team1 - Team Assignment 1 ESD.260 Logistics Systems Fall...

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Team Assignment 1 ESD.260 Logistics Systems Fall 2006 Page 1 of 5 Cups4U Forecasting Process Design Case Cups4U, Inc. is a $3 billion paper cup manufacturer based in North America. The company sells its products through three sales channels. The first is to mass retailers and warehouse clubs that private label the products under their own brand name. The second is to quick service restaurants, like Taco Burger, that buy cups with their brand names on. The last is to supermarkets and mom-and-pop grocery stores that sell the product under Cups4U’s own brand name DrinkIt. The discount retailers, warehouse clubs, and fast- food outlets are sold by a National Accounts department. The company has a field sales force of 85 sales reps selling to supermarkets and mom and pop grocery stores. Senior management is concerned about a sudden, dramatic increase in finished goods inventories over 2005 and most of 2006. Inventory investment peaked in November 2005 and began a gradual reduction over the next several months, but only after severe action on the part of senior management was taken, including a costly shutdown of all three manufacturing facilities for two weeks in April 2006. The CFO decreed that inventory levels must be reduced by 25% by the end of the year, in order to avoid cash flow problems. Snappy Consultants did a quick study of the situation and determined that forecasting was the major problem. To quote the report “Cups4U’s forecasting process is abysmal, very very bad --–the worst we have seen”. In addition they attributed the inventory increases to the following factors that occurred: A price increase for the supermarket channel in November 2005 that was not followed by competitors – resulting in lost volume. Cups4U finally reduced their rates back to market level in June 2006 Competitors increased their market shares with heavy promotional spending in March and April 2006. The loss of a major supermarket chain customer (customer #33) in the Southwest in September 2005 Additionally, the forecast did not seem to incorporate any of the promotions that were run. For example, ever since 2004 each Mass Retail customer is heavily promoted for one month during the winter – normally a slow time period. Customer AA is promoted in January, customer BB is promoted in February, and Customer CC is promoted in March. Unfortunately the forecasts did not incorporate any of these events or factors. The following interview notes summarize Snappy’s discussions with key client executives: The VP of Logistics believes that Logistics is the ‘scapegoat’ in all of this. He said “We just take the Forecasting Department’s aggregate level forecast and translate it into an item level forecast based on history and insight. The plants then produce to the item level forecast.”
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This note was uploaded on 12/06/2011 for the course ESD 1.260j taught by Professor Chriscapliceesd during the Fall '06 term at MIT.

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team1 - Team Assignment 1 ESD.260 Logistics Systems Fall...

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