Strategic Supply Chain Management in Romano’s Car Rentals Company Order Instructions: Using your own organization, or the one you chose as an exemplar, apply what you have learned from your reading and research to explain the role of forecasting in the supply chain of the organization. You should give clear examples illustrating how forecasting is a driver of planning decisions at many stages and levels.
You should also consider the various techniques used in demand forecasting and be able to demonstrate why they are, or are not, appropriate in the context of the particular examples you provide.
Consider the following questions as you continue to work on your Praxis Paper
• To what extent does demand management as practiced in your organization support the view that, “An integral part of any demand management process is an implementation of an iterative process of sales forecasting and planning”? (Mentzer, Myers, & Stank, 2007)
• How far does consideration of demand forecasting as practiced in your organization lead you to agree with the conclusion that, “true analysis of sales forecasting management often produces the conclusion that the benefit of improved accuracy is not worth the cost”? (Mentzer et al., 2007)
Strategic Supply Chain Management Resources
Articles
• Mentzer, J. T., & Moon, M. A. (2004). Understanding demand. Supply Chain Management Review, 8(4). Retrieved from ABI/INFORM Global database.
This article looks at the three types of demand and shows how forecasting contributes to the sales and operations planning process.
• Taylor, D. H. (2006). Demand management in agri-food supply chains: An analysis of the characteristics and problems and a framework for improvement. International Journal of Logistics Management, 17(2). Retrieved from ABI/INFORM Global database.
This article presents examples and specific data from six value chain analysis case studies examining demand management in the UK food supply chain
• Lapide, L. (2006). Demand management revisited. Journal of Business Forecasting, 25(3). Retrieved from ABI/INFORM Global database.
This short article considers the importance of demand management and the role played by demand forecasting in supporting the cost-benefit and profitability analyses needed to make optimized customer-service setting decisions.
Strategic Supply Chain Management Sample Answer
Abstract
The following document analyzes the manner in which Romano’s Car Rentals Company implements strategic demand forecasting in its day to day operations. The importance of forecasting to this business is highlighted alongside the specific aspects of this company’s management that rely on forecasts of demand. The final part of the exercise details the different forecasting strategies as well as how they relate to this company’s business operations.
Strategic Supply Chain Management is a deliberate process of ensuring that there is an adequate amount of products in the inventory. A key component of this process is forecasting and this is a method of predicting the amount of inventory which will be adequate for meeting the demand during a given period of time. The application of forecasting is often idiosyncratic with respect to the business entity carrying out the process. Forecasting applies to both the commodity sector and the service industry. For businesses that deal in the supply of tangible products to a given market it is relatively more direct than it is for those who are involved in the service sector. The supply chain on the other hand refers to the series of processes followed by the organization in ensuring the finished product reaches its end-consumer. This is again easier to witness in the commodity market and abit more complex in the service industry (Mentzer and Moon, 2004).
The reason for the comparison between the service industry and the commodities market is that the company to be analyzed here operates exclusively in the service industry. Romano’s car rentals cannot for instance conduct a physical count of the number of ‘leases’ they have available for their cars. The renting of motor vehicle like any other service has consumption and production taking place concurrently. The closest that this company can come to preparing its ‘inventory’ is by ensuring that the physical and human elements of the service have been adequately prepared. The Physical elements of this service are the motor vehicles, a physical office and also the stationery. The human element is the company drivers who deliver the vehicles. Other elements not directly incorporated to this include the servicing of the vehicles, their insurance and also the maintenance of a database (Taylor, 2006).
The implications of both a shortage of supply or surplus supply are highly profound for this company. This is due to the immediate nature of the expenses incurred by the company. As such the sales manager needs to do everything in her power to ensure that the forecast is as close as possible to the demand. This requires a combination of industry knowledge and intuition given the fact that forecasting is not a perfect science. A relatively accurate forecast will ensure that there are enough vehicles, enough drivers and also enough mechanics for the upcoming demand.
The company employs a quarterly strategy whereby forecasts are made for the year in blocks of four months. Management functions such as planning, organizing, staffing, development, cooperation and remuneration also go hand in hand with the forecasting. If one branch is expecting higher demand in the next quarter, it is easier to transfer employees from a branch with not so much demand. An abundant supply will result in the expenses such as remuneration and storage and these are deemed a loss if they are done without the company generating revenue.
The recent slump in oil prices for instance means that people are likely to lease cars for longer periods and as such it is necessary to have more vehicles available. This will however also increase the cost of maintenance of the vehicles and as a result a higher budget for mechanical servicing of the cars. The seasons also have an impact on how people lease vehicles. The demand experienced during summer is 45% more than what is experienced in winter. This means that the part-time workers can be placed on hold during the winter period and recalled during summer.
Demand Forecasting Techniques in Strategic Supply Chain Management
There are two broad categories of demand forecasting. These are Quantitative and Qualitative/Subjective. These are also known as Statistical and Non-statistical respectively. With quantitative methods of demand forecasting a specific arithmetic formula is applied to historical data to project the demand in the subsequent trading period. Most of the time this is aided with a software program which provides projections based on the data that has been fed into the system. It can be used to highlight existent trends. It also shows the moving averages. It is termed as a statistical method because it relies heavily upon the regression method to provide estimated projections. It also takes into account the economic indicators (Lapide, 2006).
The Qualitative approach on the other hand is heavily reliant on the survey of customer opinions. It takes into account opinions provided by industry experts as well as the experience of those who have been working in the industry for a long period of time. This approach is more favorable for application by Romano’s Car Rentals because the product is essentially a service. This second approach is customer-centric and therefore more likely to provide more accurate results (Stevenson and Hojachi, 2007). Despite this, it is also necessary to employ statistical forecasting methods to a lesser degree since this business operates within an economy whose parameters are best expressed qualitatively.
For Romano’s Car Rentals the cost of this endeavor cannot be independently established due to the fact that some of the customer projections are based on relationships forged years back. Given that this has been the approach used by the company for most of its existence in the market, it is impossible to tell if the absence of a forecasting method would result in financial savings or higher expenses.
Strategic Supply Chain Management Conclusion
While not aggressively carried out by Romano’s Car Rentals, the importance of demand management and forecasting remain key elements of their success in the industry. These processes enable the management to diligently prepare ground for their customers in a financially sustainable manner. Strategic forecasting should therefore remain a key element of a firm’s operations rather than a separate activity which may rack up unnecessary costs.
Strategic Supply Chain Management References
Lapide, L. (2006). Demand management revisited. Journal of Business Forecasting, 25(3) doi: 10.1177/2278682113476166
Mentzer, J. T., & Moon, M. A. (2004). Understanding demand. Supply Chain Management Review, 8(4) dx.doi.org/10.2507
Stevenson, W. J., & Hojati, M. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin.
Taylor, D. H. (2006). Demand management in agri-food supply chains: An analysis of the characteristics and problems and a framework for improvement. International Journal of Logistics Management, 17(2). DOI: http://dx.doi.org/10.1108/09574090610689943
