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In addition to your name, write down your section number


In addition to your name, write down your section number & instructor s name on the scantron sheet. Business Game Quiz Sales Forecasting & Production Planning Excel ... – PowerPoint PPT presentation

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Title: In addition to your name, write down your section number

In addition to your name,write down your
section number instructors name on the
scantron sheet.
Business Game Quiz
Sales Forecasting Production Planning
An Outline of the Analysis
Excel Spreadsheet Templates
  • Several templates will be provided
  • Initial Data Worksheet
  • Sales Forecast Worksheet
  • Sales Order Worksheet
  • Production Schedule Worksheet
  • As indicated in Section 6 of the Lecture Notes,
    an Excel file containing these templates can be
    downloaded online at
  • http//

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Data will come from both industry and company
  • After opening the BPG program, you can view all
    the reports available on the company decision
  • Report J (see p.210 of the Players Manual for a
  • Consolidated Historical Data for Years 1 and 2
  • Report D (see p.215 of the Players Manual for a
  • Operating Information Output, inventory, and
  • Report F (see p.217-8 of the Players Manual for
    a sample)
  • Industry Report Real GDP, sales, product
    prices, and exchange rates.

A top-down approach will be used for sales
  • The method starts with sales forecasting at the
    industry level for each market area
  • M1 (Merica 1)
  • M2 (Merica 2)
  • M3 (Merica 3)
  • M4 (Nystok, Pandau, or Sereno)
  • From the industry sales forecast, the sales
    forecast for the company in each market can be
    obtained as
  • Company Sales Forecast
  • Industry Sales Forecast Expected Market

Account for seasonal effects and obtain
seasonally adjusted sales data
  • See Section 1.A of the Lecture Notes.
  • Seasonal Indices (p.105 of the Players Manual)
  • Q1 (Winter) 0.92
  • Q2 (Spring) 1.01
  • Q3 (Summer) 0.91
  • Q4 (Fall) 1.16
  • To remove the seasonality from industry sales
  • Seasonally Adjusted Industry Sales
  • Actual Industry Sales Seasonal Index

Cyclical and Trend Components
Seasonal Component
Seasonal Factors
Real GDP, Average Price, and Time Trend
Regression Forecasting Model
Seasonally Adjusted Industry Sales Forecasts
Industry Sales Forecasts by Market Area
Company Sales Forecasts by Market Area
Use a regression model to forecast industry sales
  • See Section 1.B of the Lecture Notes.
  • Dependent variable (YSA)
  • SA Sales Seasonally Adjusted Industry Sales
  • Independent variables Predictors (X)
  • Real GDP Real Gross Domestic Product
  • Avg Price Industry Average Price
  • Time Time Trend Index

Try a few different forecasting equations and
identify the best one
  • Model 1
  • SA Sales ?0 ?1?Real GDP ?2?Avg Price
  • Model 2
  • SA Sales ?0 ?1?Time
  • Model 3
  • SA Sales ?0 ?1?Time ?2?Real GDP
  • Model 4
  • SA Sales ?0 ?1?Time ?2?Real GDP ?3?Avg
  • All these forecasting equations can be estimated
    using Excel (as set up on the Sales Forecast

Step-by-step forecasting exercise
  • Read Sections 2.A to 2.E of the Lecture Notes for
    more details
  • To start, prepare initial data on regression
    variables using available historical data (see
    section 2.A).
  • After setting up the data, estimate the
    forecasting regression equation using Excel (see
    section 2.B).
  • Try different models and select the model that
    fits the data best (see section 2.C).
  • Enter additional assumptions and your market
    share projection (see section 2.D).
  • Repeat the forecasting exercise steps 2 to 4
    after adding new data every quarter (see section

After obtaining company sales forecasts,
determine how much to produce
  • Read Sections 3.A, 3.B, and 3.C of the Lecture
  • The Sales Order Worksheet and the Production
    Schedule Worksheet can be used to perform
    production analysis in Excel.
  • Why do firms hold inventories?
  • To guard against demand uncertainty.
  • To guard against production uncertainty.

Choose an inventory policy that balances between
over- and under-stocking costs
  • Select your desired inventory-to-sales ratio.
  • Under normal situations, a ratio from 20 to 40
    may be used for the game.
  • An example Suppose the ratio is chosen to be
    25. If the sales demand is forecasted to be
    100,000 units, then
  • Desired Inventory 100,000 25 25,000
  • Carrying too little inventory may lead to costly
  • Stockouts are very costly because they result in
    not only a loss of present sales but also a loss
    of some future sales.
  • Carrying too much inventory can be costly too.
  • Warehouse Storage Cost
  • Financing Cost It tied up working capital.

How should production be scheduled?Should
production capacity be expanded?
  • See Chapters 7 8 of the BPG Players Manual.
  • Read also Section 4 of the Lecture Notes.
  • Normal operation 40 hours per line each week
  • Schedule overtime Up to 8 hours per line
  • Add second work shifts (Take 1 quarter to
  • Create new production lines (Take 1 quarter)
  • Reactivate some idle lines (Take 1 quarter)
  • Add more space to a plant (Take 2 quarters)
  • Build a new plant (Take 3 quarters)

Company Sales Forecasts by Market Area
Desired Inventory Ratio
Estimated Sales Office Orders by Market Area
Planned Production Target
Production Scheduling Lines, Overtime, and
Second Shifts
Production Capacity Expansion New Lines or
Production Cost Analysis
Capital Budgeting Analysis
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Prepare sales forecasts, production plans, and
cost estimates for the Two-Year Plan
  • Read the course outline for specific
  • When you are ready to prepare the Two-Year Plan,
    read the Appendix of the Lecture Notes.

Hope you will enjoy the Business Policy Game!