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)
Achieving competitive advantage 2
Strategies for Achieving Competitive Advantage
Student Name
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Achieving competitive advantage 3
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.
Achieving competitive advantage 4
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).
Achieving competitive advantage 5
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
Achieving competitive advantage 6
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.
Conclusion
Achieving competitive advantage 7
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.
Achieving competitive advantage 8
References
Lapide, L. (2006). Demand management revisited. Journal of Business Forecasting, 25(3)
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).
