Forecasting 3). Lastly, it is not wrong to compare new
upcoming product forecasts to the historical data of a similar “…expected market reactions rather than
product category” (New Product Forecasting 3). Moreover, parameters should be set in regards to
time, which would make it simpler to include events that are highly likely to occur within the preset
time frame. Also, market share should be predicted based on the industry standards that are relevant to
the product or historical data of rival products. However, this forecasting method would be adjusted as
soon as historical data for the new product is available.
 Finally, in regards to the occasional price promotions, we recommend that Wilkins reduces it’s
prices so as to liquidate its inventory, thus freeing up cash to be used in other operations and reducing
its inventory holding costs.

Conclusion

In conclusion, we think the method currently used by Wilkins needs to be changed because it has been
giving extremely inaccurate outcomes which in turn leads to higher costs. Furthermore, not only will it
cause an increase in inventory holding costs but it would also decrease the company’s liquidity which
might end up harming it on the long run. In order to avoid this, Wilkins should start using the dummy
variables demand forecasting model, hand in hand with the three-year moving average method and
should start estimating for the three different scenarios. As a result, not only would it decrease the
error obtained, thus giving a more accurate estimation, but it would also enhance its overall efficiency.

References
“New Product Forecasting: The Bass Model.” University of Washington Washington.edu,n.d. Web. 8
May 2013.

Olsen, Eric and Carol Prahinski. Wilkins, A Zurn Company: Demand Forecasting. Ontario: Ivey
Management Services, 2005. Print.

“United States of America in Figures.” Nations Online. NationsOnline.org, 2005. Web. 8 May 2013.
Appendix A:
The 3-Quarter Moving average for PVB, Fire Valve, Single unit and Multi unit is not useful because
we detected seasonality.

PVB & Fire Valve

Single & Multi Units