BARDSTOWN BOX COMPANY
Bardstown Box Company is a small, closely held corporation in Bardstown, Kentucky. Its stock is divided among three brothers, with the principal shareholder being the founding brother, Bob Wilson. Bob formed the company 20 years ago when he resigned as a salesman for a large manufacturer of corrugated boxes.
Bob attributes his success to the fact that he can serve the five-state area he considers “his territory” better than any of his large competitors. Bardstown Box supplies corrugated cartons to many regional distilleries and to several breweries. Also, it prints standard-size boxes for many small manufacturing firms in the region. Bob feels that the large box manufacturers cannot economically provide this personal service to his accounts.
Bob recognizes the danger of becoming too dependent upon any one client and has enforced the policy that no single customer can account for over 20 percent of sales. Two of the distilleries account for 20 percent of sales each, and hence are limited in their purchases. Bob has persuaded the purchasing agents of these two companies to add other suppliers, since this alternative supply protects them against problems Bardstown might have such as shipping delays, paper shortages, or labor problems.
Bardstown currently has over 600 customers with orders ranging from a low of 100 boxes to blanket orders for 50,000 boxes per year. Boxes are produced in 16 standard sizes with special printing to customers’ specifications. Bardstown’s printing equipment limits the print to two colors. The standardization and limited printing allow Bardstown to be price-competitive with the big producers while also providing service for small orders and “emergency” orders that large box manufacturers cannot provide.
Such personal service, however, requires tight inventory control and close production scheduling. So far, Bob has always forecast demand and prepared production schedules on the basis of experience, but because of the ever-growing number of accounts and changes in personnel in customer purchasing departments, the accuracy of his forecasts has been rapidly declining. The number of backorders is on the increase, late orders are more common, and inventory levels of finished boxes are also on the increase. A second warehouse has recently been leased because of the overcrowding in the main warehouse. Plans are to shift some of the slower-moving boxes to the leased space.
There has always been an increase in demand for boxes just before the holiday season, when customers begin stocking up. This seasonality in demand has always substantially increased the difficulty of making a reliable forecast.
Bob feels that it is now important to develop an improved forecasting method to help smooth production and warehousing volume. He has compiled the following demand data.
Sales (in number of boxes)
Month 20X1 20X2 20X3 20X4 20X5
January 12,000 8,000 12,000 15,000 15,000
February 8,000 14,000 8,000 12,000 22,000
March 10,000 18,000 18,000 14,000 18,000
April 18,000 15,000 13,000 18,000 18,000
May 14,000 16,000 14,000 15,000 16,000
June 10,000 18,000 18,000 18,000 20,000
July 16,000 14,000 17,000 20,000 28,000
August 18,000 28,000 20,000 22,000 28,000
September 20,000 22,000 25,000 26,000 20,000
October 27,000 27,000 28,000 28,000 30,000
November 24,000 26,000 18,000 20,000 22,000
December 18,000 10,000 18,000 22,000 28,000
Questions
1. Develop a forecasting method for Bardstown and forecast the total demand for 20X6.
2. Should Bob’s experience with the market be factored into the forecast? If so, how?
