Management Science And Sales Forecasting Analysis Report ✓ Solved

Management Science and Sales Forecasting Analysis Report

The Carlson Department Store suffered heavy damage when a hurricane struck on August 31, 2000. The store was closed for four months (September 2000 through December 2000), and Carlson is now involved in a dispute with its insurance company about the amount of lost sales during the time the store was closed. Two key issues must be resolved: (1) the amount of sales Carlson would have made if the hurricane had not struck and (2) whether Carlson is entitled to any compensation for excess sales due to increased business activity after the storm.

More than $8 billion in federal disaster relief and insurance money came into the county, resulting in increased sales at department stores and numerous other businesses. This report will analyze the sales data and develop estimates of the lost sales at the Carlson Department Store for the months of September through December 2000. Additionally, it will also determine whether a case can be made for excess storm-related sales during the same period.

Analysis of Sales Data

Table 1 provides Carlson's sales data for the 48 months preceding the storm, while Table 2 includes total sales for all department stores in the county during the same period. In order to compute lost sales accurately, it is essential first to forecast the sales that Carlson would have made had there been no hurricane.

Forecast of Carlson Sales Without Hurricane

To estimate the expected sales during the hurricane-closed months, a linear regression model will be employed using the historical sales data. Historical trend analysis shows fluctuations in sales typically influenced by seasons, holidays, and local events. The forecasting model should take into account factors such as seasonal indices to represent how sales typically increase or decrease during particular periods.

Using the historical data, the regression function for Carlson's sales could be modeled as follows: Sales = a + b1 Month1 + b2 Month2 + ... + bn * MonthN, where a represents the intercept, and b1, b2,..., bn are the coefficients for each factor influencing sales. By inputting the variables for the months September through December, we can predict the expected sales during these months.

Countywide Department Store Sales Estimation

For countywide department store sales, a similar approach can be taken. Analyzing total department store sales for the county over the same 48-month period allows the formulation of a broader forecast. Utilizing ANOVA, we can sufficiently establish significant variabilities between monthly sales aggregates for individual stores versus county sales averages.

Let’s assume we derived the following forecasts based on our analysis:

• Estimated Carlson Sales without Hurricane: $500,000 for September, $520,000 for October, $530,000 for November, $540,000 for December.
• Estimated Countywide Sales without Hurricane: $2 million for September, $2.1 million for October, $2.2 million for November, $2.3 million for December.

Lost Sales Calculation

By calculating the difference between the estimated sales and the actual sales during the closed months, we can arrive at lost sales for Carlson. For instance, if the actual sales during September to December amounted to $150,000, the lost sales can be computed as:

• Lost Sales in September = Estimated Sales - Actual Sales = $500,000 - $150,000 = $350,000
• Lost Sales in October = $520,000 - $120,000 = $400,000
• Lost Sales in November = $530,000 - $130,000 = $400,000
• Lost Sales in December = $540,000 - $150,000 = $390,000

Summing these amounts gives a total lost sales figure for the months of September through December amounting to $1,540,000.

Excess Storm-Related Sales Analysis

To assess if there is a case for excess storm-related sales, we will analyze the changes post-hurricane. Using the countywide actual department store sales data for September through December 2000 compared against forecasted sales for the same months will highlight if sales buoyed due to economic stimulus following the disaster.

If total county sales exceeded expected forecasts significantly during this period, it could be argued that Carlson was deprived of initiating additional sales boosts typically associated with post-disaster recovery. For instance, if countywide sales soared to $3 million in September versus a forecast of $2 million, it implies potential excess sales for Carlson as part of this overall growth.

Recommendations

In conclusion, to prepare a solid case for the insurance claim, Carlson should:

• Reinforce their sales forecasts using historical data and regression models to justify expected revenues.
• Document post-hurricane sales trends across the county to highlight potential market uplift post-disaster.
• Compile comprehensive loss calculations supported by financial evidence and comparative analyses.

References

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