Leitax Case Solution

Oues1) Based on the description of planning system before the Redesign

Project which functions or individuals should be handled responsible for
planning problem in financial year 2002 & 2004.
Ans1) An individual person cannot be held responsible for the planning
problems faced by Leitax in 2002. This is because the way that the various
teams were functioning within the supply chain were not well coordinated and
each team had their own perspective of the forecast. Hence the function in place
before the Redesign Project is responsible for the planning problems.
The initial forecasts for product introductions and midlife product
replenishments were developed by the sales team and then cascaded to the
operations and finance teams informally. The operations and finance teams
often second-guessed the forecasts since each team had their own objectives
that had to be met for the financial quarter/year and there was no consensus on
forecasts.
The sell-in numbers were often a distorted signal to quantify demand since the
sales team would often influence the short-term sell-in in order to receive more
incentive.
Sales directors often have capacity constraints in their mind while demand
estimation and thereby they limited the production output in the process. These
perceptions did not consider the future supply chain and manufacturing
capacities.
The MPS (master production schedule) which was generated every month was
inconsistent. Due to the large variations between MPS monthly versions the
suppliers often did not take the MPS production numbers seriously and
committed to the numbers without thinking about required capacity, materials,
and time required. Also, the data that were crucial for forecasting were often
unavailable or inaccurate.
The demand planning processes were not properly defined. The company did
not have any system to monitor demand planning or to create appropriate goals
in order to manage improvements like extending EOL (end of life) dates.
In 2004, the responsibility for the planning problems should be shared by both
the functions and the people involved in designing the redesign project namely
Fowler and McMillan. This is because the implemented solution was a great
success overall but still led to some overestimations and underestimations.
Ques2) Assess the consumers forecasting process used at Leitax.
Ans2) Traditional forecasting was ill defined. The sales group made forecast on
new product introduction and midlife product replenishment, the operations
group used the forecast to drive its supply chain, the finance group evaluated
the forecast to see if they can meet financial plans and urged adjustment if
needed. However, these functional groups could manipulate forecasts based on
their own incentives and interests. The three key actors in the forecasting
process had conflicting goals: the sales group's incentive was on commission on
sell-in to the resellers; the operation group wanted the most stable and desirable
forecast because it was easier to manage; the finance group wanted to meet
expectations on financial targets such as revenue and profitability. Not only
these forecasts had large discrepancies, the biases and ignorance of real market
information each group had significantly reduced forecasting accuracy.

As an outcome of inaccurate forecast, supplies mismatched market demand,

resulted in loss of sales, and inefficient and disorganized supply chain
operations. Due to ill-defined and inaccurate forecast, Leitax experienced huge
financial loss in 2002. As introduced previously, he delays of a model resulted
in lost sales, the opportunity cost of warehousing management and arranged
capitals that was waiting for the launch that summed up to $19.5 million. The
stock out on the second model reduced gross margin for about $4.5 million. The
obsolescence costs on the last model was about $2.5 million. No matter how
sounding the financial strategy was, if its forecast was not accurate, an
enterprise like Leitax would have difficulty in achieving it financial targets, or
would even fail to survive.
Therefore, it is urgent demand to have a consensus forecast system that could
incorporate each group’s needs and priorities to enjoy the sales growth that
would achieve financial target such as high profitability, and having an efficient
and easy-to-manage production and operation system.
Before, the concept of demand forecast was to serve the key functional groups
in achieving their own interest. Facing the new challenges, forecast needed to
be more accurate. And therefore, it needed a new concept that is to have a
consensus forecasting that would accurately reveal market demand and align the
needs of key actors in the forecasting process. Leitax implemented two specific
changes in forecasting process. The first one is to switch the focus from sell-in
to sell-through and second one is to ignore capacity constraints.
Ques3) Based on the description in the text and the evidence in Exhibit 6 &
9. What went wrong with the forecast of SF-6000?
Ans3) Launching the first 8-megapixel sensor and 10x zoom camera on the
market was a big accomplishment for Leitax. On their official press release, the
SF-6000 was named as an "a tool for serious photographers". There were huge
expectations about the product and everyone at the company was pretty excited
about it. Their biggest challenge was the forecast for a new product with huge
expectations and great reviews. It was no easy task given all the parts involved
were blinded by excitement, and according to their new model of forecast, the
final number should be a consensus between all the interested functions.

Leitax made a classical error by approving a boosted final forecast number,

even though science was running 30% lower than overall final proposed
consensus number for SP-6000. Driven by incitement, no one seemed to worry
about the statistical forecast which provided a reference point for the other
forecasts. On the process, it is stated that any high deviation should be
investigated but it does not seem to be the case for this camera's forecast.

By analysing the data provided on exhibit 6, it is easy to see how sales and top
down were clearly boosted. Looking from a region’s perspective, all approved
final numbers across the regions were higher than the statistical model predicted
with the exception of Latin America, where the opposite happens. It could be
speculated that sales head was not very familiar or did not have much
knowledge regarding reviews or consumer expectation on the specific region
and since account managers were excluded of this process, forecast seemed to
be very conservative and as a result, final numbers were closer to the actuals.
However, there is not enough data to draw any conclusion since none of the
regions had inputs from account managers at any point of the process.

Ques4) What are the core elements of CFP that Fowler & McMillan should
strive to maintain?
Ans4) The CFP was a great success as it increased the forecast accuracy from
58% in summer of 2003 to 88% by fall of 2004. The sell-in forecast accuracy
improved greatly as well leading to significant operational efficiency. Although
Leitax had achieved a milestone by 2004, there were other issues that Leitax
faced like the over optimistic estimation of model SF-6000 and the
cannibalization of model ShootXL. The strengths and weaknesses discussed in
detail below give an overall picture as to how the CFP turned out for Leitax by
2004.
 Considered views from different teams in the supply chain
 Single forecast that drives the entire organization
 Forecasts presented in front of the Finance team
 CFP made sure that all the teams understood the reasons behind the forecast
of every other team
 Open discussions were made when one team had to revise their forecast
 Finance team could voice their constraints and views about the various
forecasts as they have an in depth understanding of revenues
 The accuracy of forecasting increased by 50%, excess costs were almost
eliminated completely, inventory levels decreased by 37% and inventory
turns increased from 1.8 to 5.3 in 2004
 Eliminated the need for second guessing the forecast by other teams

Ques5) How if at all would you recommend the process be improved?

Ans5) Before the CP, there was a huge degree of informality around the forecast
process. A tremendous lack of process and a great level of inaccuracy generated
a great level of uncertainty around it. Fowler and McMillan were able to
introduce a certain degree of formality, a somewhat of a process where every
area function would agree, and commit to it. The gist of CP was the
introduction of forecast meeting and this should be kept. The process itself on
the other hand was confusing, misleading and it should be reformulated.
Forecast should come from DMS and it should be driven by the statistical
model, taking in consideration BAP and adjust variables when necessary. Upper
level management should approve the forecast provided by DMS while other
functions would receive that number and then work as team to meet the
requirements expected by the forecast. DMS would have inputs from every
function, as BAP should be kept as an extra set of data to be consulted and
taken into consideration but not the main driver of the analysis.