Planning of Production and Service Systems Workshop Topic: Forecasting The New Kong Box Company supplies special reinforced boxes for industrial uses to many large and small manufacturing firms in the Hong Kong, Macau and Shenzhen areas. It currently has over 300 customers with orders ranging in size from as low as 50 boxes to large orders for 10,000 per annum. Boxes are produced in more than 20 standard sizes and designs with special printing to customer’s specifications. The standardization and special printing flexibility allow Kong Box to be priced competitively with big producers but they also provide the service for small and emergency orders that large box manufacturers cannot provide. Such personal service, however, requires tight inventory control and close production scheduling. So far, the Managing Director has always forecasted demand and prepared production schedules through experience. Because of the ever growing number of accounts and changes in personnel in customers’ purchasing departments, the accuracy of his forecasting has been declining. The number of back-orders is on the increase, late orders are more common and inventory levels of finished boxes are on the increase. Failure to meet delivery schedules during the peak season will lead to a sales loss to competitors as customers are not prepared to wait. Suppose the following information is available: i. The salesman’s estimates for total sales in 2015 is 250,000 boxes. ii. ii. The New Kong Box Company’s share of the market is expected to be 6% and the total market for corrugated cartons in 2015 is estimated at 5,300,000 boxes. These figures are supplied by the Sales Manager. iii. ii. Normal production capacity (8 hr workday and 5.5 work-day week) of the New Kong Box Company is limited to 22,000 boxes per month. The salesman expects his estimates to be used as sales quotas and the Sales Manager generally tends to push up sales forecast for performance purposes. You are the Managing Director of the company. You estimate that a downturn of about 5% in business outlook is expected in 2015. a) In the light of the above information, what is your annual sales forecast for 2015? Explain how you have considered and used the above information. b) Comment on your plant capacity.