Qso 510 Final Paper - A-Cat Corporation

[pic 1]

Introduction

A-Cat Corporation is a medium size manufacturing company that specializes in production of electrical appliances for rural population. A-Cat Corp employs 40 workers and had recorded sales of 9.8 million dollars in the budget year of 2010-11. The key internal stakeholders in the company are the President, Vice President Arun Mittra, operations head Shirish Ratnaparkhi and departmental employees of A-Cat Corp. The external stakeholders of the company are the owners of A-Cat Corp and transformer suppling company. A-Cat Corp’s main product is the VR-500 voltage regulator. VR-500 serves as a protective device for refrigerators and television sets against voltage fluctuations. Through the years, A Cat Corps profits from sales have been continuously rising due to the fact that demand for cheap and reliable appliances have risen in rural areas. However, A-Cat Corp’s management has noticed problems with sales of their flagship product, VR-500 voltage regulators. The sales of VR-500 became more volatile and harder to predict causing some operational problems for A-Cat Corp. The sales of voltage regulators had been used to calculate the number of transformers needed for inventory. However, as sales became more unpredictable, determining the right amount of inventory became more challenging.

In the past years, A-Cat Corp estimated inventory of transformers by sales of voltage regulators. Since, voltage regulators are not sold separately A-Cat Corp used refrigerator sales to determine the transformer need. The company utilized sales figures from last three months and the sales figures of the last two years in the same month to determine the number of transformers needed. However, such method has left A-Cat Corp with either understocked or overstocked inventory during different months. The inefficiency of this process led not only to problems with sales but also with A-Cat Corps cash reserves. To better manage transformer inventory, A Cat Corp Vice President Arun Mittra has ordered operations manager Ratnaparkhi with the task of developing a more efficient inventory management plan.

First, Ratnaparkhi will need to identify quantifiable factors which are affecting A-Cat Corp operational processes. These quantifiable factors will provide information and insight about A Cat Corp operational problems. The two factors that affect A Cat Corp transformer inventory are: Mean Number of Transformers Used to Produce Voltage Regulators and Sales of Refrigerators. Mr. Ratnaparkhi will have to examine the mean number of the transformers and their change through the years. A continually rising mean number can signal a problem since management bases their inventory purchases on 2006 data. If a problem exists several statistical test can be performed to determine if management needs to change their baseline mean number of transformers. As far as refrigerator sales, Mr. Ratnaparkhi will have to look for trends or correlations in sales and transformer requirements. Refrigerator sales fluctuate through the months and a clear trend in sales cannot be establish. However, sales data collected by the sales department can help Mr. Ratnaparkhi to determine if correlation between refrigerator sales and transformer requirements exists. If a strong correlation exists a regression equation can be created from which A Cat Corp can forecast future sales and transformer requirements.

In the past years, A-Cat Corp has based their calculations of the mean number of transformers required to produce voltage regulators on 2006 production data. However, operational managers speculate that the 2006 mean number substantially underestimates current transformer requirements. When ANOVA analysis was performed, results confirmed operational managers’ suspicions. The mean number required to produce voltage regulators has increased from year to year. Although, mean numbers have changed A-Cat Corp kept on using outdated data which resulted in inaccurate determination of the inventory.

The second quantifiable factors that affects the number of transformers is the sales of refrigerators. Refrigerators use voltage regulators to protect against voltage fluctuations. The primary component of voltage regulators are the transformers. The sales of refrigerators have a direct impact on the amount of transformers required for the inventory. In the recent months and years, refrigerator sales have been quite volatile. The volatility of refrigerator sales made future inventory forecasting difficult. To make accurate future forecast for inventory, trends and correlations of refrigerator sales have to be determined.

In order to improve A-Cat Corporation’s inventory management process a variety of statistical tools need to be utilized to better predict future needs. Guessing and estimation have to be removed from the process and predictions based on statistical data must be put in place. First, a hypothesis has to be developed and then tested, to determine if mean number of transformers required for production of voltage regulators and refrigerator sales affect the transformer inventory. If the impact of these quantifiable factors is significant then A-Cat Corp should consider more statistical tests such as descriptive statistics and ANOVA analysis. The use of descriptive statistics and ANOVA analysis will help A-Cat Corp make sense of the data. These methods will not only organize the data but also help management in making future decisions regarding inventory. Lastly, A-Cat Corp will need to develop an accurate model for forecasting transformer requirements. If an accurate model is developed future inventory needs will be predicted more accurately.

Statistical Tools and Data Analysis

In the recent months, business performance of A-Cat Corp has been negatively impacted by an inefficient method of determining transformer inventory. The use of the method has resulted in both overstocked and understocked inventory and loss of sales. Vice President Mittra has tasked Ratnaparkhi with analyzing and solving the inventory problem. The analysis of A-Cat Corp’s performance will require the use of both descriptive and inferential statistics. Descriptive statistics will help with monitoring of the quality of transformers and with determining relationships between sales and transformer requirements. Inferential statistics will help with predicting future business performance and transformer needs. Utilizing both statistics accurately will be crucial for A-Cat Corp’s success. To make accurate future forecast from inferential statistics a few statistical assumptions have to be met. The assumptions of normality, homogeneity of variances, linearity and independence have to be considered when testing data. Different statistical test will require different assumptions to be met. If any of these assumptions are violated during tests, the results of the analysis can be misleading or completely erroneous. Real Statistics, Assumptions for Statistical Test, (Last Visited, Feb 2, 2016)