CASE STUDY Specialty Packaging Corporation, Part A Julie Williams had a lot on her mind when she left the conference room at Specialty Packaging Corporation (SPC) Her divisional manager had informed her that she would be assigned to a team consisting of SPC's marketing vice president and staff members from their key customers. The goal of this team was to improve supply chain performance, as SPC had been unable to meet demand effectively over the previous several years. This often left SPC's customers scrambling to meet new client demands. Julie had little contact with SPC's customers and wondered how she would add value to this process. She was told by her division manager that the team's rst task was to establish a collaborative forecast using data from both SPC and its customers. This forecast would serve as the basis for improving the rm's performance, as managers could use this more accurate forecast for their production planning. Improved forecasts would allow SPC to improve delivery performance. le SPC SPC turns polystyrene resin into recyclable/disposable containers for the food industry Polystyrene is pur- chased as a commodity in the form of resin pellets. The resin is unloaded from bulk rail containers or overland trailers into storage silos. Making the food containers is a two-step process First. resin is conveyed to an extruder. which converts it into a polystyrene sheet that is wound into rolls. The plastic comes in two formsclear and black. The rolls are either used immediately to make containers or are put into storage. Second, the rolls are loaded onto thermoforming presses, which form the sheet into containers and trim the containers from the sheet. The two manufacturing steps are shown in Figure 7-1 1. Over the past ve years, the plastic packaging business has grown steadily. Demand for containers Supz FIGURE 7-1 1 Manufacturing Process at SPC made from clear plastic comes from grocery stores, bakeries, and restaurants. Caterers and grocery stores use the black plastic trays as packaging and serving trays. Demand for clear plastic containers peaks in the summer months, whereas demand for black plastic containers peaks in the fall. Capacity on the extruders is not sufficient to cover demand for sheets during the peak seasons. As a result. the plant is forced to build inventory of each type of sheet in anticipation of future demand. Table 74 and Figure 7-12 display historical quarterly demand for each of the two types of containers (clear and black). The team modied SPC's sales data by accounting for lost sales to obtain true demand data. Without the customers involved in this team, SPC would Chapter 7 - Demand Forecasting in a Supply Chain 209 never have known this information, as the company did not keep track of lost orders. Forecasting As a rst step in the team's decision making, it wants to forecast quarterly demand for each of the two types of containers for the years 2010 to 2012. Based on histori- cal trends. demand is expected to continue to grow until 2012, after which it is expected to plateau. Julie must select the appropriate forecasting method and estimate the likely forecast error. Which method should she choose? Why? Using the method selected, forecast demand for the years 2010 to 2012. Quarterly Historical Demand for Clear and Black Plastic Containers Black Plastic Clear Plastic Year Quarter Demand ('000 lb) Demand ('ooo lb) 2005 | 2,250 3,200 11 1,737 7,658 \"I 2,412 4,420 IV 7,269 2,384 2006 | 3,514 3,654 11 2,143 8,680 "I 3,459 5,695 IV 7,056 1,953 2007 | 4,120 4,742 11 2,766 13,673 "I 2,556 6,640 IV 8,253 2,737 2008 | 5,491 3,486 11 4,382 13,186 111 4,31 5 5,448 IV 12,035 3,485 2009 | 5,648 7,728 11 3,696 16,591 "I 4,843 8,236 IV 13,097 3,316 (continued)