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1) UPS Forecasts:

Seasonal  variations for UPS requires planning around changes like gas prices and  shipping costs.  The company could not predict with 100% accuracy how  these two items would change each year, they just know that they were  subject to change.  Sometimes the change is radical.  Knowing that gas  prices and shipping costs would fluctuate enabled the company to plan  ahead so that they are better prepared to face the change.  

This concept of preparing for the  unknown is very similar to me.  Without too much detail, I will share  that it is the job of all service members to prepare for war,  contingencies, and natural disasters.  We cannot know what exactly is  coming, but through the planning process we can identify needs and  create guides.  In the case of the services, our plans save lives and  restore order.  For companies, it saves money and also restores order.

How  forecasting functions for a company varies by method but it is supposed  to predict “the sales forecast for the coming year [which] reflects (1)  any past trend in sales that is expected to carry through into the new  year and (2) the influence of any anticipated events that might  materially affect that trend” (Keown, 2017).  One method that is  utilized involved gaining estimates of the company’s financial needs  based on a predicted “asset requirement and financing source”(Keown,  2017).  This process is referred to as the Percent of Sales method.

2. DELL net working capital:

“Net working capital is the difference between the firm’s current assets and its current liabilities” (Keown, 2017).  DELL  realized that they lost money in several key areas; over stock,  assembly costs, and outdated inventory.  Outdated, overstocked computers  are a liability.  The technological changes for computers were and  still are very fast which made keeping models in stock wasteful.  At  worst they would not sell and at best they would be sold for less just  to get rid of the resource.  Removing these items from their plans was a  culture change and a creative solution for managing their working  capital.  

 

Seasonal  variations in the delivery business can make forecasting finance  requirements more complex.  The sales forecast method, which is best  uses a constant percent of sales, which can be inaccurate for businesses  that have fluctuations in sale related to things like seasonality, like  UPS. This does not mean the information provided by the sales forecast  method are useless to companies like UPS, but it is important for those  reading the data to understand the limitations of this forecasting  method.  Another tool, which may be far more beneficial to a company  like UPS is cash budgeting.  It forecasts the cash inflows and outflows  for a specific period.  Budgets can be created for a week, month,  quarter, or year.   This provides detailed insight to users as to the  projected cash needs of an organization, and can be of benefit those  types of organizations that see things like seasonal changes across the  business.  As with anything else the accuracy of a cash budget relies  heavily on the accuracy of the input by users, but this level of detail  may help more than the sales forecast method in forecasting financing  requirements for a company United Parcel Service.     

When  Dell Computer Corporation was confronted with falling sales it looked  to improving its management of working capital to free up financial  resources.  One of the most critical changes Dell made was to reduce  inventory volumes.  Dell accomplished this by building computers based  on customer orders, not on forecasted sales.  By not holding such high  volumes of inventory Dell was also able to reduce its volume of obsolete  inventory.  Dell benefited from selling direct to the customer.  This  allowed the computer company to carry less finished inventory.  When it  came to ordering parts Dell would only order the components that met  immediate needs.  This just in time inventory method reduced their parts  inventory to a minimum as well.  Maximizing their inventory freed up  the cash Dell needed to accelerate their growth and increase corporate  profits.  Had Dell continued along the same path of other computer  companies and used forecasted sales to determine inventory levels it is  likely that Dell would not have become the computer giant they are  today.    

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