ACKNOWLEDGEMENT

Words are not substitute for thoughts and feeling. I take this opportunity to thank one and all, whose contribution to this project cannot be forgotten.

I express my sincere thanks to Dr. Gururaj H Kidiyoor , Dean (Student Affairs), TAPMI, for his encouragement and valuable suggestions on this project work. I am grateful to Mr. Ramesh N.Chandra, Vice President Operations, CEMA Electric Lighting Products India Pvt Ltd., who helped me all along the project period with directions for learning. I am also indebted to Mr. P V Jose, Sales Manager, CEMA Electric Lighting Products India Pvt Ltd., who was ready to offer the required assistance and practical insights into a wide array of topics as and when needed. I gratefully remember the cooperation and assistance of my project guide and usher Dr. Ajith Kumar, without whom this project would not have taken shape. I also thank the other faculty members of TAPMI for their assistance and help. I wish to thank them with profound reverence not only for having initiated me to come out with this project, but also for giving their mental and oral support throughout this project work and for solving my problems. At this juncture, I also wish to thank my beloved friends from Placement committee for providing me a great learning opportunity.

1 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

About the Company: CEMA ELECTRIC LIGHTING PRODUCT INDIA PVT. LTD.
CEMA Electric Lighting is among the top 5 lighting solutions companies in India. The company offers a full range of lighting products and accessories and has a major presence across India catering to around 2 lakh retail outlets through its network of over 600 distributors and 15 branch warehouses. The company manufactures and markets a wide variety of lighting products including Compact Fluorescent Lamps (CFL), Tubular Fluorescent Lamps (FTL), High Intensity Discharge Lamps (HID) and Metal Halide Lamps (MH), Domestic & Commercial Light Fixtures. CEMA owns the CEMA brand and also possesses a license from General Electric Corp. to manufacture and market consumer lighting products under the GE brand name in India, Sri Lanka, Bangladesh, Nepal, Bhutan and Maldives. Both the CEMA and GE brands have a high equity and acceptability in the Indian lighting market.

2 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

About the Project:

The project was to find the scope of improving Cash to Cash Cycle by Improving Demand Forecasting Techniques. This part aimed at finding the amount that can be effectively saved if the forecasting errors are removed at each and every branch. The second part of the project was to find the right focus for each and every branch, which in turn for the company as a whole. CEMA recently purchased forecasting software (Forecast Pro), and wants to review its performance after a year

Objectives: Objective1:
To find the scope for improvement in Cash to Cash Cycle by studying the current performance of the forecasting system, this included Identifying the areas which can be improved Identifying the factors in selected areas Studying the performance selected factors Suggesting improved methods Finding out how much money that could be saved

Objective 2:
To find the current focus for each and individual branch and company as a whole, this included Product performance analysis Studying product movement within a branch Studying product movement within a region Suggesting the right focus for the branch Suggesting the areas of concern and branches to be taken care of

Things Provided:
Forecast and Sales data of various SKUs for all the branches for two years Supplier details such as location, lead time etc., Stock at close for each and every month Selling price of all the SKUs

Tools Used:
Microsoft Excel

3 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Summary
The project deals with improving the Cash to Cash cycle of the organization as a whole, which was achieved by studying the historical Forecast-Sales variation of various product portfolios across 15 sales hubs of the company allover India. Improved forecast accuracy leads to many downstream improvements in a variety of business areas such as customer service and asset management. Understanding and predicting the elements that make up the final SKU forecast forms the basis for improving Cash to Cash Cycle, first phase of the project focused on finding the variables that directly affect the sales and focus of each branch. With more than 300 SKUs in consumer, commercial, roadway and industrial lighting, the first and foremost variable that was found to affect the sales of individual branches was identified as the Focus. To identify the right focus area for each and every branch a Product performance analysis was done in a national scale and compared it with regional and individual branch performances. A list of Top 20 SKUs and Bottom 20 SKUs with respect to sales revenue and no of units was done for regional level and individual branches and compared with each other, from this study the areas of concerns, which should be given more importance and poor performing SKUs which should be removed from individual branch or region as a whole were identified. With over 25 suppliers and services catering to around 2 lakh retail outlets through its network of over 600 distributors, the second most important factor affecting the organization sales and increasing the Cash Cycle was identified as logistical lag. A detailed study about the forecast report period and lag in delivery was done and the average sales loss for every branch due to logistical lag was calculated. Comparing the branch location and the supplier location new forecast report date was advised for individual SKUs which were problematic. The third major problem was found in the forecast itself. Due to nature of some SKUs they were over forecasted (optimistic forecasting error) while some SKUs were under forecasted (pessimistic forecasting error) and the company was found ignoring the seasonal changes in their forecasting process. The average inventory carryover cost due to optimistic forecasting, seasonal errors and logistics along with loss in sales due to pessimistic forecasting, seasonal errors, and logistics was computed and a weighted average score was given in terms of loss incurred by every branch was given. This can be used to identify the important areas of concern in each and individual branch along with branches to be taken care immediately.

4 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Studies Conducted:
Product Performance Analysis Logistical lag study Forecasting bias Seasonal product movement

Product Performance Analysis: Objective of the study:

This study was conducted to find the products which require more focus and things that should be removed out of the portfolio for overall good of the company. This study was also conducted to compare branch wise product performances and find the reasons which resulted in top SKUs of other branches fail miserably in few places.

Method Used:
First individual sales data for each and every branch was consolidated in terms of sales revenue and sales units. Top and bottom twenty SKUs of each and individual branch and region were found in terms of SKUs and in terms of sales revenue. This list was compared with all other branches to find how the branch was performing, if a branch was different from all others, it was selected for further study. The second part of the study involved in studying deeply in to Weightage associated with each and individual product in terms of sales and no. of SKUs sold. This helped me to identify the products which should be given more importance/focus and the products where focus should be removed.

Shortcomings:
The study fails to find the reasons for any failure or problem that is associated with the product/branch. This study shows only that there exists a problem associated with such and such product and with the branch. This study did not take into account of the lost opportunity of various products due to forecast and logistical errors.

Logistical Lag study: Objective of the study:

For a company which sources 100% of its final products from outside suppliers with almost all of the CFL and GLS (which totally accounts for 90% of sales) procured from the North

5 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

region, logistical lag should be minimized, keeping this in mind, the average loss in sales, in turn resulting in excess inventory was to be found to improve its Cash Cycle.

Method Used:
By taking the shipment in transit, which was a result of late forecast-reporting, which in turn resulted in loss of sales and excess inventory, the exact value lost in terms of sales profit and carryover cost was computed for each and every branch.

Seasonal product movement: Objective of the study:

This study was conducted to identify any seasonal or cyclical behavior within the product sales movement.

Method Used:
Graphical method was used to identify the cyclical movements. Sales movements of various products for the last 3 years were plotted together to identify the cyclic movements. If the cyclic movement of the product was not accounted, the amount which could have been saved by avoiding that mistake was calculated and accounted for improvements.

Forecast Bias and Seasonal errors: Objective of the study:

This study was done to find the exact value of excess inventory which was more than the normal level to service 95% of the cases (95% service levels), loss in sales due to pessimistic forecasting of some products and loss in sales in excess inventory due to seasonal changes, which was not taken into account while calculating the forecasts.

Method Used:
First the inventory levels as a function of last five month sales, required for 95% service levels, as a historical trend of different product groups were calculated and this number was compared with the inventory levels and the causes for deviations, if any, was categorized into the known error terms. The error terms were then categorized as Pessimistic forecasting error, Optimistic forecasting error, Cyclic/Seasonal error and the Logistical Lag error.

6 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Study Results and Conclusions:

Based on the study carried out, the performance of each and every branch is reported to the company on various parameters. The performance is compared with its regional peers and the national average. Since its not possible to include all the parameters and all the branches within the given word limit of the project, only important parameters for three of one branch of the East region, is explained here to illustrate the structure of the results given to the company. Summary for all the 15 branches is given in the end.

Results for Branch wise Study: Branch: Kolkata Region: East

Kolkata is an average branch in terms of sales, occupies 2nd position in terms of sales in eastern region and 10 in national level. Kolkata accounts for 4.07% of national sales and 2.30% of all units sold in the country by CEMA. The branch is having 120 active SKUs and approximately 2 crores in sales for the financial year 2010-2011. Out of 175 active SKUs of CEMA, Kolkata focuses only on 120, but still the last twenty SKUs accounts for less than 0.5% of the overall sales of the branch in both Sales volume classification and in Sales units classification. Table 1.1
Branch Average Sales Units Kolkata 579879 Amount 19449341 Sales Contribution to the country % Units 2.30% Amount 4.07% Ranks Units 11 Amount 10 Portfolio Portfolio Rank Rank Size % 120 68.5 9

Contribution of Top 20 Units Amount 91.74% 86.75%

Contribution of Bottom 20 Units Amount 0.14% 0.19%

7 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Top SKUs of the branch: Top20 by sales revenue:

Table 1.2
By Sales Amount(Yearly Fig) Top20 by sales value SV%Within Name SV SU Branch CEMA CFL ENDURA T4 15W 2U 65K B22 3086955.7 39205 15.87% CEMA CFL ENDURA T4 20W 3U 65K B22 2743141.0 28499 14.10% CEMA CFL WHIRLITE T3 23W SPIRAL 65K B22 1880791.9 16452 9.67% CEMA FTL TC3 4 40W T12 1860012.5 68142 9.56% CEMA HYPHEN-D T-5 batten 28w 818640.0 2508 4.21% CEMA GLS CLEAR 100W 230V BC CL/150PK 711017.4 114989 3.66% CEMA CFL ENDURA T4 11W 2U 65K B22 695958.5 8646 3.58% CEMA CFL TINY T3 5W 2U 65K B22 621654.6 7989 3.20% CEMA CFL TINY T3 8W 3U 65K B22 537143.8 6456 2.76% CEMA GLS CLEAR 60W 230V BC CL/150PK 510916.7 85771 2.63% CEMA CFL ENDURA T4 23W 3U 65K B22 463350.8 3823 2.38% CEMA CFL ENDURA T4 30W 4U 65K B22 396673.9 2500 2.04% CEMA CFL WHIRLITE T4 27W SPIRAL 65K B22 393910.7 2580 2.03% CEMA Trende T-8 36w Elec. Batten 362340.0 1647 1.86% CEMA CFL ENDURA T4 36W 4U 65K B22 347229.3 2027 1.79% CEMA FTL FSU STARTER 20/40W 230-250V 341860.0 75480 1.76% CEMA CFL WHIRLITE T4 32W SPIRAL 65K B22 271472.5 1413 1.40% CEMA Prajjwal 36/40w FTL ballast 214345.0 3263 1.10% CEMA CFL WHIRLITE T3 15W SPIRAL 65K B22 209909.8 1810 1.08% CEMA CFL BIGLITE T5 65W 4U 65K B22 203307.4 527 1.05% CEMA FTL ENERGY SAVER 36W 202440.0 8040 1.04% 86.75%

SU%Within Branch 6.76% 4.91% 2.84% 11.75% 0.43% 19.83% 1.49% 1.38% 1.11% 14.79% 0.66% 0.43% 0.44% 0.28% 0.35% 13.02% 0.24% 0.56% 0.31% 0.09% 1.39% 83.08%

As we can see, 16% of the top SKUs in terms of sales value results in around 87% of sales in terms of volume and they result in 83% of all the units sold in the branch. The company wants to find out the missing links in some of the poor performing SKUs which are performing well in other branches.

8 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Top20 by sales units:

Table 1.3
Name CEMA GLS CLEAR 100W 230V BC CL/150PK CEMA GLS CLEAR 60W 230V BC CL/150PK CEMA FTL FSU STARTER 20/40W 230-250V CEMA FTL TC3 4 40W T12 CEMA CFL ENDURA T4 15W 2U 65K B22 CEMA GLS CLEAR 40W 230V BC CL/150PK CEMA CFL ENDURA T4 20W 3U 65K B22 CEMA CFL WHIRLITE T3 23W SPIRAL 65K B22 CEMA GLS 25W 230V BC CL /150 pk CEMA CFL ENDURA T4 11W 2U 65K B22 CEMA FTL ENERGY SAVER 36W CEMA CFL TINY T3 5W 2U 65K B22 CEMA CFL TINY T3 8W 3U 65K B22 CEMA GLS CLEAR 200W 250V BC CL CEMA CFL ENDURA T4 23W 3U 65K B22 CEMA NIGHT LAMP 15W 250V BC YELLOW CEMA Prajjwal 36/40w FTL ballast CEMA NIGHT LAMP 15W 250V BC RED CEMA CFL WHIRLITE T4 27W SPIRAL 65K B22 CEMA NIGHT LAMP 15W 250V BC MILKY CEMA HYPHEN-D T-5 batten 28w Top20 by sales units SV%Within SV SU Branch 711017.4 114989 3.66% 510916.7 85771 2.63% 341860.0 75480 1.76% 1860012.5 68142 9.56% 3086955.7 39205 15.87% 192657.0 32550 0.99% 2743141.0 28499 14.10% 1880791.9 78927.0 695958.5 202440.0 621654.6 537143.8 69000.0 463350.8 22593.4 214345.0 19944.0 393910.7 17289.0 818640.0 16452 13350 8646 8040 7989 6456 5520 3823 3306 3263 2880 2580 2510 2508 9.67% 0.41% 3.58% 1.04% 3.20% 2.76% 0.35% 2.38% 0.12% 1.10% 0.10% 2.03% 0.09% 4.21% 79.60% SU%Within Branch 19.83% 14.79% 13.02% 11.75% 6.76% 5.61% 4.91% 2.84% 2.30% 1.49% 1.39% 1.38% 1.11% 0.95% 0.66% 0.57% 0.56% 0.50% 0.44% 0.43% 0.43% 91.74%

As we can see, like all other northern branches, GLS is completely absent from the top SKUs by sales list even though we can see many of those SKUs feature in the Top20 by sales units list. One interesting fact to be noted is that the top 20 SKUs of the branch accounts for 85% and 92% of all its sales revenue and the units sold respectively.

9 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Bottom SKUs of the branch: Bottom 20 by Sales:

Table 1.4
Bottom20 Name CEMA Candle Clear 25W B22 CEMA Candle Clear 40W B22 CEMA Candle Clear 60W B22 CEMA CFL WHIRLITE T3 9W SPIRAL 27K B22 CEMA Candle Coated 25W E14 CEMA Candle Coated 25W E14 CEMA Candle Clear 25W E14 CEMA Classic Round Clear 40W E14 CEMA Maxlite CFL ballast 10-13w 240v CEMA Classic Round Clear 60W E14 CEMA Classic Round Coated 40W E14 CEMA Classic Round Coated 40W E27 CEMA HPSV 70 E CEMA Classic Round Clear 40W E27 CEMA Classic Round Clear 60W E27 CEMA Candle Coated 60W E27 CEMA Candle Clear 40W E27 CEMA Candle Coated 40W E27 CEMA HPSV 150 T CEMA Candle Coated 40W E14 CEMA Classic Round Coated 60W E14 SV 412.5 825.0 825.0 1079.1 1202.5 1202.5 1268.8 1312.5 1550.0 1750.0 1850.0 1850.0 2090.0 2187.5 2187.5 2312.5 2362.5 2682.5 2700.0 2775.0 2775.0 SU 50 100 100 10 130 130 145 150 25 200 200 200 11 250 250 250 270 290 12 300 300 SV%Within Branch 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.19% SU%Within Branch 0.01% 0.02% 0.02% 0.00% 0.02% 0.02% 0.03% 0.03% 0.00% 0.03% 0.03% 0.03% 0.00% 0.04% 0.04% 0.04% 0.05% 0.05% 0.00% 0.05% 0.05% 0.58%

The real concern is with the bottom SKUs of the branch. The last 30 of the branch accounts for only 0.5 % of the branchs sales and no of units sold. Some particular SKUs product categories like CEMA HPSV and CEMA Whirl light etc. can be removed from the portfolio as they account for less than 0.1% of the sales. The inventory charges of HPSV and Whirl light will certainly exceed the profit margins. Though Whirl light is categorized under CFL retrofit, it can be seen that it is failing miserably. One interesting thing to note is that CFL Tiny and Maxlite having some of SKUs which are not having any sales, while some of its peers are doing well in the same region. These inactive Tiny/Maxlite pair carries on some amount of inventory throughout cycle period.

10 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Bottom 20 by Sales Units:

Table 1.5
Bottom20 Name CEMA MH IBU 70w CEMA CFL MAXLITE-D 18W/2700K 2 Pin CEMA CFL WHIRLITE T3 9W SPIRAL 27K B22 CEMA HPSV 70 E CEMA HPSV 150 T CEMA HPSV 150 E CEMA 400W MH SE-Tubular-E40 CEMA Maxlite CFL ballast 10-13w 240v CEMA CFL WHIRLITE T3 23W SPIRAL 65K E27 CEMA CFL WHIRLITE T3 23W SPIRAL 27K B22 CEMA HPSV 70 T CEMA Candle Clear 25W B22 CEMA FTL T5 28W/827 CEMA CFL TINY T3 5W 2U 2700K E27 CEMA CFL TINY T3 8W 3U 27K E27 CEMA CFL WHIRLITE T3 15W SPIRAL 27K B22 CEMA CFL WHIRLITE T3 15W SPIRAL 65K E27 CEMA CFL WHIRLITE T3 9W SPIRAL 65K E27 CEMA HYPHEN-E T-5 batten 14w CEMA Maxlite CFL ballast 5-11w 240v CEMA Maxlite CFL ballast 18w 240v SV 3680.0 0.0 1079.1 2090.0 2700.0 3480.0 8730.0 1550.0 4292.8 4370.0 4311.0 412.5 3000.0 3900.0 4185.9 5950.0 7059.6 7679.1 19600.0 4875.0 4975.0 SU SV%Within Branch 8 10 10 11 12 12 18 25 30 30 35 50 50 50 50 50 60 70 70 75 75 0.02% 0.00% 0.01% 0.01% 0.01% 0.02% 0.04% 0.01% 0.02% 0.02% 0.02% 0.00% 0.02% 0.02% 0.02% 0.03% 0.04% 0.04% 0.10% 0.03% 0.03% 0.50% SU%Within Branch 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.14%

Problematic areas:
The overall study indicates that forecasting errors accounts for most of the problems in the branch. With almost 40% of the excess inventory and 40% in loss of sales is due to forecasting errors. This excess inventory is calculated by calculating the excess inventory which was more than the safety stock required for 95% service levels. As far as logistics as considered the branch is below par than its peers and has to be focused on.

11 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Seasonal Changes:
Seasonal changes in products such as CEMA Maxlite and CEMA HPSV in all the volt ranges are not considered buy the company. This resulted in excess inventory in the branch for most of the time in the last two years.

Logistical Problems:
Logistical problems are observed with the GLS suppliers form Noida and Delhi, so it is advised for the branch to revise their lead time estimates and change their order placing cycle to avoid further delays in from areas.

Monthly Savings that can be achieved:

Table 1.6
Branch Name Sales as a % of national sales Average sales Average excess stock at close Average deficit in stock Average inventory in excess due to forecast errors Cost of capital Error type Forecast Weightage Rs Rs Rs Rs WACC% (industrial average) Kolkata 4.07% 1620778.39 2490725.57 583577.82 1245362.79 11.00%

Pessimistic Optimistic Seasonal Savings that can be made if errors are corrected

Logistics

40.00% 40.00% 5.00% 7.00%

Unrealized profit Savings from reduced inventory by correcting optimistic forecast Savings from reduced inventory by correcting optimistic forecast Savings from improved logistical services Savings from correcting seasonal changes

=Profitmargin*avg deficit in stock*pessimistic =optimistic*avg excess inventory excess to req safety stock inventory*WACC+Holding cost =optimistic*avg excess inventory excess to req safety stock inventory*WACC+Holding cost

28011.74 79703.22

7540.05 5385.75

Total Gain/month 120640.75 As we can see there is a lot of space for improvement in this branch and we can save as much as 120640 Rupees per month from this branch.

12 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Results for Branch wise Study: Region: East

East region consists of Kolkata, Guwahati and Ranchi. This is the smallest region, both in terms of number of branches and in terms of sales. Last year the region accounted for 5.3 Crores in sales. The region holts 120 portfolios and accounts for 5.5% of overall sales in terms of units sold and 11.2% in terms of value of sales. Though it governs only 68% of the active SKUs of CEMA, the sales in the region are highly skewed. The 16% of the top products accounts for 83% and 91% in terms of number of units and value sold. Table 2.1
Branch Average Sales Units 1395661 Amount 53487360 Sales Contribution to the country % Units Amount 5.55% 11.19% Ranks Units 4 Amount 4 Size 120 Portfolio % 68 Rank 4

East

Contribution of Top 20 Units Amount 83.34% 91.32%

Contribution of Bottom 20 Units Amount 0.07% 0.28%

Guwahati is the top performer in the branch, followed by Kolkata and Ranchi. Due to less number of branches in the region and presence of poor performers like Ranchi in the list of branches, this region is not having much impact on the overall performance of the company. Due to less importance, these branches are not given required attention, there by the logistical lags in the branch as a whole is high, and the geographical disadvantage magnifies it.

13 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Top SKUs of the Region: Top20 by sales revenue:

Table 2.2
Name CEMA CFL ENDURA T4 15W 2U 65K B22 CEMA CFL ENDURA T4 20W 3U 65K B22 CEMA CFL ENDURA T4 11W 2U 65K B22 CEMA CFL WHIRLITE T3 23W SPIRAL 65K B22 CEMA FTL TC3 4 40W T12 CEMA CFL TINY T3 8W 3U 65K B22 CEMA GLS CLEAR 100W 230V BC CL/150PK CEMA CFL TINY T3 5W 2U 65K B22 CEMA GLS CLEAR 60W 230V BC CL/150PK CEMA HYPHEN-D T-5 batten 28w CEMA CFL ENDURA T4 23W 3U 65K B22 CEMA CFL WHIRLITE T4 27W SPIRAL 65K B22 CEMA CFL BIGLITE T5 65W 4U 65K B22 CEMA CFL ENDURA T4 30W 4U 65K B22 CEMA CFL WHIRLITE T4 32W SPIRAL 65K B22 CEMA CFL BIGLITE T5 45W 4U 65K B22 CEMA CFL ENDURA T4 36W 4U 65K B22 CEMA Trende T-8 36w Elec. Batten CEMA CFL TINY T3 15W 3U 65K B22 CEMA CFL WHIRLITE T3 15W SPIRAL 65K B22 CEMA FTL ENERGY SAVER 36W Top20 SV%Within SV SU Branch 13574517.2 173770 25.38% 9824542.0 107929 18.37% 3418573.2 42654 6.39% 3144677.6 3054891.5 2115961.2 2103244.3 1980321.0 1475889.8 1171940.0 1065834.9 860909.4 735169.6 667557.5 651789.9 587710.3 576325.0 509740.0 477141.7 476265.7 369685.0 31179 110236 25698 327988 25740 238959 3588 8820 5690 1906 4220 3430 2056 3372 2317 4833 4225 14650 5.88% 5.71% 3.96% 3.93% 3.70% 2.76% 2.19% 1.99% 1.61% 1.37% 1.25% 1.22% 1.10% 1.08% 0.95% 0.89% 0.89% 0.69% 91.32% SU%Within Branch 12.45% 7.73% 3.06% 2.23% 7.90% 1.84% 23.50% 1.84% 17.12% 0.26% 0.63% 0.41% 0.14% 0.30% 0.25% 0.15% 0.24% 0.17% 0.35% 0.30% 1.05% 81.92%

As we can see, 16% of the top SKUs in terms of sales value results in around 91% of sales in terms of volume and they result in 82% of all the units sold in the branch. Though this region is not been advertised well the top performers all over the country are having a good presence in this region. The GLS sector is absent in the region as a whole, which is a point to note as the sales are fully driven by the CFL sector.

14 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Top20 by sales units:

Table 2.3
Name CEMA GLS CLEAR 100W 230V BC CL/150PK CEMA GLS CLEAR 60W 230V BC CL/150PK CEMA CFL ENDURA T4 15W 2U 65K B22 CEMA FTL TC3 4 40W T12 CEMA CFL ENDURA T4 20W 3U 65K B22 CEMA FTL FSU STARTER 20/40W 230-250V CEMA GLS CLEAR 40W 230V BC CL/150PK CEMA CFL ENDURA T4 11W 2U 65K B22 CEMA CFL WHIRLITE T3 23W SPIRAL 65K B22 CEMA CFL TINY T3 5W 2U 65K B22 CEMA CFL TINY T3 8W 3U 65K B22 CEMA GLS 25W 230V BC CL /150 pk CEMA FTL ENERGY SAVER 36W CEMA GLS CLEAR 200W 250V BC CL CEMA CFL ENDURA T4 23W 3U 65K B22 CEMA NIGHT LAMP 15W 250V BC RED CEMA NIGHT LAMP 15W 250V BC YELLOW CEMA CFL WHIRLITE T4 27W SPIRAL 65K B22 CEMA NIGHT LAMP 15W 250V BC MILKY CEMA CFL TINY T3 15W 3U 65K B22 CEMA NIGHT LAMP 15W 250V BC FROSTED SV 2103244.3 1475889.8 13574517.2 3054891.5 9824542.0 357500.0 353475.5 3418573.2 3144677.6 1980321.0 2115961.2 113244.8 369685.0 124625.0 1065834.9 46188.0 45537.4 860909.4 36693.0 477141.7 32058.0 SU 327988 238959 173770 110236 107929 78920 57897 42654 31179 25740 25698 18893 14650 9970 8820 6620 6546 5690 5250 4833 4720 Top20 SV%Within Branch 3.93% 2.76% 25.38% 5.71% 18.37% 0.67% 0.66% 6.39% 5.88% 3.70% 3.96% 0.21% 0.69% 0.23% 1.99% 0.09% 0.09% 1.61% 0.07% 0.89% 0.06% 83.34% SU%Within Branch 23.50% 17.12% 12.45% 7.90% 7.73% 5.65% 4.15% 3.06% 2.23% 1.84% 1.84% 1.35% 1.05% 0.71% 0.63% 0.47% 0.47% 0.41% 0.38% 0.35% 0.34% 93.64%

In number of units sold, the region is following the similar trend as the top performers in terms of sales volume. It clearly indicates that 84% of the products merely accounts for 7 percent of the units sold. The company should take this into account and decide whether it should keep those SKUs or should they change their sales strategy for these products.

Bottom SKUs of the region: Bottom 20 by Sales:

The real concern is with the bottom 70 SKUs of the branch. The last 50 of the branch accounts for only 3 % of the branchs sales and no of units sold. The bottom 30 of the branch accounts for only 0.5% of the sales. Some SKUs product categories like CEMA HPSV and CEMA

15 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Whirl light, CFL Tiny, CFL Candle light, Maxlite, Classic round etc, Can be shelved so that the Nagpur can focus on other areas.

Table 2.4
Name CEMA Candle Clear 25W B22 CEMA Maxlite CFL ballast 10-13w 240v CEMA Candle Clear 60W B22 CEMA Candle Clear 40W B22 CEMA Classic Round Clear 60W E14 CEMA HPSV 70 E CEMA Candle Clear 25W E14 CEMA HPSV 150 T CEMA Candle Coated 25W E14 CEMA Candle Coated 25W E14 CEMA CFL MAXLITE-S 11W/2700K 2Pin CEMA Classic Round Clear 40W E27 CEMA MH IBU 70w CEMA Classic Round Clear 60W E27 CEMA CFL MAXLITE-S 11W/6500K 4Pin CEMA CFL TINY T3 5W 2U 2700K E14 CEMA CFL WHIRLITE T3 15W SPIRAL 27K E27 CEMA Maxlite CFL ballast 5-11w 240v CEMA Candle Coated 60W E27 CEMA Maxlite CFL ballast 18w 240v CEMA Classic Round Clear 40W E14 SV 412.5 1550.0 1633.5 1650.0 1925.0 2090.0 2318.8 2700.0 2775.0 2775.0 2923.6 3062.5 3680.0 3937.5 4033.6 4038.7 4638.4 SU 50 25 198 200 220 11 265 12 300 300 80 350 8 450 110 50 40 Bottom20 SV%Within Branch 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.12% SU%Within Branch 0.00% 0.00% 0.01% 0.01% 0.02% 0.00% 0.02% 0.00% 0.02% 0.02% 0.01% 0.03% 0.00% 0.03% 0.01% 0.00% 0.00% 0.01% 0.04% 0.01% 0.04% 0.28%

4875.0 75 4930.3 533 4975.0 75 4978.8 569

As we can see the bottom 20 SKUs by volume accounts for only 0.12% of the sales. But the companys policy of equally allocating the overheads over the entire product range along with the advertisement costs will make these products costlier to have it in the overall portfolio, so the company should take a look into their accounting principles based on this.

16 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Bottom 20 by Sales Units:

Table 2.5
Name CEMA MH IBU 70w CEMA CFL MAXLITE-D 18W/2700K 2 Pin CEMA HPSV 70 E CEMA HPSV 150 T CEMA HPSV 150 E CEMA Maxlite CFL ballast 10-13w 240v CEMA 70W MH DE RX7S-DL CEMA HPSV 400 T CEMA CFL WHIRLITE T3 15W SPIRAL 27K E27 CEMA HPSV 70 T CEMA 250 W MH SE-Tubular-E40 CEMA Candle Clear 25W B22 CEMA CFL TINY T3 5W 2U 2700K E14 CEMA CFL TINY T3 8W 3U 27K E27 CEMA CFL WHIRLITE T3 9W SPIRAL 65K E27 CEMA Maxlite CFL ballast 5-11w 240v CEMA Maxlite CFL ballast 18w 240v CEMA CFL MAXLITE-S 11W/2700K 2Pin CEMA CFL TINY T3 8W 3U 27K E14 CEMA CFL TINY T3 15W 3U 27K B22 CEMA 70W MH T G12 DL SV 3680.0 0.0 2090.0 2700.0 6180.0 1550.0 6625.0 11700.0 4638.4 5789.0 22080.0 412.5 4038.7 5015.9 7679.1 4875.0 4975.0 2923.6 6757.6 8317.6 49875.0 SU 8 10 11 12 24 25 25 36 40 47 48 50 50 60 70 75 75 80 80 80 95 Bottom20 SV%Within Branch 0.01% 0.00% 0.00% 0.01% 0.01% 0.00% 0.01% 0.02% 0.01% 0.01% 0.04% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.02% 0.09% 0.30% SU%Within Branch 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.07%

The same trend is followed in terms of number of units sold as an average across the months. The bottom 20 accounts for only 0.3% of overall sales.

Problematic areas:
The overall study indicates that forecasting errors accounts for most of the problems in the branch. With almost 43.3% of the excess inventory and 46.6% in loss of sales is due to forecasting errors. This excess inventory is calculated by calculating the excess inventory which was more than the safety stock required for 95% service levels. As far as logistics is considered the company is below par than its peers and should be taken to account.

17 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Seasonal Changes:
Seasonal changes in products such as CEMA Candle Clear and CEMA Classic Clear in all the volt ranges are not considered buy the company. This resulted in excess inventory in the branch for most of the time in the last two years.

Logistical Problems:
Logistical problems are observed with the GLS and CFL candle suppliers form Noida and Delhi, so it is advised for the region to revise their lead time estimates and change their order placing cycle to avoid further delays in from areas.

Monthly Savings that can be achieved:

Table 1.6
Branch Name Sales as a % of national sales Average sales Average excess stock at close Average deficit in stock Average inventory in excess due to forecast errors Cost of capital Error type Forecast Weightage Rs Rs Rs Rs WACC% (industrial average) East 11.19% 4457280.04 4457280.15 1368571.04 2476006.11 11.00%

Pessimistic Optimistic Seasonal

Logistics Savings that can be made if errors are corrected Unrealized profit Savings from reduced inventory by correcting optimistic forecast Savings from improved logistical services Savings from correcting seasonal changes =Profitmargin*avg deficit in stock*pessimistic =optimistic*avg inventory*WACC+Holding cost

43.33% 46.67% 4.33% 4.00%

71165.69 176621.77 9911.50 10737.46

Total Gain/month

268436.42

As we can see there is a lot of space for improvement in this branch and we can save as much as 2.6 lakhs Rupees per month from this region.

18 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

Summary:
The consolidated list for each and every branch and regions were studied and the items which should be given importance/removed from the portfolio were found. The overall importance that should be given to different issues in each and every branch was highlighted and suggestions were given to the company. Though the forecasting models is found to be not working in most of the cases, it can be customized based on the suggestions given, ignoring forecasting models will make the company fail miserably in meeting the demands from the market. One of the biggest limitations to the study is that it gives the ultimate benchmark after the occurrence of the event; we cannot say with hundred percent sureties that it can be achieved by improving the practices. Its like a company with 100% efficiency, a benchmark. Table 3.1
Branch Average Sales Units Kolkata 579879 Amount 19449341 28098542 5939478 53487360 87707115 67464610 10256144 165427869 11139015 54777736 26397670 10896550 16312311 119523283 36024337 44301162 24040231 35013025 139378755 477817268 Sales Contribution to the country % Units Amount 2.30% 2.82% 0.42% 5.55% 22.06% 19.17% 2.86% NA 1.63% 7.06% 4.76% 1.78% 2.18% NA 8.80% 7.56% 3.91% 12.68% NA 105.55% 4.07% 5.88% 1.24% 11.19% 18.36% 14.12% 2.15% NA `2.33% 11.46% 5.52% 2.28% 3.41% NA 7.54% 9.27% 5.03% 7.33% NA 111.19% Ranks Units Amount 11 10 15 4 1 2 9 NA 14 6 7 13 12 NA 4 5 8 3 NA NA 10 7 15 4 1 2 14 NA 12 3 8 13 11 NA 5 4 9 6 NA NA Size 120 100 70 120 161 162 100 162 138 152 119 120 138 152 140 116 142 127 142 175 Portfolio % 68 57 40 68 92 92 57 92 78 86 68 68 78 86 80 66 81 72 81 100 Rank 9 13 15 4 2 1 13 NA 6 3 11 9 6 NA 5 12 4 8 NA NA

710637 Guwahati 105145 Ranchi 1395661 East Ahmedabad 5550729 4824246 Bhiwandi 719848 agpur 11094823 West Delhi 411416 Ghaziabad 1775446 Jaipur 1197504 Dehradun 448783 Zirkapur 547606 4380755 orth 2215606 Bangalore 1903223 Cochin 983438 Chennai Hyderabad 3191070 8293337 South 25164576 India

19 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques

The overall savings that can be done in a national level is 23 lakhs per month as consolidated and shown in Table 3.2. Table 3.2
Branch Name Sales as a % of national sales Average sales Average excess stock at close Average deficit in stock Average inventory in excess due to forecast errors Cost of capital Error type Forecast India 111.19% 44275385.71 42683309.73 13820917.41 21589020.90 11.00%

Logistics Savings that can be made if errors are corrected Unrealized profit Savings from reduced inventory by correcting optimistic forecast Savings from improved logistical services Savings from correcting seasonal changes

31.74% 46.51% 4.93% 9.75%

526419.97 1536273.56 201203.33 101749.19

Total Gain/month

2365646.04

Though the analysis is showing promising returns by removing the forecasting errors and concentrating on the logistical lag along with improved focus, the analysis fails to capture the important picture, that is some of the SKUs, even if they sell only 2-3 per month, they only form a correct mixture or a bundle for the product group as a whole, absent of those small product groups may have a huge impact over other sales, the analysis fails to take a look at that perspective as, that is way too beyond scope of this study.

Reference:
Consolidated sales Data of CEMA Electric Lighting Products India Pvt. Ltd., for the financial year 2010-11 Operations Management, Jae K. Shim, Joel G. Siegel.

20 Improving Cash to Cash Cycle by improving Demand Forecasting Techniques