C. OPERATION ISSUES

Demand forecast:

Forecasting is important aspect of demand management. Demand forecast can predict the future revenue generation and stock control of a particular product and is the basis for planning of supply of product to meet the exact demand. Production of product is made to a forecast by the companies which also includes safety stock to satisfy the effects of changes in demand and lead time. Thus, forecasting method need to be accurate for getting raw material in exact amount and time, to eliminate waste and excess of product at any point of time. This is an important step toward lean production.

Forecasting methods used by Cadbury are quantitative method of time series analysis (short term) and moving averages (long term).

In time series analysis, set of sequential numeric data is collected at regular intervals, usually over a period of time or space. A time series consists of a set of sequential numeric data collected in the past and shall consist of a high quality and truly representative taken at equally spaced intervals, usually over a period of time or space. This forecasting methods generates forecasts which is based solely on historical values which might be from supermarkets or their own supply events. These are widely used in the situations where forecasts plan is to be given for a year or less and is particularly suited for Sales, Marketing, Finance, Production planning etc. This is relatively simple but certain factors such as trend (persistent pattern), seasonality (repeated from year to year), cyclical fluctuation (due to economic or business conditions) need to be considered:

In moving average forecasting method, businesses get an overall idea of the trends in a data set which is nothing but an average of any subset of numbers. Thus, moving average can be extremely useful for forecasting long-term trends and can be calculated for any period of time. For example, if sales data is available for a ten year period, forecasting can be done through calculation of a five-year moving average, a four-year moving average, a three-year moving average and so on. This forecast is simply a constant forecast value that projects the next time period.

However, Econometric method (quantitative) which uses regression analysis is the most widely used to forecast the demand for a product or group of product in the particular economy, which is more reliable compared to other forecasting methods. This method mainly relates the economic theory with statistical tools of estimation. The economic theory specifies the determinants of demand and its relationship with product’s demand which determines demand function. Then, statistical tools of regression method are applied to estimate the the demand forecast. Simple regression equation can be used for a single variable demand function while multi-variable equation can be used for multiple variable demand functions to estimate the demand for a product.

Inventory Management:

Cadbury uses a mix of push and pull model of inventory management. Products such as Cadbury dairy milk and Cherry Ripe relies on Pull approach since customer order moves the product through supply chain of Cadbury due to demand of these products in the market. Since the products in the Pull systems are produced to an order there is little or no in finished good inventory which makes it easier to adapt with the sudden or abrupt changes in demand. Short term forecasting is used for the Pull systems which provides flexibility to adapt to swings in demand. Cadbury uses techniques such as advertising and mass media promotion on large scale, sales promotions and discounts & customer relationship management.

The ‘push’ approach uses inventory replenishment techniques in anticipation of demand to move products through the supply chain. Cadbury relies on taking the product directly to the customer by any means and ensure that customer is aware of the Cadbury brand at the point of purchase. Some of the techniques used by Cadbury are promotions for increasing retail demand, negotiate with retailers or supermarkets to stock the product, effective and attractive packaging to encourage purchase, point of sale display in the retail or convenience store.

Challenges:

• Demand forecast updates are results are perception of decision makers in the supply chain. Decision makers have an idea of the functioning of supply chain with the demand patterns they observe in the downstream which influences their decision-making process. Thus when downstream member in the supply chain places an order, demand forecast is adjusted by upstream member and different order is placed to the upstream member in the supply chain. After all the orders get processed and reach the manufacturer as overall demand for the product which is not the actual demand but an exaggerated demand. This results in changed product scheduling, capacity planning, inventory management, and part procurement for manufacturer and multiplies within the supply chain contributing to the Bullwhip Effect.
• Other challenge is that external environment is not always same. For example, seasonality can occur in demand of the product resulting in high inventory cost and high obsolescence costs.
• In Australia, Cadbury faces local and global competition and has seen rising cost of inventory management and logistics. Its distance from overseas market makes it difficult to compete against the likes of rival factories in USA and Europe.
• Social and economical environment every country is different an might change where Cadbury has considerable market. This will affect the revenue of that particular region.
• Price of raw material of Cocoa, milk and sugar can affect the final price of the product.