Tech Tierra – Forecasting for Future Growth

Tech Tierra – Forecasting for Future Growth

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An individual case study report

Created by Dr. Phillip S. Rokicki

For use in Qnt.5040

All rights reserved

Tech Tierra – The Company and the Challenge

Millie Granger and Jose Mendes, friends and fellow graduates from Texas Tech in electrical engineering had a great idea as students. They noticed in Texas, with large numbers of Hispanic families, that often parents and grandparents of tech-savvy teenagers and young adults, were often left out of the technology decision-making process. When they studied at the Lubbock school they often wondered if they could create a company that would bridge the gap of not concentrating on the older Hispanics who most often funded the purchases of their younger children and grandchildren.ThusTech Tierra was born.

The Company

Founded in mid-2004, the company began with a single store in Lubbock, with growth of a store every year concentrating on these older, but more financial secure Hispanic families. Now the company has eight stores in Lubbock, Austin, San Antonio, Houston, and is considering expanding into the Dallas area.

The current store chain has done well over the years as can be seen by their monthly sales figures. Jose is the Executive Vice President of Operations and Millie is the CEO/President of the company mainly concentrating on expansion, franchising, finance, and corporation relations. They have been a successful team over these past years.

The Challenge

Jose has as part of his duties the responsibility for forecasting growth. He has a remarkable record of predicting the monthly and annual growth of the company. He has managed to forecast the operating income and expenditures within 7 percent each and every year. Thus, Millie has grown to depend on Jose’s annual forecasts.

Jose has informed Millie that he has been offered a corporate presidency of a larger chain of electronics stores in California and will be leaving immediately. While the California stores sell similar merchandise asTech Tierra, they do not operate outside of the state, so they are not in direct competition with the Texas stores, and in violation of Jose’s non-compete agreement.

Jose has not yet completed his forecast for the remainder of 2013 and for the 8 months of 2014 (they do a 12 month forecast each August for the next 12 months). But he has given Millie a brief run down as to what he does to create the forecast, but she feels unsure if she knows what to do.

Millie has hired you, a locally known economic forecaster, to provide her with a 12 month forecast forTech Tierra. For this forcast you will be paid $50,000 now and if your forecast proves to be accurate in 12 months (within10 percent of the actual) you will paid an additional $50,000 bonus.You will be allowed to adjust the forecast once, during the 6^th month, to reflect any changes in the economy that may occur. So it is to your own benefit to create an accurate forecast.

Your Task and the Rules

You are to create a12 month forecast, fromSeptember 2013 through August 2014 forTech Tierra that uses the following forecasting techniques:

1. Theone variable summary in StatTools.
2. Theruns test to determine if the data is random or not.
3. The annualbox and whisker plot.
4. Themoving average with aspan of 3.
5. Thesimple exponential smoothing forecast.
6. TheHoltz linear method for trends.
7. TheWintersmethod for trends and seasonality.

To decide which of these has the best forecast probability you will concentrate on the following results as provided by the software:

1. The mean absolute error (MAE)
2. The root mean square error (RMSE)
3. The mean absolute percentage of error (MAPE)
4. The average error (see slides 81 to 83 from week 7)
5. The cumulative error (see slides 81 to 83 from week 7)

Important things you need to know

1. The company’sfiscal year goes fromFebruary of one year toJanuary of the next year.
2. All sales are in thousands of dollars, thus11,345 = 11,345,000 in sales for that month.

Your Tasks

1. Carry out the various statistical tests as indicated above.
2. Analyze the resulting data, and determine which of the forecasting techniques provides the best forecast, and why.
3. Report on each of these forecasting techniques in your report, explaining what you did, what you found out, and how you decided which forecast is the best.
4. Forecast the next twelve months of sales forTech Tierra.
5. Submit your individual report on time.

Write a management report (using the required format) suggesting and justifying an appropriate decision regarding the sales forecast. In your report, analyze the patterns of the monthly time series; discuss the properties of each forecasting model and their relevance to predicting the series;select the best forecasting model for the series; make your recommendations supported by arguments which are further supported by references to model results and tables or figures in your report. Independent outside research is encouraged to provide relevant background information and/ or to provide more support for your arguments.

Please make sure that you use the Assignment Cover Sheet as the first page of you report and the Grading Rubric as the second and third pages of your report (available on BB). Please, embed your Excel spreadsheet showing the appropriate calculations and charts into the Appendix section of your report. How to embed a file into a Word document is explained in Format of a Management Report. (Available on BB)

Submit this report into the Assignment Dropbox.