Assignment:
Playtime, Inc. / Supply Chain Management
Playtime, Inc. manufactures toys for children under the age of 12 and has been in business for 50 years. While Playtime does not hold a major share of the toy market, it has experienced significant growth over the last five years because of its collaboration with major movie studios to introduce action figures to coincide with new movie releases. Playtime is a publicly held company.
Playtime's executive council consists of vice presidents of marketing (includes sales), operations (manufacturing), supply chain (procurement, inventory, warehousing, and transportation), and finance. This group is ultimately responsible for approving the forecast for the upcoming year.
The forecast is developed using last year's sales as historical data. This forecast is then given to the supply chain and operations groups to determine if capacity is sufficient to accommodate the new volumes. If capacity is sufficient, the forecast is then moved to finance where it is analyzed to determine if volumes are sufficient to satisfy the needs of the investors.
Jim Thomas, manager of supply chain, and Gail Jones, manager of operations, had a meeting to discuss the first version of the forecast. "I know we use last year's sales to project for next year, but this forecast has me worried," said Jim. "One of our major movie studio partners is coming out with a blockbuster movie next year and we have no idea what the impact of that might be on our distribution capacity." Gail agreed, saying "I know. We have the capacity right now based on this forecast, but if volumes surge we are in trouble from a manufacturing perspective." Jim and Gail also know that if the projected volume does not satisfy the needs of inventors, finance will send the forecast back to marketing to increase volumes until financial goals will be met.
This forecast process has resulted in a disconnect among the supply chain, operations, and marketing functions within Playtime. The managers in these functions typically end up developing their own forecasts based on what they think demand will really be, regardless of what finance presents to the investors. Over the last several years, this has presented some problems for the operations and supply chain areas because of manufacturing capacity issues (toys are very seasonal) and inventory issues. Although Playtime has been able to handle these issues, Jim and Gail are very concerned about next year because of the uncertainty the new movie release will have on the demand for their toys.
Q1. What are the issues associated with Playtime's current forecasting process? What impacts, negative or positive, does this process have on the marketing, operations, supply chain, and finance functions?
Playtime's current forecasting method has issues with the way the process is conducted. By having each group create and analyze their own forecast separately, the best combined solution is not always discovered as each group is looking to maximize their own benefit and not the overall benefit of the company. Additionally, the possibility of the forecast being sent back down to the operational level for re-evaluation at finance's request also poses a problem. Also, the disconnect formed between the supply chain, operations, and marketing functions creates a major issue. It is not beneficial for each department within Playtime, Inc. to possess separate forecasts, especially when these forecasts are conflicting with the forecast created by finance to be presented to investors. This not only affects overall business transparency, but also manufacturing capacity and inventory levels as well. If a forecast is not shared throughout an organization, each department will prepare and stock for the upcoming season differently, resulting in a plethora of internal manufacturing issues and potential inability to meet demand.
Q2. Using the S&OP process discussed in this chapter, design a more effective and efficient forecasting process that will mitigate the negative impacts you identified in question 1.
From Chapter:
The S&OP process described how organizations are structuring their planning processes to arrive at a consensus forecast internally. The next logical step would be for members of a supply chain to also agree upon a consensus forecast. Many industry initiatives have attempted to create efficiency and effectiveness through the integration of supply chain activities and processes. They have been identified by such names as quick response (QR), vendor-managed inventory (VMI), continuous replenishment planning (CRP), and efficient consumer response (ECR). All of these have had some success at integrating replenishment between supply chain members. However, they were all somewhat deficient in that they did not include a strong incentive for collaborative planning among supply chain members. One of the most recent initiatives aimed at achieving true supply chain integration is collaborative planning, forecasting, and replenishment (CPFR).5 CPFR has become recognized as a breakthrough business model for planning, forecasting, and replenishment. Using this approach, retailers, distributors, and manufacturers can utilize available Internet-based technologies to collaborate on operational planning through execution. Transportation providers have now been included with the concept of collaborative transportation management (CTM). Simply put, CPFR allows trading partners to agree to a single forecast for an item where each partner translates this forecast into a single execution plan. This replaces the traditional method of forecasting where each trading partner developed its own forecast for an item and each forecast was different for each partner.