Making Decisions Based on Demand

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Assignment #1
“Making Decisions Based on Demand and Forecasting”
Natalia Donskaya
Instructor: Dr. Atia Yasmeen
ECO 550
October 28, 2012

Domino’s Pizza is considering entering the marketplace in your community. Conduct research about the demographics of your community, for example the population size and average income per household, and other independent variables, such as price of pizza and price of soda, for this assignment. By conducting a demand analysis and forecast for pizza, you will be able to make a decision whether Domino’s should establish a presence in your community. 1. Report the demographic and independent variables that are relevant to complete a demand analysis providing a rationale for the selection of the variables. Companies can set specific service goals for their customers in the areas of demand forecasting and order fulfillment, such as the percent of orders they need to fill in a very short time; and they can set inventory policies at each node of the supply chain. By programming these policies directly into supply chain software, companies enable the software to monitor performance against these goals, and to send automatic alerts whenever a stated level of performance is in jeopardy. This allows companies to continuously evaluate both consumer demand and supplier performance with added automation, while improving the accuracy of consumer demand forecasts. Companies can also granularly look at supplier variability statistics such as the number of times a supplier is on time and is able to produce the full order. The information gathering is done with a combination of internal enterprise resource planning (ERP) systems like SAP, combined with Internet applications to different supply chain solutions and cloud services providers. Together, this combination of internal and Internet-based systems can produce supply chain model scenarios, projections and recommendations for managers to review (Newman, 2012). For the calculation of the regression analysis of the Domino’s pizza company, which is a procedure commonly used by economists to estimate consumer demand with available data, we need to collect the data: dependent and independent variables. From the dependent variables (the amount to be determined) can be demand, , population size and the independent variable can be price of pizza, income per household, price of soda. The following data for the Arlington VA community will be following: The population of the Arlington VA community:

189,453 people (population), we can take that half of the population are eating pizza, so the demand will be 94,7265 people, so we just can take numbers per day: quantity in sales with the certain price per pizza (Table 1.1) per capita income for the county is $37,50

the price of Domino’s pizza is 7.99 (2 topping pizza)
the soda price is 2.99 (1 liter)
we also know that every quarter the percentage in sales grows by 3.3% Using the formula for simple linear regression model Y=a+bX, where X is used to represent the independent variable and Y the dependent variable. 2. Using Excel or other calculation software, input the data you collected in criterion one to calculate an estimated regression. Then, from the calculation provided, interpret the coefficient of determination, indicating how it will influence your decision to open the pizza business. Explain any additional variables that may improve the coefficient of determination. So if we take independent variable as pizza price and pizza sale (dependent variable), so we are getting: Table 1.1

price per pizza ($) P| sales per day (quantity) Y| promotional expenditures per day($) A| disposable income (M) ($) M| 5.99| 90| 130| 37.5|
6.99| 80| 120| 38.5|
7.99| 70| 110| 39.5|
8.99| 60| 100| 40.5|
9.99| 50| 90| 41.5|
A linear demand model would be specified as follows:
But for our case we will take a simple linear regression model, so we will limited the...
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