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

Merger and aquisition, It is given that company A will acquire company B wi...

It is given that company A will acquire company B with shares of common stock. Present earnings of A is rs. 20 million and of company B is rs. 5 million. Earning price per share of

Real vs nominal discount rates, impact of real and nominal discount rates i...

impact of real and nominal discount rates in capital budgeting

Project, I have a Finance project due and I was wondering if I could get so...

I have a Finance project due and I was wondering if I could get some help with it? Please advise. Thanks..

New value of the equity, GeKay is now considering issuing $3 million in deb...

GeKay is now considering issuing $3 million in debt, and paying $150,000 yearly in interest at 5%, that it would keep rolling over "forever" (in perpetuity). The proceeds would

Determine pay back period and net present value, Determine pay back period ...

Determine pay back period and net present value? A company is considering two projects with the subsequent cash flow streams:   Year           Project A

Dividend policies, discuss advantages and disadvantages of alternative divi...

discuss advantages and disadvantages of alternative dividend polices,ieno dividend pay out for the pst five years,dividend of 50% of earnings paid out,a low but constant dividend p

Market efficiency, differentiate between allocative efficiency and pricing ...

differentiate between allocative efficiency and pricing efficiency

Capital Budgeting., National Australia Bank is listed on the Australian Sec...

National Australia Bank is listed on the Australian Securities Exchange with code NAB. The company has 2.2731 billion shares outstanding and the closing price on 7 Sept 2012 was $2

Capital budgeting and the cost of capital, Roman Roads has a number of capi...

Roman Roads has a number of capital projects available for investment this year but has access to a limited amount of capital.  Specifically, the firm has arranged to secure a $25

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