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Forecasting and

Inventory Management
of Seasonal Milkshakes
November 24, 2014
Team Members:
Jordan Avery
Emily Bowen
Truitt Clark
Chris Hoag
Allison McCall
Kate Nickerson
Allison Oesterle

Faculty Advisor:
Shabbir Ahmed, Ph.D.
shabbir.ahmed@isye.gatech.edu

Client Advisor:
Meyer Skalak
Director of Procurement
meyer.skalak@chick-fil-a.com

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Disclaimer: This report has been created in the framework of a student design project. The Georgia Institute of Technology and Chick-fil-A do not officially sanction its content.

CLIENT BACKGROUND
Founded in 1946 in Hapeville, GA
9th largest fast food restaurant in
United States
Surpassed $5B in total sales in 2013

1800+ Stores
10 Distribution Centers

Sales (Billions $)

Total Chick-fil-A Sales


6
4

3.2

3.6

2009

2010

2011
Year

4.6

2012

2013

2
0

PROJECT OVERVIEW
METHODOLOGY

PROBLEM

Current forecasting tool for


Limited Time Offer (LTO)
milkshakes is:
Time consuming
Based solely on
historical sales
Not updatable
throughout a promotion

Create DC level forecasts for


each ingredient
Incorporate seasonality
Include differing season
lengths
Investigate causal
factors

New forecasting tool


User-friendly
Ability to include causal
factors
Scenario-based planning
Dynamic and updatable

Inventory plan is not


integrated with forecast
Not customizable for
each (DC)

Establish inventory plan


Calculate reorder point
and order quantities
Simulate demand
scenarios to determine
costs of reorder
strategies

Inventory plan integrated in


tool
Ordering parameters
from suppliers
Classification of stores by
volume

Forecasting Tool
Inventory Plan

DELIVERABLE

MILKSHAKE OVERVIEW
YEAR-ROUND
MILKSHAKE

Icedream
Shake base
Syrup flavoring
4 flavors

PEACH
MILKSHAKE

3-4 month LTO


Historical sales
data: 20112013
Validating 2014
data
1 unique
ingredient:
peach syrup

PEPPERMINT
CHOCOLATE CHIP
MILKSHAKE

6 week LTO
Historical sales
data: 2010-2012
Validating 2013
data
2 unique
ingredients:
peppermint
syrup and
chocolate flakes

PROJECT SCOPE

Forecast demand
at Corporate

Source from
Suppliers

Ship to and
store at DCs

Operators
order from
DCs

Ship to
Operators

Assemble
shakes and
sell at Stores

Re-order inventory
from suppliers if
needed

PROBLEM DESCRIPTION
Static forecasting method
High forecast error
Does not account for causal
factors
Time consuming

Loss of ~$200,000-$500,000 per


promotion in disposition dollars
Disposition dollars: extra money
spent at end of promotion
Ineffective inventory planning for LTO
milkshakes

Campaign

Campaign Forecast Error

#1

-24%

#2

-1%

#3

14%

#4

19%

3%
Disposition Dollars
Breakdown
DC Disposal
38%

59%

Supplier Disposal
Transportation
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DATA COLLECTED

Sales Data

Inventory Management

Causal Factors

Lead times

Climate data

Service level

Economic factors

Ingredient conversions

Disposal cost

Holidays

Store invoices to DC

Transportation cost

Zip code demographics

Number of milkshakes
sold at every store

Promotional period
dates

INITIAL ANALYSIS
Varying seasonality and factors associated with the two milkshakes:
Total Cases Sold by Day of Promotion - Peppermint Syrup

Total Cases Sold by Day of Promotion - Peach Syrup


140

600

120

500

Sold
Cases
Cases Sold

Sold
Cases
Cases Sold

100
400

300

80
60

200
40
100

20

0
1 6 1116212631364146515661667176 3 8 13192429343944495459646974 1 6 11162126313641465156
2011

2012

Day of Promotion

2013

1 5 9 13 17 21 25 29 33 37 41 45 49 2 6 10 14 18 22 26 30 34 38 42 46 50 1 5 9 13 17 21 25 29 33 37 41 45
2010

2011

2012

Day of Promotion

Forecast Overview

Forecast
Objectives

Forecast
Challenges

Skewed data
No zip code information to investigate demographic
factors

Account for variable season lengths


Forecast day 1 sales separately
Forecast rest of promotion incorporating day 1 forecast
Include additional causal factors at each DC

LTO MILKSHAKE VARIABILITY


Peach Milkshake
2011: July 4 October 1
2012: July 16 October 13
2013: May 6 July 13
2014: April 4 July 31
APRIL

MAY

JUNE

JULY

AUGUST

SEPTEMBER

OCTOBER

NOVEMBER

Predictor Variables for Peach


Full Season

Day 1

Previous years sales


Previous years first day
sales
DC D dummy variable

Previous days sales


Percent of promotion
completed
S&P500
Temperature at DC
Weekend
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LTO MILKSHAKE VARIABILITY


Peppermint Milkshake
2010: November 1- December 31

2011: October 31- December 31


2012: November 5 - December 29
2014: April 4 July 31
OCTOBER

2013:
November
1728 28
2013:
November
18December
December

NOVEMBER

DECEMBER

JANUARY

Predictor Variables for Peppermint Chocolate


Chip/Flakes

Day 1

Previous years sales


Dummy variable for
each DC
Total number of stores
per DC

Full Season

Previous days sales


Percent of promotion
completed
S&P500
Weekend
Before/after Christmas
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EXAMPLE FORECAST RESULT


DC B- Peach

R2adj

0.8655

S-values

6.670

Anderson- Darling p-value

0.1449

Durbin-Watson

1.274

F-stat

266.4

Significant Predictors
Intercept
Promo Percent
Lag
Temperature
Economic (S&P 500 MA3)
Weekend

P-value
4.65 10-8
2.00 10-16
2.00 10-16
3.70 10-15
6.94 10-11
2.00 10-16

Forecast Equation:
X(t) = -60.52 20.34 *(Promo Percent) + 0.3949*(Lag) + 0.8903*(Temperature) + 0.0263*(Economy) + 10.65 *(Weekend)
*Example of output using data generated by team

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INVENTORY MANAGEMENT

Current State: Push


Supplier

Corporate pushes 100% of contracted PCC


forecasted demand to each DC at t = -2 weeks

Peppermint: Push

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INVENTORY MANAGEMENT

Pull
Current State: Push
Supplier

Corporate pushes 65% of contracted Peach


forecasted demand to each DC at t = -2 weeks

At t=2 weeks, analyze sales data

Reorder based on analyzed realized demand

Peach: Push/Pull

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INVENTORY MANAGEMENT
Initial Push Order Quantity
1. ExpertFit forecasted data to find most
accurate distribution model and
parameters
2. Using Matlab, simulate 10 demand
scenarios for each DC
3. Establish reorder point for each
percentage of total forecast
4. Compute expected cost function
5. Determine optimal initial order quantity

*Example of output using data generated by team

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INVENTORY PULL STRATEGY


Reorder Point
= L + z

Store Level Allocations


Order up to quantities
Divided stores into 3 categories:
high, medium, and low
DC specific allocations based on
of demand during lead time (2
days) to establish category ranges
*Example of output using data generated by team

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DELIVERABLE OVERVIEW

Remove outliers using


studentized residuals
Evaluate P-values to
determine significant
variables

Find regression
model

Use regression
model to make
forecast
Output aggregated
weekly forecast into
individual DC tab

Probabilistic model and


expected cost function
Reorder point
calculations
Expected cost function
Reorder point calculations

Inventory strategy

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DELIVERABLE FILE TRANSFORMATION

VBA

Input

DC
Usage
Daily date
Item size

VBA

Input

DC
Day of promotion
Promotion %
Sales
Lag (1)
Temperature
Economy
Weekend

Input
High demand
Most probable
demand
Low demand
Week of promotion
Actual sales

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DELIVERABLE TOOL OUTPUT

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PROJECT VALUATION
ISyE Senior Design

Peach 2014
Forecast

PCC 2013
Forecast

Syrup: Over forecasted


4.05%

Syrup: Over forecasted


.42%

Estimated savings of $54,390

Flakes: Over forecasted


41.1%
Syrup: Over forecasted
39.4%

Flakes: Over forecasted


1.62%
Syrup: Over forecasted
13.36%

Estimated savings of $248,290

Man Hours

Total forecast time reduced by 85%

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SUMMARY
Problem:
Inaccurate forecasting tool leading to excess costs and lost man hours

Solution:
Interactive forecasting tool allowing
for updates throughout the season

Excel output including customized


inventory strategy

Impact:
Reduced Disposition
Dollars

Saved Man Hours


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Questions?

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WORK CITED
Cartoon Christmas Tree Drawings. (n.d.). Retrieved November 19, 2014, from http://www.drawingstep.com/cartoon-christmas-tree.html
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Chick-fil-A is the Hot Topic. (2010, November 8). Retrieved November 19, 2014, from http://dunwoodyusa.blogspot.com/2010/11/chick-fil-is-hot-topic-freetickets.html
Chick-fil-A Truck At Airport West Distribution Center. (n.d.). Retrieved August 23, 2014, from http://upload.wikimedia.org/wikipedia/commons/b/bd/Chick-filA_truck_at_Airport_West_Distribution_Center.JPG
Cookies & Cream Milkshake. (n.d.). Retrieved November 19, 2014, from http://www.chick-fil-a.com/Food/Menu-Detail/Cookies-Cream-Milkshake
Industrial building 1 - Manufacturing/Refining - Vector Illustration/Drawing/Symbol (SVG) - IAN Image and Video Library - Free High Resolution and Vector
Environmental Science Images. (n.d.). Retrieved November 19, 2014, from http://ian.umces.edu/imagelibrary/displayimage-search-0-6689.html
Lucas, J. (2012, July 28). (Let's Talk About Chick-Fil-A. Retrieved November 19, 2014, from http://randomindependent.com/2012/07/28/lets-talk-about-chick-fila/
Peach (n.d.). Retrieved November 24, 2014, from http://bellvalefarms.com/images/slider/peach.png
Peach Milkshake (n.d.). Retrieved August 23, 2014, from http://www.chick-fil-a.com/ext/peach-shake/images/milkshake.png
Peppermint Chocolate Chip Milkshake. (n.d.). Retrieved August 23, 2014, from http://www.chick-fil-a.com/Food/Menu-Detail/Peppermint-Chocolate-ChipMilkshake
Peppermint Stick Candy. (n.d.). Retrieved November 19, 2014, from http://www.candyconceptsinc.com/Peppermint-Old-Fashioned-Stick-Candy--80ctBox_p_4577.html
Truck Icon. (n.d.). Retrieved November 19, 2014, from http://www.iconarchive.com/show/flatastic-2-icons-by-custom-icon-design/truck-icon.html

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