MGT 311 SEU Best Homes Inc Forecasting Case Study Hello, please answer the first 2 questions from the discussion questions . Check the images below Please

MGT 311 SEU Best Homes Inc Forecasting Case Study Hello, please answer the first 2 questions from the discussion questions . Check the images below Please use plagiarism checker . I have only 24 hours Thank you. 1448 Part Seven Case Studies
lead-time for building new homes, any inventory and
production levels must anticipate the three-month lead
time. This illustrates how critical forecasting is for both
purposes
planning production levels and inventory.
inventory can have a dramatic effect on sales and profits.
Either too much capacity or too little is a problem along
with too little or too many homes in inventory.
The first part of the planning process is to forecast
demand for new homes on a monthly basis. To accom-
plish this data in Exhibit 1 is provided. It shows the num-
ber of new single-family houses built in each month by
Best Homes. The task is to forecast this data forward for
the year of 2016 by month.
It is not enough to only forecast the average monthly
demand going forward. Actual demand can be signif-
cantly higher or lower than the average. As a result, the
star dard deviation of demand, or mean absolute devia-
tion, must also be forecasted. The monthly production
level for new homes is then set at the average demand
plus a safety stock of new homes for when the demand
exceeds the average. Since there is a three-month
Discussion Questions
1. What forecasting methods should the company
consider? Please justify
2. Use the classical decomposition method forecast
average demand for 2016 by month. What is your
forecast of monthly average demand for 2016?
3. Best Homes also collecting sales projections from
each of its regions for 2016. What role should these
additional sales projections play, along with the
forecast from question 2, in determining the final
national forecast?
Case Study
Best Homes, Inc.: Forecasting
Best Homes is a new home construction company with EXHIBIT 1 New residential houses sold.
headquarters in Kansas City, Missouri. They construct
only residential homes throughout the U.S. and only new
2011 2012
2013
2014 2015
homes. Having started on the East coast in 1945 they
Jan
840
920 1,280 1,320 1.560
expanded to the Midwest and ultimately to the West Coast Feb 880 1,200 1,440
1.100 1.800
and the South. They build all types of residential new Mar 1,120 1,360 1.640 1,560 1.840
homes from low-end prices to the high-end of the market.
Apr 1,200 1,360 1,720 1,560 1.920
Best Homes was a private company until 1958 when
May 1,120 1,400 1.600 1.720 1,880
it made its first public offering. While the company June 1,120
1,360 1.720 1,520 1,760
started small, it has expanded to become one of the
July 1,080 1,320 1,320 1,400 1.720
largest homebuilders in America. In 2015 Best Homes
Aug 1,000 1,240 1,240 1.440 1.640
built 20,040 new homes with revenue of $6.4 billion in
Sept
960 1.200 1.240 1.480 1.400
sales. Their sales were 4.0 percent of the national home Oct 1.000 1.160 1,440 1.520 1,560
market of over 501,000 new homes.
Nov 920 1,120 1,280 1,240 1.440
COMPANY STRATEGY AND PLANNING CYCLE Dec 960 1,120 1.240
1.400 1,520
Best Homes competes based on its excellent brand rep
Total 12,200 14,760 17,160 17,560 20,040
utation. Their reputation is earned by building quality
homes at a competitive price. The cost per square foot in Exhibit 1. Another input to the forecasting process
of their homes is comparable to competitors, but the comes from the sales force in each region of the country.
design and interior finish of their homes is outstand The sales force input is combined with the forecast from
This provides an advantage that competitors find hard past sales data to come up with a final national sales fore-
to meet
cast for the company for the next year by month.
The operations and supply chain strategy is orga- The entire company uses the Best Homes final fore-
nized around having sufficient capacity to build homes cast. Financing uses it to forecast overall revenue of the
on schedule with the quality required to provide out- company, to prepare estimates for income and balance
standing designs and interior finishes. As a result, they sheet projections, along with quarterly earnings esti-
hire only the best carpenters to do the work that will mates. Marketing uses the monthly forecasts to plan
show after the building is completed, including installa- sales projections, hiring plans, sales incentives and sales
tion of the interior walls, flooring, windows, siding, goals. Operations and Supply Chain uses the forecasts
cabinets, and woodwork to provide a beautiful home. for its Sales and Operations Planning (S&OP) planning
For other parts of the construction that do not show process. S&OP is done for the annual forecast and then
upon completion, they hire some part-time or contract updated monthly to make adjustments in the sales fore-
workers to do the foundations, rough-in walls, roofing. casts and the resulting hiring plans for new employees,
wiring and plumbing, in each of these areas, however, contract employees, and part-time employees, along
they employ at least 60 percent full-time workers. All with any layoffs that might be anticipated. The S&OP pro-
new employees, part-time or contract workers are cess each month starts with an updated rolling forecast
assigned to a full-time employee to insure training and for each of the next 12 months. The hiring plans and
quality control of the work for the first six months. The home building starts are then set for the next month and
hiring of contract and part-time workers helps Best planned for the next three months. The plan also includes
Homes deal with fluctuating monthly demand for homes purchasing plans for materials used to construct the
during the year. It also helps them control their costs houses. The monthly update can require adjustments to
Demand or sales planning is done once a year and both capacity and inventory of new homes. All functions
then updated each month. The planning cycle for annual participate in the S&OP process including, Finance, Mar.
demand includes two elements. First a forecast is made keting, Sales, Operations, and HR.
by month for the next year of new home sales. This is
FORECASTING DEMAND
done using data from the past five years by month, shown
Demand forecasting has been difficult due to the seasonal
‘The data in this case are representative of a portion of the and trend variations. This is why the forecast and associ-
national sales data for new homes derived from https://www.
.
ated planning aclivilies are updated monthly and pro-
census.gov/constructionins historical_data/index.html. 2016. jected for the next twelve months. Insufficient capacity or
This case was prepared by Roger G. Schroeder for class discussion. Copyright by Roger G. Schroeder, 2016. All rights are
reserved. Reprinted with permission.
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