Forecasting at Hard Rock Cafe
Forecasting is important for all manufacturing and services companies. Hard Rock Cafe needs to forecast for the long term, intermediate term, and short term. These three different forecasting applications are essential to the cafes day by day operations, and for a successful planning of budget, profits forecast, and cash flow forecast. In the long term a forecast is used to determine the capacity needed for the growth of sales in each store.
The sale forecast for each unit is used for example to implement long term contracts to purchase beef, chicken, and pork not only for the existing locations but also for the new locations planned to be established. For the intermediate term, a forecast is necessary to buy raw materials that are used to elaborate items on sale in the shopping facilities of the cafes and hotels. For example, raw materials for the leather jackets need to be ordered 8 months ahead. And, in the short term, food and labor for daily operations should be forecasted.
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Hard Rock uses many of the forecasting techniques as: moving averages, weighted moving averages, exponential smoothing, and regression analysis. They start forecasting at the unit level every month, then take it to the quarter, and then to a year. All this data is compared to previous years and to the budget expectation to make decisions in the course of the year that meet those expectations. Forecasting techniques are applied to calculate things as remodeling of locations, changes in the menu, and managers annual bonuses.
To evaluate changes to be made in the menu, Hard Rock uses regression analysis, that way they analyze how changing the price in one item of the menu could affect the demand for other items in the menu related to that particular component. Hard Rock utilizes weighted average to establish the manager’s annual bonuses. They take the last 3 years performance and do a weighted average, placing more weight to the two most recent years, and less weight to the three year. This technique is to prevent a large change in sales.
That average is set as a target for the current year, and the managers of the locations will receive a bonus based on the improvement of sales and exceed of the target. To do a sales forecast it is important to know how many people visited the locations. This is known by the data captured in the POS, with each entree sold is one guest that ordered. Also physical counts are done of the people that walk into the front door for other things that could be a bar or dessert occasion. All the data on the POS is sent to the corporate office where is compiled to calculate statistics on the average consumer.
This statistics are affected by other variables as data on weather, conventions, beverage and food cost which could affect the final forecast. Other variables that can be of influence in a sales forecast could be new businesses opening in area near the cafes, and could place competition to the sales and visits of costumers. Additionally, the promotional offers and discounts that the cafes and hotels offer could affect the final forecast. And, it is good to consider as well the changes in the number of visits during different seasons, and holidays throughout the year. As Hard Rock Cafe, many other businesses need forecasting of sales.
In my experience, I work for a trading company that sales mostly lawn and garden equipment to different countries. It is necessary a forecast of the units to be purchased and which could be the expected sales for each country we distribute based on previous year sales. For example the season for chain saws, trimmers, hedgers and other equipment to cut the grass, differs according the country. The season for lawn tractors is another that needs to be forecasted, taking into account that they are very expensive and purchase orders need to be of full trucks with 51 units, which is a large investment.
If all the units to be purchased are not appropriate calculated for the sales forecast and needs of every customer, it could represent loss of money to the company and the inventory will need to be offered at very lower price to be sold. Taking in account the variations in the economy is important to forecast as well, many countries as Venezuela, which is now a financial crisis, are reducing the volume of purchases, and we need to account for these for our future sales.
1. Heizer, Render. (2011). Principles of Operations Mangement. New Jersey: Prentice Hall. 2. Prentice Hall Business Publishing (Beverly Amer). (2004). Forecasting at Hard Rock Cafe. Retrieved from http://www.mathxl.com/info/MediaPopup.aspx?origin=1&disciplineGroup=7&type=Video&[email protected]/_ph_bp2_cc_set.title.Forecasting_at_Hard_Rock_Cafe__/bp_mylabs/akamai/2012/om/heizer/HardRock_Forcasting