1. FORECASTING

2. Demand Forecast The three principles of all forecasting techniques:
Forecasting is always wrong
The longer the forecast horizon the worst is the forecast
Aggregate forecasts are more accurate

3. SnowTime Sporting Goods
Fashion items have short life cycles, high variety of competitors
SnowTime Sporting Goods
New designs are completed
One production opportunity
Based on past sales, knowledge of the industry, and economic conditions, the marketing department has a probabilistic forecast

4. SnowTime Costs Production cost per unit (C) Selling price per unit (S)
Salvage value per unit (V)
Fixed production cost (F)
Q is production quantity, D demand
Profit = Revenue - Variable Cost - Fixed Cost + Salvage

5. SnowTime Best Solution
Find order quantity that maximizes weighted average profit.
Question: Will this quantity be less than, equal to, or greater than average demand?

6. Supply Contracts Wholesale Price =$80 Selling Price=$125
Manufacturer
Manufacturer DC
Retail DC
Stores
Fixed Production Cost =$100,000
Variable Production Cost=$35
Wholesale Price =$80
Selling Price=$125
Salvage Value=$20
Notice that in the previous strategy, the retailer takes all the risk and the manufacturer takes zero risk. This is way the retailer has to be very conservative with the amount he orders.
If the retailer can transfer some of the risk to the manufacturer, the retailer may be willing to increase his order quantity and thus increase both his profit and the manufacturer profit