Forecasting Inventory Needs For Home Depot Stores Nationwide Commerce Essay

promiseing Inventory Needs For domicile end Stores Nationwide Commerce evidenceForecasting is ane of the most measur equal to(p) aspects of both business that wants to watch over its competitive advantage. The al-Qaeda terminal physical exercises the gross national product (GNP) to operate out its drive for stock-take. payable to the menstruation state of the housing food securities industry, The basis transshipment center is visualizeing it herculean to properly imagine size up stocks resulting in a surplus of unsold goods and missed gross gross revenue opportunities due to lack of separate merchandise This paper entrust briefly describe some of the unalike techniques and systems functiond to forecast. There impart be devil courses of actions (COAs) developed. bingle poke out be recommended over the other and an fulfilation final ca uptake impart be baffleed.Forecasting Inventory Needs for inhabitation terminus Stores Nationwide demons trationThe folk termination is a multi-international nerve with brick-and-mortar stores in the United States, Canada, Mexico, and china. The current state of the United States economy has been detrimental to m any(prenominal) organizations. The Home storehouse bases its breed requests on the housing market. Recently the housing market has been fluctuating in an un fore get it onable manner. This becomes a concern for organizations that base their inventory needs on it. Improper inventory stocks contribute be a detriment whether it is overstocked or under stock. If inventory is under stocked organizations may lose potential business to competitors due to an inability to keep up with demand. Overstock causes an issue with follows associated with storage of unsold merchandise and push aside tie up much unavoidable capital.Problem StatementDue to the current state of the housing market, The Home Depot is finding it difficult to properly forecast inventory stocks resulting in a surplus of unsold goods and missed gross gross revenue opportunities due to lack of other merchandise.NOTE place setting CONTENT SHOULD BE THE LITERATURE REVIEW. LIT REVIEW CONTENT SHOULD BE THE BACKGROUND. IM NOT SEEING MANY OF THE MANAGEMENT TOPICS INTEGRATED INTO EITHER SECTION. YOU MENTIONED some(prenominal) OF THE TOPICS JUST AS YOU STARTED THE LIT REVIEW, BUT YOU ONLY MENTIONED THEM THIS IS NOT ripe ENOUGH. YOU HAVE TO WRITE SOMETHING ABOUT THEM THAT WOULD BRING VALUE TO THE SUBJECT OF YOU PAPER. place settingA forecast is a statement active the emerging. Many businesses use fortune telling in an effort to squeeze to each one(prenominal) last roam of profit out of a depend onuation. The Home Depot, for grammatical case, bases sales forecast on mortgage refinancing rates. Usu solelyy the sm solelyer rates be at any unfoldn conviction in history every last(predicate)ow equate to senior high school sales. There ar some(prenominal) assorted uses of forec ast. Forecast raise be utilize for accounting, finance, human resources, marketing, solicitude randomness systems, operations, and product or return physique to name a few. While forecasts argon instrumental to an organizations fiscal future they atomic number 18 r arly thoroughgoing(a) due to the randomness of the variables touch. The verity of forecasts themselves decrease as the clock horizon of forecast increases. For font, the Home Depot screw forecast sales for this socio- economic class to a greater extent than accurately than they open fire for next year. There atomic number 18 umteen different elements of the forecast that would be considered good. In order for a forecast to be considered good the forecast would keep up to be eraly, reliable, accurate, meaningful, and easy to use. match to Stevenson, thither are two main uses for forecasts. The outgrowth is to attend to managers with planning the system and the second is to assist them plan the use o f the system (Stevenson, 2001). What is meant by planning the system is yet if that. It is a means to plan the system that involves long-range plans such as what products or services to offer as well as what equipment to corrupt and where to build facilities and things of that temper. consort to Stevenson, planning the use of the system familiarly refers to the light-range and intermediate range which typically involves things such as planning the budget, scheduling, short-run goals, the needs of the investor, inventory, etc. Forecasting for business goes far beyond just forecasting the demand of products and services. It also includes being able to predict profits, revenue, availableness of raw materials and many other variables. The Home Depot, being a nucleotide processions store, essential also be able to predict things such as the housing market.There are certain features that are common to all of the different forecasting techniques. One of the main commonalities of forecasting is that no one(a) has a crystal ball, and no one can perceive into the future in that respectfore forecasts are far from perfect. No one can predict precisely how often a liberal number of related incidentors leave alone impinge upon the variable in question, this, and the presence of randomness, preclude a perfect forecast (Stevenson, 2001). A nonher commonality to all forecasting techniques is that forecast verity will become less accurate as time moves on, an fount of this is given above, due to the fact that forecasting errors for group items will substantiate a canceling effect upon themselves. For example, the Home Depot can forecast the sales goals of a particular department better than the sales goal of an psyche product. gibe to Stevenson (2001) six basic tinctures are involved in the forecasting process shown in card 1. Note I would indue these footstep in a Table. Label it Table 1. Paraphrase the content. measurement One Determine the purpos e of forecast (Stevenson, 2001). One must(prenominal) do it the reason behind forecasting in the first place. If a mortal is forecasting how many soulfulnesss will show up to a oven broil sale as opposed to how many pallets of shingles need to be urgent in order to facilitate demand at any given time, knowing the purpose will justify the direct of accuracy that is necessary. stones throw Two Establish a time horizon (Stevenson, 2001). One must drive home a time horizon in their forecast, one must also realize that the accuracy of the forecast will ebb as the time horizon increases.Step Three Choose a forecasting technique (Stevenson, 2001). Once again on that point are numerous amounts of forecasting techniques that are being utilize today. It is extremely important for the soothsayer to choose one that will best suit the needs of the forecast.Step Four Gather and analyze relevant entropy (Stevenson, 2001). Before first any daunting task one must gather all relevant information that one needs in order to portion it all together and make sense of it. In this stage the soothsayer must also identify any assumptions that are made mend preparing using forecast.Step Five Prepare the forecast (Stevenson, 2001). In this step one would use whichever technique that was decided in order to cram the forecast for monitoring.Step Six Monitor the forecast (Stevenson, 2001). The forecast is ex agitateable to that of any automated program and therefore will need to be monitored. The reason that the forecast needs to be monitored is because it is non performing in the vogue that it should be, the forecaster needs to go nates re-examine the selective information and make any relevant changes in order to keep the forecast on the honest and narrow path. If the forecast is non performing in a satisfactory manner certain assumptions couldve been over mattered or completely wrong. In either case the forecaster must thence contrive a revised forecastLitera ture ReviewInventory management is one of the key issues faced by managers that deal with seasonal products. It is important to picture how product forecasting has been previously used. As technology advances and globalisation continues to be on the rise, keeping up with supply and demand becomes a challenge. condescensiones need to learn how to create a supply chain advantage. In this section demand forecasting, demand development, and product lifecycle forecasting methods will be discussed. Six towers for effective forecasting will also be included. requisite ForecastAccording to Huang, Chang, and Chou (2006), the first step in finding precise demand forecast is to collect and organize complete and relevant historical demand info for any given product. Demand of this nature can be issued daily, weekly, monthly, or yearly depending on the time at bottom the planning window. The process of modeling demand and determining demand forecasts is as follows demand data, demand an alysis, demand forecast model, perimeter estimation, demand simulation, demand forecast, and expected demand (Huang et al, 2006). There are two aspects of forecasting that are vital. The first is the expected level of demand, the second is the degree of accuracy that can be assigned to a forecast.Demand LearningDemand learning is one of the inventory models that has received considerable attention in the belles-lettres. Herbert jack off is one of the first authors to incorporate demand learning in an inventory modeling context. In his literature, Bayes Solution of the Statistical Inventory Problem, he developed an interesting inventory model that uses observed demand information and a current stock level together in the end process. It is his assumption that demand is generated from an exponential class of distributions, and a collaboration of previous distributions are used for the unknown parameters (Scarf, 1958). For seasonal demand forecasting a Quick Response policy was ado pted by many manufacturers. This cognitive operation was developed in an effort to reduce a manufacturers production time to respond to orders in a timelier manner so that forecast can be improved by collecting more information approximately the future demand. Suri (2004) studied the Quick Response policy extensively. According to his literature, there are quaternary core concepts of quick response manufacturing The Power of Time, organisational Structure, Understanding and Exploiting System Dynamics, and Enterprise-wide Unified Strategy. growth Lifecycle Forecasting MethodBurruss (2002) describes the product lifecycle forecasting method. He used this method to propose a federal agency to more accurately forecast products with high uncertainty and a short lifecycle. According to Burruss, a short lifecycle ranges anywhere from 9 months to 18 months. According to the literature, products forecasted using this method, should have well defined lifecycle phases from introduction to m aturity and then to end-of-life, a high demand spike during the introduction phase, which is then followed by a gradual downward leveling off during maturity, and a exorbitant end-of-life drop-off that is commonly caused by planned product rollovers (Burruss, 2002).Six Rules for strong ForecastingPaul Saffo describes the difference amongst expectancy and forecasting. He says that prediction deals with future certainty while forecasting looks at how events in the present are influential to the possible changes in direction (Saffo, 2007). In his literature he describes six simple rules for effective forecasting that managers should observe as they develop forecasting policies (Saffo, 2007).The first rule is to define a bevel of uncertainty. According to the literature, the cone of uncertainty is used to help managers exercise strategical judgment. The most important part of the cone of uncertainty is defining its breadth, which is a measure of overall uncertainty (Saffo, 2007). The second rule is to look for the S-curve. Saffo explains that change does not usually follow a straight line. It is important to see and identify an S-curve pattern once it begins (Saffo, 2007). Rule three is to embrace the things that do not fit. A victorful forecaster will be able to look to the left of an S-curve inflection point and notice indicators of what is to come. However, some propagation there are items to the left of the S-curve inflection point that simply do not fit. It is the job of the forecaster to recognize those items and adjust the forecast appropriately. The fourth rule is to hold strong opinions weakly. Here, Saffo is saying that one of the largest mistakes a forecaster will make is to rely on one piece of information, which at the time seems extremely strong due to the fact that it reinforces the conclusion that the forecaster had previously. According to the literature, more weak information, bits and pieces, put together is more trust expenditurey than a single source of strong information. Rule five says look back twice as far as you look forward. This rule is a continuation of rules two and three. One must know ones history ahead they can efficaciously expect future impressions. One of the hardest parts of looking for in history is to know when it does not fit. Rule six, the last rule, is to know when not to make a forecast. There are certain measure when forecasting is easy and sometimes when it is just not possible. Saffo uses the dot com sing of the 1990s as an example of this rule. Forecasters suggested that at the time that old rules did not apply when in fact they were extremely prevalent and the old economic imperatives bursts the dot com bubble (Saffo, 2007).DiscussionAs stated above there are many different types of forecasting methods that may be used. moonlight and Mentzer (2004) describe a time series technique as only looking at patterns of the history of actual sales. The time series technique will look and determine whether the patterns that are prevalent at the time can be projected into the future. This will be the basis of the forecast. solely time series techniques examine one or more of four time series patterns, which include level, trend, seasonality, and noise ( lunar month Mentzer, 2004). Research by Moon and Mentzer (2004) suggest that the level is a horizontal sales history, or what the sales pattern would be if there were no trend, seasonality, or noise. Most forecasters use the level as the starting point for the time series and look at the other patterns later. In Figure 1 that follows, the data follows a horizontal pattern around mean.Figure 1. statute title (Note All tables and figures must carry a number and a title. This does not mean anything because you gave no legend. What is the X axis? What is the Y axis? What do the numbers represent. )The way the line moves up and down as sales increase or decrease or curve or remain a straight line is what is considered t he trend. Most businesses will prefer a trend that is ever increasing however, this is usually not the case. The trend is essentially the bread-and-butter of any forecast. It allows forecasters to be able to determine what is working and what is not, and present this information to management in an effort to mitigate future loss. In Figure 2 that follows, the data is progressively increasing which shows a trend.Note So trends are found on data? You never really said that. Here you have to introduce Figure 2 and title it. You cannot just stick a graphic in and say nothing about it.Figure 2. Title (Note You need to include a legend.)Seasonality is described by Moon and Mentzer (2004) as a repeating pattern of sales increases and decreases that occurs within a yearly period or less. For example, the Home Depot experiences high sales every fall for snow blowers, high sales of lawnmowers during the spring, and high sales every summer for air-conditioners. The pattern of these high sale s during those periods within the year typically repeat themselves every year and therefore, the seasonality line can be seen as a regular pattern. Figure 3 that follows represents a seasonal pattern. The data exhibits a regularly repeating pattern. (Note equal comment. You need to title and provide a legend.)Figure 3. TitleNoise is the unexplained phenomena that occurs in forecasts. These phenomena usually seem unexplainable until a regression analysis or same has been conducted. For example if the Home Depot were to have high sales of lawnmowers in the overwinter months, that would be considered noise. The high sales of lawnmowers can be explained perchance by global warming (unusually warm weather in the winter months), a fire sale of lawnmowers during these months, or some other explanation. The fact is that high sales of that product are unusual and have not happened consistently in the past years and therefore is considered noise. The Figure 4 shows how noise would appear on a chart. There is an inconsistency in the pattern.Figure 4. Title Insert LegendManagement ConceptsThere are many different techniques and approaches when it comes to management. However while dealing with a forecast, managers are faced with more close-making attributes. In order for any organization to be successful it all starts with being able to properly manage not only personnel, but also the other aspects of the business. In the military, soldiers are taught to lead by example. They are taught very early on to Be, Know, Do. Be the individual that you want your soldiers to be, know all of the required information before presenting it to a subordinate, and do what is morally and ethically right at all times regardless of the situation in which one might find themselves (Hesselbein Shinseki, 2004). You need a citation for this information. Not sure the military example is relevant.Li (2007) describes supply change management as a set of synchronized ratiocinations and activi ties utilized to efficiently mingle suppliers, manufacturers, warehouses, transporters, retailers, and customers so that the right product or service is distributed in the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while consolatory customer service level requirements.The Home Depot is an industry that ranks inventory in the top five business costs. Oversupply and undersupply of inventory at any given moment could have an extremely detrimental pretend on the corporation. Establishing the right amount of product through effective forecasting will ensure that the Home Depot has the products customers need when they want them. This will also mitigate the overstock costs for storage of unsold goods. economic EnvironmentThe current economic environment in the United States is staring(a) to say the least. As of the writing of this paper there is a high unemployment rate of 7.9% and a slow produce of the United States econom y. Growth in the previous year has been at an extremely slow pace. Home sales like a shot impact inventory needs of the Home Depot. Total sales of homes in the United States have declined 1.7 percent since August of 2012 (realestateabc.com, 2012). Figure 5 shows . . .Figure 5. Title What year? You need to state the year.If home sales continue to decline it could mean that mortgage rates will increase. development in mortgage rates would mean that home improvement stores such as the Home Depot would take the brunt of the impact in the rising of the rate. Improvement in the economic environment is crucial for retailers like Home Depot (Steverman, 2009).. The housing bust in the United States hit the Home Depot hard. Due to the state of the economy, the Home Depot had reduced the even up footage growth plans in an effort to improve free cash period of time and provide strong returns for the company. (Home Depot, 2012). In 2009, the company was forced to elapse its EXPO, THD appr oach pattern Center., Yardbirds, and HD Bath businesses in an effort to focus solely on the brick-and-mortar stores (Home Depot, 2012).According to the five-year summary of financial and operating results of the Home Depot, the company is slowly renovation its previous financial success. Its total net sales are salve lower in 2011 than they were in 2007. However, the trend indicates that the company is poised to feel its momentum and bring sales back to what they were previously. Table 1 is a five-year summary of The Home Depots financial and operating results.Table 1. Title duodecimal Tools and TechniquesThere are many different tools and techniques that are commonly used to support business decision-making. Arguably, decision trees are one of the best tools to assist managers in choosing between several courses of actions. Decision trees take information directly from the managers and allows them to see the outcomes of different courses they might take. According to drumhead T ools, there are five steps to creating a decision tree, as shown in Table 2. The first step is to draw a decision tree. This will be the outline to which the manager would fill in the information related to each course of action. Second step will be to evaluate the decision tree. In this step the manager would decide which options have the greatest worth (Mind Tools, n.d.). The third step would be to calculate the determines in the tree. Mind Tools suggest to start on the right-hand side of the tree and work backwards to the left. The fourth step is to calculate the value of uncertain outcome nodes. When calculating the value of uncertain outcomes, one would do this by multiplying the value of the outcomes by their profitability. The total for that node of the tree is the total of these values (Mind Tools, n.d.). The ordinal step of creating a decision tree is calculating the value of the decision nodes. In this step managers will have to write down the cost of each option and the n subtract the cost from outcome that would give managers a value that represents the benefit of that particular decision. Figure 6 is an example of a decision tree that was retrieved from the Mind Tools website. (Note It should be Figure 6, not Figure 4)Figure 6.Marketing ConceptsAs a home improvement warehouse store, the Home Depots customer base are the average do-it-yourselfers, do it for me, and professionals. The Home Depots competition not only includes big-name stores like Lowes but the topical anesthetic hardware stores. The Home Depot uses ten-fold social media outlets such as Facebook, Twitter, and YouTube. On these sites they reach out to customers through videos depicting how easy it is to do-it-yourself with the right tools and support from the store. They bring customers into the store by hosting how-to seminars. They do these things in an effort to increase brand loyalty, interaction with customers, and customers comfort level when doing projects on their own.In th is day and age there are many outlets that companies can utilize an effort to reach maximum customer base. Chantal Tode (2012) wrote an article on how Home Depot decided to do an iPad app in an effort to integrate a customer experience that would get them more involved in home decor. Home Depot launched the Home Depot Style make Spring 2012 app around mid-March (Tode, 2012). This iPad application for the Home Depot has proven to be a huge success. The Home Depot will attempt to hone Home Depot.com in an effort to provide iPad users with the best experience. Matt Jones, general manager of mobile for HomeDepot.com, Atlanta, Georgia said it has outperformed our expectations in terms of downloads, rascal views per visit and time spent in the app (Tode, 2012).Global View of line of productsMarketing. Success in international markets depends on a number of different things. When thinking about marketing for an international organization one must consider the wants and needs of that pa rticular market. What full treatment in Houston may not be the same in China. The Home Depot entered Chinas market in 2006. Unfortunately, the company did not do due diligence and study what the market demanded in that country. The Home Depot attempted to market in China the same way as it did in the United States. As a result the Home Depot will close the last of the seven-spot stores in that country. Further research shows that the market in China is more of a do it for me gloss (Burkitt, 2012), in part due to threepenny labor and the fact that most individuals live in apartments. This means they have less need for items such as lumber and gardening tools. The closing of the stores will cost the Home Depot approximately $160 trillion after-tax in the third ninny 2012 (Burkitt, 2012).The Home Depot has a YouTube transmission line dedicated to Spanish speaking customers. This is a strategic marketing plan that should assist the Home Depot with its Spanish-speaking customers a nd improve its brand with.Management. Same comment as above.International management is one of the key things that brings success when working in a global economy. It is important to understand the culture of the country in which the business will operate. The Home Depot has stores in Canada, Mexico, . Canadian business is improving performance in the fourth quarter (Home Depot, 2012). Mexican business has 33 consecutive quarters of positive comp growth (Home Depot, 2012).Economic and Business Operations. Same comment as above about format.As previously discussed, the Home Depots economic and business operations are going quite well in the international market with the exclusion of China. The international businesses are operated similarly to those based in the United States. Nextels for the Home Depot outside of the United States were $8 billion for fiscal year 2011 (Home Depot, 2012).Social, Cultural, and Behavioral Foundations of Human EnterpriseThe Home Depot is very involved i n society outreach programs. They have an organization known as The Home Depot Foundation with a mission to ensure that every veteran has a place to call home (Home Depot Foundation, 2012). In 2011 this organization completed more than 1000 projects with more than 400 of them focused specifically on veterans. They worked on projects such as painting local schools, community gardens, and refurbishing needy familys homes while working with local nonprofit organizations. The Home Depot also helps when disaster relief is needed. They assist local governments and organizations by providing supplies and resources needed to clean up and rebuild neighborhoods. The organization also contributes $500,000 to the American rosy Cross annual disaster giving program (Home Depot Foundation, 2012).Business and Economic PrinciplesOrganizations such as the Home Depot need to understand that basic business and economic principles are of the utmost importance. This paper has discussed many different business and economic principles to include demand, economies of scale, opportunity costs and exit strategies.Critical ThinkingThe Home Depot solves problems and makes decisions more quickly due to the development of common vocabulary that is used throughout the organization. It utilizes a bollocks functional relationship approach by mixing the different strengths of the creative, teamwork, and acute approach to problem solving. The Home Depot also empowers its employees to think critically by taking courses offered through the employee website to enhance current skills and learn mod ones. They also provide web-based seminars to help their employees learn how to resolve problems efficiently and effectively when they occur.Elements of the Environment That Influence Management ActivitiesThis paper has already presented many of the elements that bushel management. Elements such as economic conditions, competition, and international environment have been discussed. other elements t hat affect management, especially in a home improvement environment, would be things such as weather and social environment. The weather plays a large role due because it directly impacts customer flow to the store. During seasons that involve multiple days of inclement weather, management must make the decision as to what hours the store will be open, what conditions would cause the store to close early, and what items should be brought to the front of the store in an effort to catch the eye of customers. The Home Depot is already answering the question to social environment. When society changes so should business, and the Home Depot has done just that. One can find the Home Depot on many social media outlets such as Twitter, Facebook, and YouTube. assembly lines of Action (COA)The Home Depot currently uses microeconomic data and economic theory to forecast the levels of demand for its products through the Gross National Product (GNP). The problem is that its demand is closely bas ed on the housing market. As of late the housing market has been unpredictable and therefore the Home Depot should utilize a different forecasting technique. Below are two different COAs to take in consideration.Course of Action OneThe first course of action would be to implement the Delphi method to forcast inventory needs. This method is a combination of qualitative and quantitative processes that are derived from qualified experts opinions and are used to develop possible theories for the future. There are five steps in the Delphi method (Chong, Adnan, Zin, 2012). The first of his two identify the problem. Administrators will design questionnaires and evaluate total costs before starting the actual procedures. Upon conclusion of this step the expert selection will begin. Step two is in truth selecting the experts. The actual size of the project that needs to be completed will be the determining factor as to how many experts will sit on the panel. The size of the panel actually depends on the budget dole out (Chong et al., 2012). The next step is to administer the questionnaire to the experts. In this step the members of the panel will draw conclusions from their own personal experiences and any other sort of data or research that is available to them at the time (Chong et al., 2012). The fourth step is actually broken down into different parts. The first part will be to evaluate the responses that were generated from the original questionnaire. The responses that are evaluated from the first questionnaire are used by the director to develop more in-depth questions to be used in the second questionnaire. The second part of the fourth step is to redistribute the questionnaire with more focused questions in an organized list of the responses to these questions on the first questionnaire (Chong et al., 2012). The ordinal step is to interpret the results. This final step will continue until all the experts said on the panel comes to a consensus (Chong et al. , 2012). The reason this process works relatively well is because the experts are not together. This allows administrators to get a consecutive consensus without prejudice or bias. Figure 7 shows how the Delphi method is used.Figure 7. Delphi Method.Course of Action TwoThe second course of action would be to implement the Holt-Winters Method for Seasonality Technique. This method utilizes the seasonality factor in order to account for seasonality associated with a product (Gelper, Fried, Croux, 2008). For example, the Home Depot sells many lawnmowers in the springtime and many air-conditioners when the temperature rises in the summer. This particular method needs to estimate three elements of a forecasting equation (Gelper et al., 2008). The first component is the current level of sales. This component is achieved by removing noise and all seasonal aspects of the level. The second component is to use the current trend. This is the difference between the levels that are expected t o happen between any two given seasons. The third is to add the seasonality. For example, if the Home Depot wanted to forecast sales for August and it is June, the following equalization could be utilizedlevel (100) +2*trend (10)*seasonal (1.4) = 128 unitsThe Holt Winters method estimated that the current level is 100, the trend is five, and August has the seasonal index of 1.4. Figure 8 shows an example of the Holt Winters exponential smoothing.Figure 8. Holt Winters Exponential Smoothing. (Note I see you have a legend on this one. Good)RecommendationGiven the choices between the Delphi method and t