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SkinCeuticals: A Modified Time Series Decomposition Model

(Rob Harrison, RD Trinidad, Niall Needham, 2002)

An essential aspect of managing any organization is planning for the future. Indeed, the long run success of an organization is closely related to how well management is able to foresee the future and develop appropriate strategies. Good judgment, intuition, and awareness can only get a business so far, as SkinCeuticals has found out first hand.

Founded in 1994, a once small-time, single product outfit, SkinCeuticals has developed into an industry leader and the foremost authority on topical skincare products, manufacturing and distributing over 40 products worldwide. This rapid growth has led to SkinCeuticals recognizing a need for an adequate forecasting model. In the past, SkinCeuticals has relied on simple trial-and-error tactics to predict future demand. In order to prevent backorders and potential lost sales because of a demand underestimation, SkinCeuticals maintains an extremely high inventory; this simply costs too much money. Therefore, Team Weathermen has developed the ``Modified Time Series Decomposition Model" (MTSDM) to provide guidance to SkinCeuticals for future forecasting.

This model integrates trend, seasonal, cyclical, and random components, creating a widely applicable and highly effective forecasting solution. Through an Excel simulation of this model, Team Weathermen was able to forecast the demand of various SkinCeuticals products within an average of 8.79%. As time goes on and as more data becomes available, the MTSDM will only become increasingly accurate. Therefore, our MTSDM provides SkinCeuticals a forecasting tool that, in time, will provide extremely accurate and reliable forecasts, thus, drastically reducing inventory and backorder costs.

Richard S. Barr
Fri Feb 17 16:09:51 CST 2006