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Demand Paper Paula Dandridge MGT 554 Operations Management Ken Romano, Instructor July 2, 2003 Demand Paper for Contract Services Introduction The contract services department at Caterpillar Financial provides temporary financial relief to customers who have financed Caterpillar equipment through Caterpillar Financial Services Corporation. This paper explains the demand for such services and how the needed personnel are forecasted. Patterns of Demand In the text Krajewski states (2002 p. 175), “at the root of most business decisions is the challenge of forecasting customer demand.” This is the one of the most important pieces of the operating plan. In the contract services department, we are forecasting the demand for modifications to existing contracts. The modifications consist of skip payments, interest only payments, extensions to term, due date changes, transfers and assumptions, and refinances (consolidation of two or more contracts). To predict the demand for these services, patterns must be identified. According to Krajewski and Ritzman (2002), there are five basic patterns for demand. These are listed below: 1. Horizontal – the fluctuation of data around a mean. 2. Trend – the systematic increase or decrease in the mean of the series over time. 3. Seasonal – a repeatable pattern of increases and decreases in the demand depending on the time of day, week, month or season. 4. Cyclical – less predictable gradual increases or decreases in demand over longer periods of time (years or decades). 5. Random – unforecastable, variation in demand. Of these patterns, contract services can measure a demand pattern that is based on trend and seasonal projections. With the construction business, the busy season is usually in the summer and fall months of the year. For example, forestry equipment is used more when the weather is dry, usually in the summer months and in the fall. The equipment cannot be used when the ground is wet and muddy. During the summer and fall, owners of the construction equipment can start and finish jobs without interruption. This means that their accounts receivables are coming in steadily and therefore the customer can make his payments. On the other hand, the winter and spring cause delays in completing jobs causing the customer’s cash flow to become stagnated or sometimes non–existent.
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