Videos
Best Homes, Inc.:
Best Homes is a new home construction company with headquarters in Kansas City, Missouri. They construct only residential homes throughout the U.S. and only new homes. Having started on the East coast in 1945 they expanded to the
Midwest and ultimately to the West coast and the South. They build all types of residential new homes from low-end prices to the high-end of the market.
Best Homes was a private company until 1958 when it made its first public offering. While the company started small, It has expanded to become one of the largest homebuilders in America. In 2015 Best Homes built 20,040 new homes with revenue of $6.4 billion in sales. Their sales were 4.0 percent of the national home market of over 501,000 new homes.*
COMPANY STRATEGY AND PLANNING CYCLE
Best Homes competes based on its excellent brand reputation. Their reputation is earned by building quality homes at a competitive price. The cost per square foot of their homes is comparable to competitors, but the design and interior finish of their homes is outstanding. This provides an advantage that competitors find hard to meet.
The operations and supply chain strategy is organized around having sufficient capacity to build homes on
Demand or sales planning is done once a year and then updated each month. The planning cycle for annual demand includes two elements. First a forecast is made by month for the next year of new home sales. This is done using data from the past five years by month, shown in Exhibit 1. Another input to the forecasting process comes from the sales force in each region of the country. The sales force input is combined with the forecast from past sales data to come up with a final national sales forecast for the company for the next year by month.
EXHIBIT 1 New residential houses sold.
The entire company uses the Best Homes final forecast. Financing uses it to forecast overall revenue of the company, to prepare estimates for income and
FORECASTING DEMAND
Demand forecasting has been difficult due to the seasonal and trend variations. This is why the forecast and associated planning activities are updated monthly and projected for the next twelve months. Insufficient capacity or 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 accomplish this data in Exhibit 1 is provided. It shows the number 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 significantly higher or lower than the average. As a result, the standard deviation of demand, or mean absolute deviation, 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 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 of planning production levels and inventory.
Discussion Questions
- 1. What forecasting methods should the company consider? Please justify.
- 2. Use the classical decomposition method to forecast average demand for 2016 by month. What is your forecast of monthly average demand for 2016?
- 3. Best Homes is 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?
This case was prepared by Roger G. Schroeder for class discussion. Copyright © by Roger G. Schroeder, 2016. All rights are reserved. Reprinted with permission.
Want to see the full answer?
Check out a sample textbook solution
Chapter CS Solutions
OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences)
- Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?arrow_forwardScenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?arrow_forwardScenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, her manager, Dave Cox, entered her office. He asked how everything was progressing and if she needed any help. She mentioned she was reviewing quotations from suppliers for a tooling contract. Dave asked who the interested suppliers were and if she had made a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the requirements Visionex had specified in the proposal. Dave told her to keep up the good work. Later that day Dave again visited Sharons office. He stated that he had done some research on the suppliers and felt that another supplier, Micron, appeared to have the best track record with Visionex. He pointed out that Sharons first choice was a new supplier to Visionex and there was some risk involved with that choice. Dave indicated that it would please him greatly if she selected Micron for the contract. The next day Sharon was having lunch with another buyer, Mark Smith. She mentioned the conversation with Dave and said she honestly felt that Apex was the best choice. When Mark asked Sharon who Dave preferred, she answered, Micron. At that point Mark rolled his eyes and shook his head. Sharon asked what the body language was all about. Mark replied, Look, I know youre new but you should know this. I heard last week that Daves brother-in-law is a new part owner of Micron. I was wondering how soon it would be before he started steering business to that company. He is not the straightest character. Sharon was shocked. After a few moments, she announced that her original choice was still the best selection. At that point Mark reminded Sharon that she was replacing a terminated buyer who did not go along with one of Daves previous preferred suppliers. What does the Institute of Supply Management code of ethics say about financial conflicts of interest?arrow_forward
- Scenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, her manager, Dave Cox, entered her office. He asked how everything was progressing and if she needed any help. She mentioned she was reviewing quotations from suppliers for a tooling contract. Dave asked who the interested suppliers were and if she had made a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the requirements Visionex had specified in the proposal. Dave told her to keep up the good work. Later that day Dave again visited Sharons office. He stated that he had done some research on the suppliers and felt that another supplier, Micron, appeared to have the best track record with Visionex. He pointed out that Sharons first choice was a new supplier to Visionex and there was some risk involved with that choice. Dave indicated that it would please him greatly if she selected Micron for the contract. The next day Sharon was having lunch with another buyer, Mark Smith. She mentioned the conversation with Dave and said she honestly felt that Apex was the best choice. When Mark asked Sharon who Dave preferred, she answered, Micron. At that point Mark rolled his eyes and shook his head. Sharon asked what the body language was all about. Mark replied, Look, I know youre new but you should know this. I heard last week that Daves brother-in-law is a new part owner of Micron. I was wondering how soon it would be before he started steering business to that company. He is not the straightest character. Sharon was shocked. After a few moments, she announced that her original choice was still the best selection. At that point Mark reminded Sharon that she was replacing a terminated buyer who did not go along with one of Daves previous preferred suppliers. Ethical decisions that affect a buyers ethical perspective usually involve the organizational environment, cultural environment, personal environment, and industry environment. Analyze this scenario using these four variables.arrow_forwardScenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, her manager, Dave Cox, entered her office. He asked how everything was progressing and if she needed any help. She mentioned she was reviewing quotations from suppliers for a tooling contract. Dave asked who the interested suppliers were and if she had made a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the requirements Visionex had specified in the proposal. Dave told her to keep up the good work. Later that day Dave again visited Sharons office. He stated that he had done some research on the suppliers and felt that another supplier, Micron, appeared to have the best track record with Visionex. He pointed out that Sharons first choice was a new supplier to Visionex and there was some risk involved with that choice. Dave indicated that it would please him greatly if she selected Micron for the contract. The next day Sharon was having lunch with another buyer, Mark Smith. She mentioned the conversation with Dave and said she honestly felt that Apex was the best choice. When Mark asked Sharon who Dave preferred, she answered, Micron. At that point Mark rolled his eyes and shook his head. Sharon asked what the body language was all about. Mark replied, Look, I know youre new but you should know this. I heard last week that Daves brother-in-law is a new part owner of Micron. I was wondering how soon it would be before he started steering business to that company. He is not the straightest character. Sharon was shocked. After a few moments, she announced that her original choice was still the best selection. At that point Mark reminded Sharon that she was replacing a terminated buyer who did not go along with one of Daves previous preferred suppliers. What should Sharon do in this situation?arrow_forward3. A toy manufacturer makes stuffed kittens and puppies which have relatively lifelike motions. There are three different mechanisms that can be installed in these "pets." These toys will sell for the same price regardless of the mechanism installed, but each mechanism has its own variable cost and setup cost. Profit, therefore, is dependent upon the choice of mechanism and upon the level of demand. The manufacturer has in hand a forecast of demand that suggests a 0.2 probability of light demand, a 0.45 probability of moderate demand, and a probability of 0.35 of heavy demand. Payoffs for each mechanism-demand combination appear in the table below. Wind-up action Pneumatic action Electronic action Demand Light Moderate $250,000 $90,000 -$100,000 400,000 440,000 400,000 Heavy 650,000 740,000 780,000 Construct the appropriate decision tree to analyze this problem. Use standard symbols for the tree. Analyze the tree to select the optimal decision for the manufacturer.arrow_forward
- Rochor & Co has the following sales forecast for the next quarter: April, 20,000 units; May, 24,000 units; June, 28,000 units. Sales totalled 16,000 units in March. The March finished goods inventory was 4,000 units. End-of- month finished goods inventory levels are planned to be equal to 20 percent of the next month's planned sales. How many units would be produced in April? Group of answer choices 20,000 units 20,800 units 5,600 units 4,800 unitsarrow_forwardA store’s demand figures are given in the table. According to this, what is the linear regression forecast for Week 12. (You need to use Excel to solve this problem. Do not round intermediate calculations. Round your final answers to two decimal places.arrow_forwardA relatively small privately owned coal-mining company has the sales results summarized below. Determine the annual percentage depletion for the coal mine. Assume the company's taxable income is $125,000 each year. Sales, Tons 34,300 Year Spot Sales Price, $/Ton 1 9.82 2. 50,100 11.5 71,900 11.23 50% of the Gross Depletion Allowed Year taxable Income, $ amount Depletion amount 1. 3.arrow_forward
- Can you show me how to work this in excelarrow_forwardSales for the last quarter of the year were good, with tops sales at 3,400 units and pants sales at 3,200 units. Demand for the first quarter sales of next year is expected to decline by 8%. What is your forecast for the demand of tops and pants? Tops Sales Forecast: 0 ▲ ▼ Pants Sales Forecast: 0 ▲ ▼ Is there anything you could do to help minimize the effect of the projected decline in demand on sales?arrow_forwardplease answer within 30 minutes.arrow_forward
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage Learning
MarketingMarketingISBN:9780357033791Author:Pride, William MPublisher:South Western Educational Publishing