Top - down methods, Corporate Finance

Assignment Help:

For a large set of SKUs and in two successive selling seasons, we have compared the accuracy of three quantitative forecasting methods based on advance (preview) demand information. The methods all use a top-down approach, and ?rst forecast the aggregate total demand for a group of SKUs by scaling up the aggregate preview demands. They differ in the subsequent division of that aggregate forecast over the individual SKUs; proportional to preview demand (Method 1), equal (Method 2), or top-?op.

A ?rst result was that all top-down methods performed best when the top level was de?ned at the more detailed product group level rather than the broader assortment group level or even for all assortment groups together. This is a useful ?nding for the case company, as they currently use the assortment group level. Amongst the considered top-down methods, the so-called top ?op method turned out to have the most robust performance. This method is based on the assumptions that, within a group of related SKUs, the top (?op) SKUs always account for a certain fraction of total demand for that group. To the best of our knowledge, this method has not been tested or described in the literature before.

Our results certainly suggest that it would be interesting to test the method for other real-life cases as well. An especially attractive feature of the top-?op method, as appeared from the overall results and was illustrated for speci?c product groups, is that it avoids over-forecasting for those SKUs with the largest preview demands. This is done by 'spreading' the total preview demand per class equally amongst the SKUs in a class, rather than dividing based on the individual preview demands per SKU as the more  'straightforward' Method 1 does.

Over-forecasting leads to too large orders and obsolescence problems, where left over stock needs to be discarded or sold below the cost price at the end of the season. For one assortment group with 89 SKUs, we extended the comparative study to include expert  judgment methods. It turned out that these methods outperformed all other methods. However, Tukey tests showed the performance differences not to be signi?cant at the 5% level. So, we should be cautious in announcing these expert judgment methods the 'winners'.


Related Discussions:- Top - down methods

Analytical derivation of the capital asset pricing model, Question: a) ...

Question: a) Provide an analytical derivation of the Capital Asset Pricing Model (CAPM) and supplement your analysis with diagrammatic illustrations where appropriate. b) T

Mr. Sears, Can you hepl me with financial a accounting assignment?

Can you hepl me with financial a accounting assignment?

Capital Expenditure Decisions and Investment Criteria, Question 1: Capital ...

Question 1: Capital Expenditure Decisions and Investment Criteria (30 MARKS) In recent years Morten Ltd, a company that manufactures and markets a range of p

Red lake mines, Red Lake Mines, Inc. is considering adoption of a new proje...

Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 milli

Net profit value & profitability index, hook industries is considering the ...

hook industries is considering the replacement of one of its old drill presses. three alternatives replacement presses are under consideration. the relevant cash flows associated w

Show the different functions of a bill of lading, CAC Co Ltd is engaged in ...

CAC Co Ltd is engaged in the import and distribution of air conditioners from China. The business has been in existence since year 2000 and the exporter has been trading 50% on do

Define corporate governance, Problem : (a) Define corporate governance...

Problem : (a) Define corporate governance. (b) Discuss about the Advantages of Corporate Governance. (c) Anlayse the influence relationships among business, government

Maturity of Bond, Cavo Corp. has 9 percent coupon bonds making annual payme...

Cavo Corp. has 9 percent coupon bonds making annual payments with a YTM of 8.3 percent. The current yield on these bonds is 8.65 percent. How many years do these bonds have le

Establishing the scale and cost of phoenix activity, Q. Establishing the sc...

Q. Establishing the scale and cost of phoenix activity? In 1996, the Australian Securities Commission (ASC, now ASIC) quantified the annual loss to Australian businesses due to

Capital structure, a)  Use excel of a financial calculator to estimate the ...

a)  Use excel of a financial calculator to estimate the IRR of the following business opportunity:  Initial cost of $100,000, expected pre-tax annual cash flows of $54,000 for the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd