Piracy in Somalia and Its International Implications

PIRACY IN SOMALIA AND ITS INTERNATIONAL IMPLICATIONS In the past few years, pirate attacks off the coast of Somalia have received a great deal of public attention. According to the London-based International Maritime Bureau, there has been an â€Å"unprecedented increase† in Somali pirate activity in the first 9 months of 2009. Until September this year 147 incidents were reported off the Somali coast and in the Gulf of Aden (separating Somalia and Yemen), compared with 63 for the same period last year. A total of 533 crew members have been taken hostage in 2009, out of which about 200 hostages are still being held by Somali pirates. I have chosen the topic of piracy for my essay as I think that in the context of the present world economy crisis it is a current problem which might affect all the participants of the global economy and it needs an urgent solution. In the first part of my essay I am going to present some data to demonstrate the importance of the problem, then I will focus on the background of the issue and present the different factors which have led to the appearance of piracy. After a detailed description of the pirates and their way of operation I will move on to presenting of the interests of the international community and the policies, strategies and instruments they have used to deal with the issue. At the end of my paper I will draw some conclusions and make a few suggestions for the future. Piracy has been a problem in Somali waters for at least ten years. However, the number of attempted and successful attacks has risen over the last three years. As the hijackings have increased in number, they have also become more sophisticated. The pirates are now able to capture larger targets as well. On September 25 2008, Somali pirates captured the MV Faina, a Ukrainian ship transporting weapons to Kenya. This was followed one month later by the hijacking of the MV Sirius Star, the largest ship ever captured by pirates. The Saudi-owned supertanker was carrying about 2 billion barrels of crude oil, worth about $100 million. The ship was finally released on January 9 for a $3 million ransom. The series of hijackings has continued in 2009 too. It seems that this year the pirates have shifted from the Gulf of Aden, where dozens of ships were attacked in 2008 but which is now heavily patrolled, to the ocean between the African mainland and the Seychelles islands. In October 2009 Somali pirates captured a Chinese bulk carrier, carrying 25 Chinese crew members. In November they have seized a US tanker carrying $20 million of crude oil, which is considered the second-largest ship ever hijacked by pirates. The tankers 30-member crew was also kidnapped. In the same month, 9 pirates hijacked the Greek-owned tanker Maran Centaurus carrying 275,000 metric tons of Saudi Arabian crude oil and have taken it to a pirate port along the coast, where they typically hold the boats for ransom. The 300,000-tonne ship was hijacked about 1,300 km from the coast of Somalia and there were 28 crew members on board which are all held hostages. According to the IBM, in October and November alone, 38 ships have been attacked and 10 hijacked. There are several factors which have made Somalia the perfect environment for piracy, which I am going to present below. First of all, if we want understand why piracy works in Somalia, we have to know something about the geography and history of the country. Officially called the Republic of Somalia, Somalia is a country situated in the Horn of Africa, bordered by  Djibouti  to the northwest,  Kenya  to the southwest, the  Gulf of Aden  with  Yemen  to the north, the  Indian Ocean  to the east, and Ethiopia  to the west. Due to its strategic location, in the past the country was an important centre of commerce. Even today, about 16,000 ships pass through the Gulf of Aden each year, carrying oil from the Middle East and goods from Asia to Europe and North America, so we can say that one of the most important trade routes of the world can be found in this area. In addition, the long, isolated, sandy beaches of the country are also advantageous for pirates to operate. Another factor which helps piracy to flourish is the political anarchy which still rules in Somalia. For almost 20 years, the country has endured political chaos and bloodshed. The  Somali Civil, which began in 1991 as a revolution against the repressive regime of Siad Barre, has caused instability throughout the country. The northern parts of the country declared their independence, although it was neither recognized by the central government, nor by the United Nations. Subsequent fighting among rival warlords resulted in the killing, dislocation, and starvation of thousands of Somalis. Since 1991, 350,000-1,000,000 Somalis have died because of the conflict. Hatred and lack of trust among the landlords and their clans has prevented the organisation of a functioning central government. From  2006-2009 Ethiopia  was also involved in the conflict. In January 2009, Ethiopian soldiers withdrew from Somalia, leaving behind an  African Union  contingent of peacekeepers to help the fragile coalition government and its troops enforce their authority. Following Ethiopia's withdrawal from Somalia, the southern half of the country fell into the hands of radical Islamist   rebels, who still control a big part of the country. The political situation is still chaotic in Somalia. The present government, led by Sheikh Sharif Sheikh Ahmed is the 16th administration to „govern† the country since the collapse of the Barre regime. Order still hasn’t been restored, Somalia is governed by anarchy. Because of the lack of an effective central government and national economy, Somalia is still one of the world’s poorest countries, where the estimated GDP is around $600 per year. According to the World Bank, in 2008 73% of the country’s population lived on a daily income below $2. The country’s 10 million people are starving, and they would hardly survive without the food aid provided by the developed countries. In a country where survival is at stake, it is no surprise that piracy has become a fast and easy way to make money and it could develop into a frightening business. To sum up, we can say that Somalia’s chaotic political situation, the lack of an effective central government, the poor state of the economy and poverty have all created an environment which was perfect for piracy to appear. But who are these â€Å"heroes† and how do they operate? In most people’s minds, the image of piracy is associated with characters like Jack Sparrow or Captain Cook. Pirates are often seen as rebellious young men who are victims of the society, but have the courage to stand up for themselves and create a different way of working on the seas. Actually, there is some truth in this kind of perception. According to Eric Hobsbawm, a British historian, â€Å"social bandits† are â€Å"outlaws, drawing on community support, using criminal methods to challenge the present hierarchy of power and wealth. † Most of the Somali pirates are 20-35 years old and come from the region of Puntland, a semi-autonomous region in northeastern Somalia. It is estimated that there are at least five pirate gangs and more thousands armed men. A BBC report divided them into three main categories: local Somali fishermen (the â€Å"brains† of the operations because of their skills and knowledge of the sea); ex-militiamen (used as the â€Å"muscle†) and technical experts who are able to use electrical equipment, such as GPS devices at a professional level. It is a fact that since the country’s collapse in 1991, there has been a great amount of illegal fishing practised by a lot of countries along the Somali coast. During the regime of Siad Barre (1986-1992) Somalia received aid from several countries to develop its fishing industry. Local fishermen had fixed prices for their catch and the fish was exported because of low demand for seafood in Somalia. However, after the fall of the Barre regime, due to the Somali Civil War the income from fishing decreased. Traditional coastal fishing became difficult, because foreign trawlers started fishing illegally along the Somali coast and depleted the fish stocks. Local fishermen became desperate. They started to band together and were determined to protect their resources. They started attacking foreign trawlers, the crew of which soon fought back with heavy weapons. As a result, fishermen turned to other types of commercial ships and soon discovered that piracy was an easy way to make money. At the moment, piracy is Somalia’s most â€Å"lucrative business†: ship owners are willing to pay huge amounts of money for the release of their hijacked vessels. In addition to this, starting with the early 1990s, Somalia’s long, remote coastline has been used as a dump site for dangerous toxic waste from a lot of European and Asian companies. The European Green party presented before the press and the European Parliament copies of contracts signed by two European companies – an Italian-Swiss and an Italian firm – and representatives of warlords, to accept 10 million tones of toxic waste in exchange for $80 million. For European companies this is a very cheap way of getting rid of their waste: while waste disposal costs in Europe are about $1,000 a tonne, this way it only costs them $2,50 a tonne. The effects of this dumping are already visible in Somalia. According to a report by the UN Environment Programme, there is an extremely high number of cases of respiratory infections, mouth ulcers and bleeding and unusual skin infections among the inhabitants of the area – diseases related to radiation sickness. It is clear that this situation represents a very serious environmental risk not only to Somalia, but to the whole eastern Africa region. Many of the pirates call themselves the Somali â€Å"coast guard†, claiming that their aim is to defend their communities from overfishing and to protect the coastline from toxic dumping of nuclear waste by foreign ships. In an interview one of the pirate leaders explained: â€Å"We don’t consider ourselves sea bandits. We consider sea bandits those who illegally fish and dump in our seas†. The problem of overfishing is still a very serious problem is Somalia. It is estimated that Europeans and Asians poach around $300 million worth fish from Somali waters. On the other hand, Somali pirates collect about $100 million yearly from ransoms. This, according to Peter Lehr, a Somalia piracy expert, can be seen as a â€Å"resource swap†. Of course, a great number of pirates are only taking part in these operations for the money, and their families which they can feed this way. As one of them, nicknamed Milk Sucker says: â€Å"Sometimes doing a bad thing is the only way to improve the situation for yourself and the people you love†. Some of the pirates can’t even swim, their only task is to shoot straight. A lot of young Somalis take part only in a couple of operations, hoping to make enough money to move to the West or maybe to persuade an ethnic Somali woman with a EU passport to marry them and move to the UK. As for the techniques used by the pirates, we can notice that they are getting more sophisticated and more effective. They are using the latest high-tech equipment, like GPS, MANPADS (Man Portable Air Defence Systems), RPGs and satellite phones and they are well-armed with rocket-propelled grenades and AK-47s. They usually operate using small skiffs with powerful outboard engines, but now they regularly use â€Å"mother ships† to increase their range. These â€Å"mother ships† take them into the shipping lanes, several hundred miles offshore. Then they launch small speedboats to haul themselves up onto the deck of a ship. They can often seize a ship without firing a shot. After capturing it, they sail the hijacked ship to the Somali pirate hub town, Eyl and take the hostages ashore where they are well-looked after until ransom is paid. It is reported that the pirates never harm their prisoners; they behave like â€Å"perfect gentlemen† with them. They even hire caterers on the Somali coast to cook pasta, grilled fish and roasted meat, which western hostages might like. Once ransom is paid, they release ships good humour. According to the Kenyan foreign minister, in 2008 pirates have received about $150 million in ransom, which is used to fund future operations. In a recent startling Reuters report we can read that the pirates have started to make the money to work for them, setting up a stock exchange â€Å"that has drawn financiers from the Somali Diaspora and other nations. † The bandits' bourse is a small building in the once-small fishing village of Haradheere, about 250 miles northeast of Mogadishu, which has developed into a luxury town by now. As a former pirate named Mohammed puts it, â€Å"The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials †¦ we've made piracy a community activity. â€Å" Unfortunately, it has become clear that the activity of pirates is linked to warlords on shore. After seeing the profitability of the business, these leaders started to facilitate pirate activities, sharing the profit with the pirates. These â€Å"Godfathers† and clan leaders are closely related to Somalia’s president in Mogadishu, Abdullahi Yusuf, who also originates from Puntland. Estimates are that at least six ministers in the Puntland government are involved with the pirates. The only group which is publicly against piracy is the militant Al-Shabaab, a Salafist group founded this decade as a militia attached to the Islamic Court. They say that such crimes are forbidden under the Islamic law. However, according some reports, militant Islamist groups also get their share of the profit. The pirates involvement with these organisations is making the situation even more alarming, because all the financial help given by the West to the Somali authorities to put an end to piracy might just help it to flourish. All in all, it is clear that piracy is not a problem that the fragile Somali government can solve alone and international help is needed. How does all this affect the international community? Besides enforcing international law, there are several other reasons to stop pirate activities. The first is Somalia itself. The country needs about 200 tonnes of food aid a year which is mostly delivered by sea. Without the naval escorts and the regular delivery of aid, Somalia’s food stocks are seriously threatened, so ensuring the safe delivery of food aid should be a number one priority for the international community. Stopping piracy may also reduce the money available for weapons, so indirectly it can lead to the end of the internal war. Piracy has a very distressing effect on international trade as well. In addition to the growing ransom, companies whose cargos do not reach their destinations, lose money. As a result, there is a growth of insurance for all ships which need to pass through the Gulf of Aden. The constant danger of pirate attacks has already made some shipping companies to choose a longer, but safer route, around the Cape of Good Hope, as it happened in the case of AP Moller-Maersk, one of Europe’s largest shipping companies after the hijacking of Sirius Star. The extra weeks of travel and fuel can lead to the cost of transporting goods, which is a really serious concern now, at the time of a global economic crisis. Another reason is related to the environment. Pirate attacks can cause major oil spills in a very sensitive ecosystem. As pirates become bolder and use more powerful weapons, tankers could be set on fire or sunk, which can result in an environmental catastrophe, destroying marine and bird life for many years to come. Last, but not least, there is a risk that the pirates themselves can become agents of terrorism. There are assumptions according to which pirates are connected to the Al-Shabaab movement, which is believed to have links to Al-Qa’eda. According to some reports, Al-Qa’eda militants from Iraq have chosen Somalia as a new base from which to launch attacks. Terrorism at sea can take many forms, for example direct attacks on ships, hostage dramas, but also hijacked ships used as potential weapons. Terrorist networks can use the financial funds from piracy to fund their operations worldwide. It is obvious, that even if there is little chance for the worst scenario, it is best to prevent it while we can. The international community has recognized that enhanced international efforts are necessary in order to reduce the number of attacks. The growing cases of piracy have focused the world's attention on Somalia and have shown that the crisis going on in a fragmented state is spilling out of its borders. The military response to piracy has shown that countries which haven’t been able to cooperate with each other can unite their forces for a common cause. A maritime conference was also held in Mombassa, where they discussed the problem of piracy and tried to give regional and world governments recommendations to deal with the danger. In January 2009, an important regional agreement was adopted in Djibouti by States in the region, at a meeting organised by IMO. The Code of Conduct concerning the Repression of Piracy and Armed Robbery against Ships in the Western Indian Ocean and the Gulf of Aden recognized the extent of the problem of piracy and armed robbery against ships in the region and the states signing it declared their intention to co-operate, in a way consistent with international law, in the repression of piracy and armed robbery against ships. Most countries have preferred prevention: various navies have sent war-ships into the area to escort commercial vessels. At the beginning, this way of defense was more individual than collective, but the persistence of the attacks has led to the development of a collective security system. NATO got the task of escorting convoys transporting the humanitarian aid of the World Food Programme towards Somalia. Once they were in the Gulf of Aden, they also protected other merchants ships, by their presence. Later NATO handed the job to Operation Atlanta, the first common maritime mission by the European Union. Military counter-piracy operations are performed by vessels from the Combined Task Force 150, a multinational coalition  naval  task force   in charge of monitoring and inspecting a range of security issues, such as drug smuggling and weapons trafficking, as well as piracy. Several countries, including India, Russia, China, Norway, Australia, France, Greece, Turkey, Portugal, Denmark, the Netherlands, South Korea, Malaysia and even Japan chose to join the coalition and send warships to the Gulf of Aden. In January 2009 the US navy established a new multi-national naval force to confront piracy off the Somali coast. The new unit was called Combined Task Force 151and it was a spinoff of the existing Task Force 150 in the region. This section of the coalition forces was aimed at focusing exclusively on pirate groups (leaving Combined Task Force 150 to focus on other destabilizing activities, such as drug smuggling and weapons trafficking). It was hoped that by designating a new unit to combating piracy in Somalia, anti-piracy efforts would be more successful. Unfortunately, this effort is having only a limited impact. Although some pirates are scared off by the sight of military ships and helicopters, coalition warships are often in the wrong place at the wrong time. In addition, pirates are flexible and change their tactics easily: data from the Maritime Bureau shows that at present they are conducting their operations further out in the Indian Ocean. Besides, this is a very costly solution which is difficult to support in the long term. After the hijacking of an Egyptian ship and a huge Saudi supertanker, the Arab League organized a summit for countries overlooking the Red Sea, with the participation of Egypt, Saudi Arabia, Sudan, Somalia, Jordan, Djibouti and Yemen. At the summit the participant states discussed several solutions for the problem of piracy, suggesting different routes and looking for a safer passageway for ships. They might also assist the current NATO anti-piracy efforts together with other nations. However, we shouldn’t forget that the Arab League has long tried to draw Somalia more closely to the Arab world. It has made a financial support for the Transitional Federal Government, conditional on its entering negotiations with Al-Shabaab, intending to spread Islamist influence in the area. In June 2008 the United Nations Security Council passed a declaration authorizing nations that have the agreement of the Transitional Federal Government to enter Somali territorial waters to hunt pirates. In 2008 the Security Council adopted two resolutions, 1846 and 1851 allowing for the first time international land and sea occupations of Somali territories in the pursuit of pirates. These resolutions extended the power of the states and lead to greater coordination of their efforts. After the Council resolution 1851, the Contact Group on Piracy off the Coast of Somalia was established on 14 January 2009 to facilitate and coordinate actions among states and organizations to deal with piracy. At the moment 46 States and seven international organizations take part in the Contact Group. Through its four working groups, the Contact Group addresses specific issues related to military and operational coordination, legal issues, shipping industry awareness and public and diplomatic information. UNODC (the United Nations Office on Drugs and Crime) participates in the Contact Group and its Working Group on Military and Operational Coordination, Information Sharing and Capability-Building. UNODC acts as secretariat to Working Group on Judicial Issues, to which it has provided various forms of support. UNODC has prepared an analysis of the legal and practical challenges involved in prosecuting suspected pirates and is gathering nformation on relevant national legal systems, including those of coastal States. In spite of the fact that laws to combat piracy at sea exist, a lot of states do not seem to use them in practice. Only France has chosen to combat piracy directly. The first case was the seizing of a yacht in April 2008, which started with negotiations for the release of 30 hostages and followed by the capture of six pirates in Somali territory. The second case took place in September 2008 to free a couple taken hostages. This action also led to the arrest of six pirates, who are awaiting trial before a French court. Britain and some other countries have found a superficial and convenient way of treating the pirates: they have negotiated a treaty with Kenya, according to which all those suspected of piracy are handed over to that country. A few months later other countries followed Britain’s example, negotiating similar agreements. These agreements are a useful step, but they do not solve the problem. The Kenyan prison system is in terrible condition, corruption is high, there are strong delays in the call of trials and legal aid is very limited. It is a paradox indeed that states which are entitled to prosecute the arrested pirates delegate this right to a country which is unable to assure a fair trial to these criminals. In spite of the united efforts of different nations, it has become clear that the piracy problem cannot be solved at sea, because it is rooted on the shore, in the ongoing conflict and political instability of the country. As Ban Ki-Moon, the Secretary General of the United Nations expressed at an international donors’ conference: â€Å"Piracy is a symptom of anarchy and insecurity on the ground. (†¦) More security on the ground will make less piracy on the seas† Any lasting solution to the problem has to involve ensuring stability, development and an effective criminal justice system in Somalia. If the states had invested the time and resources they now spend to stop piracy in reconstructing the Somali society and economy, they probably wouldn’t have to cope with these problems. However, there are always new opportunities that shouldn’t be wasted. Martin Murphy in his article â€Å"Somali Piracy: not just a Naval Problem† claims that the highest costs of piracy to Somalia and the international community are not economic, but political. As I mentioned earlier, it seems that almost all layers of political life in Somalia are involved in piracy, including the Islamist groups. Islamism is getting stronger and stronger in Somalia and it can soon get hold of the entire country. The Al-Shabaab movement has a clear intention to use Somalia as a base for spreading Islamist influence in the region. If this tendency continues, a worst possible outcome would be an Islamist government, which is strong enough to control piracy, but also strong enough to make Somalia safe for violent Islamist groups. So, what can be done to stop, or at least to decrease piracy in the Horn of Africa? Somalia is a clan-based society. Therefore, a possible solution would be to deal with the sub-state entities in order to create a unitary state in the future. In these negotiations the coalition should clearly commit itself to repress piracy in return for allied political and economic support. This way it would be possible to cut off all the political players in Somalia from their external sources of weapons and thus pirates would be trapped between more effective land-base policy by the Somalis and maritime policy by coalition member navies and soon they would have no place to hide. Recent efforts have shown that there is a will to act together. We can only hope that the states will find a way to deal effectively with the problem before it is too late. Links, references: Roger Middleton: Piracy in Somalia. Africa Programme, October 2008 http://www. chathamhouse. org. uk/files/12203_1008piracysomalia. df Marina Chiarugi  and  Daniele Archibugi: Piracy challenges global governance. Open Democracy,  9 April 2009 http://www. opendemocracy. net/article/piracy-challenges-global-governance George Grant: Somali pirates can't be beaten at sea. The Guardian, 18 November 2009 http://www. guardian. co. uk/commentisfree/2009/nov/18/somali-pirates-ransom-puntland Galrahn: Somalia Piracy – A Backgrounder April 8, 2009 http://www. informationdissemination. net/2009/04/somalia-piracy-backgrounder. html Rubrick Biegon: Somali Piracy and the International Response. FPIF (Foreign Policy in Focus) January 29, 2009 http://www. pif. org/fpiftxt/5827 Georg-Sebastian Holzer: Somalia: piracy and politics. Open Democracy, 24 November 2008 http://www. opendemocracy. net/article/somalia-piracy-and-politics Johann Hari: You Are Being Lied to About Pirates. The Huffington Post, December 2009 http://www. huffingtonpost. com/johann-hari/you-are-being-lied-to-abo_b_155147. html Can Somali pirates be defeated? BBC News, 20 November 2009 http://news. bbc. co. uk/2/hi/8371139. stm Sam Gustin: Bandit Bourse? Somali pirates hijack oil tanker, organize ‘stock market' Daily Finance, December 1 2009 http://www. dailyfinance. om/2009/12/01/bandit-bourse-somali-pirates-hijack-oil-tanker-organize-stock/ Martin Murphy: Somali Piracy : not just a naval problem . Centre for Str ategic and Bugetary Assessments, April 16, 2009 http://www. csbaonline. org/4Publications/PubLibrary/B. 20090417. Somali_Piracy/B. 20090417. Somali_Piracy. pdf Piracy in Somalia: Wikipedia, the Free Encyclopedia http://en. wikipedia. org/wiki/Piracy_in_Somalia Aiden Hartley: What I learned from the  Somali pirates. The Spectator, 6 December 2008 http://www. spectator. co. uk/essays/all/3061246/what-i-learned-from-the-somali-pirates. thtml

Mark Sexton and Todd Story

FIN 6130: Individual Assignment (case study) Case Study: Mark Sexton and Todd Story, the owners of a manufacturing company have decided to expand their operations. They instructed you as their newly hired financial analyst to enlist an underwriter to help sell $35 million in new 10-year bonds to finance construction. You have entered into discussion with Kim McKenzie, an underwriter from the firm of Raines and Warren about which bond features your company should consider and what coupon rate the issue will likely have.Although your Bosses are aware of the bond features, they are not sure about the costs and benefits of some features especially how they will affect the coupon rate of the bond issues. This is more so that your firm is not a publicly traded company. You have been asked to prepare a memo on the effect of each of the following bond features on the coupon rate of the bond. It is expected that you will emphasis on their perceived benefits. The bond issuer/the borrower/the b osses: Mark Sexton and Todd Story Bond value: $35 million Bond maturity: 10 years Financing purpose: constructionHired underwriter: Kim McKenzie (Raines and Warren) .Case Studied Memos: 1. The security of the bond- that is, whether the bond has a collateral. Secured bond is with collateral, whereby the issuer pledged specific assets in case of bankruptcy or unable to pay debt. A bond with collateral will have a lower coupon rate (interest/return) and lower the security’s risk but with higher credit ratings, which less likely it is to default. But the issuer need to ensure that the collateral is in good working order and cannot be sold until the bond is matured.Considering bond with collateral is secured investment to investors, during default, the investors may receive all or part of the collateral in the value of debt unpaid. Collateralized bond is also marketable to the secondary market especially if it is a non-publicly traded or listed company recognized among investors. In term of outlining the specific security of collateral attached to a bond, it’s best to put clear guideline of what sort of asset eligible to be put as collateral and define certain rule of how the asset’s value can be sum up to secure the bond maturity period. 2.The seniority of the bond In case of liquidation or bankruptcy, senior bond has higher priority to be paid first compared to another bond that is considered junior or the subordinated bonds. Senior bond gets full payment in bankruptcy which its covenant may restrict the borrower from issuing any future bonds senior to the current bonds. A junior bond’s security ranks lower than other bond securities in regard to the owner's claims on assets and income if the issuer becomes insolvent. Bondholders of secured debt (with collateral) must be paid before the holders of unsecured debt.Bondholders of unsecured debt must be paid before preferred shareholders, and finally, preferred shareholders must be satisfi ed before common shareholders. In general, a junior security entails greater risk but offers higher potential yields than securities with greater seniority. To be more appealing to investors, the bondholders should propose senior bond in able to offer lower coupon. 3. The presence of a sinking fund Bond sinking fund is a restricted asset where the issuer is required to set aside money for redeeming back or buying back some of its bond payable by deposited money with an independent trustee.Sinking fund is a partial guarantee to bondholders that will reduce the coupon rate. By having sinking fund, it allows the issuer to repay specific bond’s value at a certain period or retire a portion of the bond every year until it’s matured. It’s a great program but the issuer must be able to generate cash flows to make the interim payments into a sinking fund or else, face default. By having the presence of a sinking fund as collateral support of a bond, it promotes financia l security which will attract investors to accept bond with lower interest rates.With the sinking fund, it will also gain benefits through taxation and enjoy capital gain. It also secured a good management of long-term debt in advance. 4. A call provision with specified call dates and call prices Adding provision to a bond with specific call date and prices will benefit the bond issuer more than the bondholder but it will definitely increase the coupon rate. Able to repurchase bonds before maturity (or at a specified date according to provision) is called callable bond (or redeemable bond) at a special price (not obligated).Any future payment to the bondholder is immediately and indefinitely cancelled once the bond is called. Recalling a bond with lower the debt and is hence liberated from paying interest on the called bond. Normally, the bond is called because the issuer no longer needs to borrow the money, or because interest rates have fallen and the issuer want to issue new bond s at a lower interest rate. In security purpose of long-term benefit with uncertain financial forecast, it is not applicable to issue call provision. 5. A deferred call accompanying the call provisionA bond with call provision accompanied by a deferred call will actually prohibited from calling the bond before a certain date. It is call protected or Period of Call Protection during the period of time which the bond may not be prematurely redeemed. During the call protected period (the cushion period), coupon rate payments are guaranteed but not later. After the call date, the bond may be redeemed by returning principal to the bondholder and ceased the coupon rate. The call provision accompanied by deferred call in a bond is to protect the bondholder from the falling of interest rates before the call date.A deferred callable bond may demand a slightly higher coupon rate compared to a normal bond due to its callable feature as investors are exposed to the reinvestment risk assuming th at the prevailing interest rates then is lower than the coupon paid by our bond on the callable date. 6. A make-whole call provision A bond with a make whole call (provision) allowing the issuer to pay off remaining debt early by making lump sump payment based on NPV (net present value) of future interest payments that will not be paid in cause of the call.This type of call should lower the coupon rate than the normal call provision with specific dates. Bondholders will receive the market value of the bond if it is a make whole provision which then they can reinvest in another bond with same criteria. The make whole call will be defined in the indenture. Normally, an issuer doesn't expect to have to use this type of provision, but if the issuer does, investors will be compensated, or â€Å"made whole†. Because the cost can often be significant, such provisions are rarely invoked.Hence, it is recommended that the bond issuance should not have a make-whole call provision. 7. An y positive covenants. Discuss any overall positive covenants that your firm may consider. The presences of positive covenants (also called as affirmative covenant) protect bondholders by forcing the company to undertake actions that benefit bondholders. A positive covenant would reduce the coupon rate but will increase the trust of bondholders. For instance, it requires the issuer to cover the principal of the bond; enough liquid assets must be maintained.More commonly, a positive covenant requires the issuer to have a certain amount of insurance or submit to periodic audits. 8. Any negative covenants. Discuss any overall negative covenants that your firm may consider. A negative covenant would reduce the coupon rate. Remember, the goal of a corporation is to maximize shareholder wealth. The presence of negative covenants protects bondholders from actions by the company that would harm the bondholders. This says nothing about bondholders. In example, the issuer cannot increase divid ends, or at least increase dividends beyond a specified level.The downside of negative covenants is the restriction of the issuer’s actions. 9. A conversion feature The conversion feature is a financial derivative instrument that is valued separately from the underlying security. Therefore, an embedded conversion feature adds to the overall value of the security. The conversion feature would permit bondholders to benefit if the company does well and also goes public. Even though the company is not public, a conversion feature would likely lower the coupon rate.The downside is that the company may be selling equity at a discounted price. Convertible bond is an example of an asset that can undergo conversion. It gives the bondholder the option to exchange the bond for an amount (predetermined) of the bond issuer’s equity. Typically, the bondholder will exercise the option when the total value of the shares received from conversion exceeds the bond's worth. 10. A floating rate coupon Floating rate coupon is a bond with floating coupon payments that are adjusted at specific intervals.It is all known as a variable rate bond which has a floating or variable rate interest, or coupon rate. The bond is payable to the bondholder upon demand following an interest rate change. The rate adjusts according to a predetermined formula outlined in the bond’s prospectus or official statement. Generally, the current money market rate is what is used to set the interest rate (plus or minus a set percentage). As a result of this, the coupon payments can change over time. A floating rate coupon or variable rate bonds' market values fluctuate less than other bonds.

What Factors Motivate Employees

What is the most important thing that can motivate employees With the rapid development of economic globalization, efficiency and quality determine the future of a firm. The fundamental factor, which determines the fortune of a firm, is employee, because if employees perform well and work efficiently, productivity will be considerably improved and large quantities of profits will be made. The increasing number of managers has realized the fact that employees are playing vital roles in development of a firm. Consequently, appropriate measures are being taken to enhance the motivation of employees.Some people believe that adequate salary is the most important thing that can motivate employees, while more people hold the different view that other factors such as equal statue, achievable goals and appreciation have more positive influences on enhancing motivation. An abundance of evidence illustrates that job satisfaction, instead of salary, is the most significant thing in motivating em ployees. This essay will discuss three factors that of vital importance on ensuring job satisfaction, including fulfillment of requirements, closed relationship between employees and managers as well as flexible working schedules.Different people have individual requirements, which lead to different goals of working. As soon as achieving individual working goals and requirements, employees will be satisfied with jobs, and then be motivated. According to Maslow’s hierarchy of needs theory, individual requirements can be divided into five levels. These levels can be generally divided into two parts: material requirements and psychological requirements. The fulfillment of psychological needs has longstanding effects on employees than meeting material needs.Certainly, conducting proper mental compensation program is beneficial for satisfying employees’ increasing requirements in psychology. For, example, Tesco enable each worker to express suggestions on the working freely , through which not only working conditions will be improved but also employees will feel valued (The Times, 2010). In addition, opportunities of career training are necessary for achieving mental satisfaction. In order to adjust to the society which is full of challenges and competition, employees require adequate training to develop personal skills and then obtain a sense of achievement and advancement.Meanwhile, according to equity theory and expectancy theory, in order to reach the best consequence, the following two principles ought to be taken. One is that mental rewards are determined by individual performance and contributions. Employees who have high performance and tremendous contributions will earn more praise or working condition improvement than those who have poor performance and few contributions. The other principle is that rewards are achievable for the majority. Different employees differ from one another in working ability and potentiality.As a consequence, levels of goals with suitable ranks of mental compensation should be fit for individuals (Madura, 2008). Therefore, fulfillment of individual requirements can exert considerable effects on motivating employees. Some groups of people are fond of making friends. No matter which countries others come from, if they have the same interest to share with or the same topic to discuss with, they will feel close to each other. For these groups of people, relationship between managers and employees is the most important factor that affects motivation.Open-book management, in which employees are capable to play the leading role of the firm by participating in making decisions, is a successful practice of ‘relationship motivation theory ’. Before production decisions are eventually made, decision makers need to consider about almost all aspects of production, such as the cost of raw material, time arrangement, target customers and some possible problems in production process, because each decision is closely related to individual profits(Madura, 2008).Giving employees opportunities of comprehensive consideration will not only create more profits for firms, but also develop an equal relationship between managers and employees. If employees feel being paid attention to, they will be willing to spare no efforts to the firm. In addition to equality, intimated relationship is also necessary. Managers ought to care about employees’ emotional variations, which may result from family problems or mental health, and have more communication with employees, like having lunch together and offering some comfort by simple words.If employees believe that they are working with friends instead of leaders, motivation will be increased. Flexible working schedule has positive association with job motivation. According to Pink’s research, if employees complete tasks ahead of deadline and guarantee high quality, an abundance of free time will be spared for family and self-im provement (Pink, 2009). Furthermore, Hawthorne’s experiment on the relationship between break time and productivity demonstrates that regular break with appropriate length leads to sharp increase in productivity (Madura, 2008).The reason is that flexible schedule which provides employees with large amounts of free time to accompany children produce positive psychological reactions and these reactions contribute directly to motivation. Therefore, variable time arrangement is the top motivator. Some young employees claim that salary which covers daily expenses is the most critical factor that forces them to work for long time, meanwhile, the amounts of salary can directly reflect the consequence of hard working and devotion.However, these groups of people just take their own needs into account instead of considering about various requests of different people. Salary will just satisfy a small part of employees whose goals is making money. Salary, a fixed amount of money that bei ng paid monthly or annually (MacMillan, 2007, p. 1313), is called based pay, which can stimulate employees to some degrees. However, Herzberg’s job satisfaction study demonstrates that sufficient salary can just prevent employees from dissatisfaction, which means increasing salary is not the most efficient method to obtain high satisfaction (Madura, 2008).Personal total income consists of based pay and reward pay, and the initial motivator is the later, as it has vital impacts on employees’ psychological satisfaction with present jobs (Wiley, 1997). Despite the fact that salary is a useful motivator for some groups of employees, the majority of employees will not gain high satisfaction purely through increasing salary. In conclusion, salary is not of the top motivator in contemporary society, as the vital motivating factors are diversified in various social groups.The fulfillment of physiological and psychological requirements through appropriate equal and achievable c ompensation program, the maintenance of close relationship between managers and employees as well as flexible working schedule, which play critical role in enhance job satisfaction, exert more significant influence on motivating employees than simply increase of salary. If all of these motivational factors work together, a promising future will be exposed to both human beings and the society. Reference: Madura, J. (2008) Introduction to Business. 4th ed. Beijing: Post & Telecom Press.Macmillan English Dictionary (2007, p. 1313). Malaysia: Macmillan Publishers. Pink, D. (2009) Dan Pink on the surprising science of motivation [online video] Available from: http://www. ted. com/talks/dan_pink_on_motivation. html. (Accessed 25 April 2011). The Times 100 (2010) Motivation Theory in Practice at Tesco. Available from: http://www. thetimes100. co. uk/download-tesco-edition-15-full-case-study_132_396_1168 (Accessed 25 April 2011) Wiley, C. (1997) ‘What motivates employees according to over 40 years of motivation surveys’, International Journal of Manpower, 18(3), pp. 263-280

Market Research Individual Assignment Essay Example | Topics and Well Written Essays - 1000 words

Market Research Individual Assignment - Essay Example This is the reason why market research is being given more and more importance by the business top heads and the specialists who devise such plans to take the business forward. What is required now is a vision to set things right through the different manifestations of the market research and to make sure that this market research will bring positive results for the business in the end. The problems that a business might face at one point in time are very closely aligned with how well its market research has been conducted. This means that the issues which plague it in a number of different divisions are given the significance. This will make sure that the market research comes to the rescue of the people who are concerned with the business domains and settings. If the market research is conducted in a proper manner and used in an adequately sound way, there is no reason why a business should find itself behind the intelligence measures, which are so required in the time and age of t oday. Even though market research is divided into primary and secondary research, the fact of the matter is that both of these remain very pertinent towards gaining an understanding of the business dynamics, as has been evidenced through research and practice. The primary research finds out where the personal observations and direct experiences are made use of within the business enterprise yet the secondary research has more credibility – coming in directly from established sources like books, journals, periodicals, magazines, websites, newspapers and so on. The basic difference between the two is that the primary research is conducted separately for every project that is run within the business settings while the secondary form of research comes with knowledge, time and experience. The manner in which these market research domains can benefit the business is open to a number of perceptions and perspectives. Some believe that it has little scope and if of minimal practice ye t the majority of the people hold the opinion that it is indeed a very essential barometer of finding out where success lies within the business regimes and what more could be done to exploit the very same in the coming times. When the top management wants to go ahead with a particular project or undertaking, it needs to make sure that it has covered itself in a number of different ways, most significantly through both primary and secondary research bases. In essence, the role of the top management is of dire consequence to the overall success or the complete lack thereof of the business domains. If this is ensured, many tasks would be completed in an easy going way (Douglas, 2000). The top management needs to know what mistakes it is making in the wake of the market research initiatives which remain important, and if these are not taken in proper accordance, then there could be serious repercussions for one and all within the realms of an organization. The various types of data tha t are made use of within an organization comprise of its understanding as to how and where this data will actually be made use of. What this suggests is the fact that such data measures are handled differently by the varied departments within a business enterprise and are looked after well by the ones who are most closely associated with the same. Certain data is geared to suit the needs of the stakeholders while other is related with what the

Classical Conditioning Essay Example | Topics and Well Written Essays - 500 words

Classical Conditioning - Essay Example He developed a phobia not only for the mouse, but for all white things (CR). He developed a generalization phobia of all things white. This was because Little Albert had not reached the correct form of thinking that is hypothesized by developmental psychologists such as Piaget. Therefore, he began to fear everything that was white. The one fundamental concept about classical conditioning is the idea behind repetition and reinforcement. If the relationship between response and stimulus is not maintained, then extinction occurs. When extinction occurs, the relationship between the stimulus and response is lost. In this case, Little Albert would not associate the loud noise and fear with things that were white. This research study could not be done today due to ethical concerns. This is because it is causing psychological harm to the individual. Especially at a young age, there are rules that the APA, American Psychological Association, has in place which prohibit experimentation on chi ldren without parental consent as well as a wide variety of other restrictions. The only way in which this experiment could possibly be replicated is if there was therapy and techniques given at the debriefing of the experiment, which would ease or get rid of any/all effects from the experiment.

Review the business proposal submitted by other Learning Team Essay

Review the business proposal submitted by other Learning Team - Essay Example This statement is apparently used to remove the idea of the tacit collusion that is generally associated with price leadership in oligopolistic markets. The paper also assumes applicability of the Kinked demand curve model for this case. The paper states that the Chrysler Group LLC’s revenue can be increased by escalating the efficiency of its operations and the quality of its products, services, and marketing strategies. This is a generic statement that needs to be elaborated. Secondly, the paper assumed applicability of the Kinked demand curve which argues that where a â€Å"kink† does exist then a marginal change in cost structure or marginal change in revenue structure will not be immediately reflected in a new quantities sold or price for the given item. The paper does not use the Kinked demand curve model in its argument. It is true that in oligopolistic markets firms have mutual interdependence. Also, a major downside of using the Kinked demand curve model is that the model does not show us what causes a new equilibrium price and quantity to be achieved, and how that happens. Nevertheless, we disagree with the paper’s analysis that because of the above two reasons, the company cannot determine the price and output level for which it can maximize its profit. The paper could have used other models such as the Cournot-Nash model that looks at firms competing on the basis of quantity. The paper therefore does not clearly state its way to establish the profit maximization quantity. The automobile industry is a typical example of a differentiated oligopolistic market. Naturally, this would mean firms have to compete on their products differentiated attributes. The author’s example of the Pentastar V6 engine illustrates this. Patenting the Pentastar V6 engine is a great example of creating an entry barrier to firms seeking to enter the market. These firms will be forced to invest heavily in Research and Development in order to come up with

Heart of Darkness Essay Example | Topics and Well Written Essays - 1750 words

Heart of Darkness - Essay Example In Joseph Conrad’s novel Heart of Darkness, the concept of imperialism and the effects it has on all who are involved with it are fully explored. It is important to understand this in order to appreciate the closing dialogue of the story, when Marlowe discusses Kurtz’s death with Kurtz’s once Intended. Looking at this final dialogue with this tortured woman reveals a great deal of information about the story itself, serving to help characterize not only the speaker, Marlow, but the man spoken of as well. Although the woman is only an incidental character in the novel, her words further help to bring depth to both of these characters that might not have been understood previously as the two men are revealed through her relationship to them. Through various stylistic mechanisms, this dialogue also serves to explain the significance of Marlow’s journey into Africa and presents the reader with a great deal of helpful hints as to how to interpret the story just read. Even with just a basic understanding of the plot of the story just told, this small two-page interaction between Marlow and Kurtz’s Intended brings the story into sharp focus, piercingly defining the character of Marlow himself while also shedding light on the true nature of Kurtz through the use of various stylistic tools and the employment of dramatic irony when set against the backdrop of the previous pages.

Human Recourses Essay Example | Topics and Well Written Essays - 1000 words

Human Recourses - Essay Example It is however important to note that the supervisors have a clearer role of overseeing the rest of the workers to make sure they are complying with their responsibilities. The supervisors report to the managers, which therefore mean that the manager has an overall task of ensuring that all the employees have played their part in ensuring that the company’s products and services meet the required quality and standards. 2-How do you protect the intellectual property of the organization and the employee? The property of the organization as well as that of the employees are registered with the United States Patent and Trade Mark Office (USPTO), which is the body charged with registration of designs, patents, and trademarks. Having registered with this body, these rights are administered by the United States Copyright Office of the Library of Congress. 3-How can you help the employee reach to top management level? In my organization, there is a hierarchical structure, which an empl oyee is supposed to follow when they want something to be addressed. Therefore, I will refer such an employee to my immediate supervisor, who will then decide how to refer them to the top management, but that will only happen if the supervisor cannot find a solution to their concern. 4-Does your company take risks? My company take very many risks, especially the financial risks. For example, there are so many programs that are invested in, which wield significant amounts of financial risks. What is important to the company is to carry out a feasibility test for any particular venture, and if it is identified that there is a possibility of being successful, the venture is implemented. However, not all ventures that are implemented emerge successful – some lead to loss of huge amounts of funds. Contrary, the company makes efforts to avoid taking risks on matters that can compromise employee wellbeing or health. For example, if it is established that a certain venture can expose employees to uncontrollable health risk, it is abandoned. 5-Should employees be punished for unhealthy lifestyle? I think punishing employees for unhealthy lifestyles is a retrogressive ways of addressing this problem, as it will only attract employee’s rebellion among other issues. Rather, there are other enlightened ways of helping the employees who experience unhealthy lifestyle. The most important solution is for the employers to device lifestyle policies, which can be used in promoting positive lifestyles and diseases management, a strategy that can also help reduce health-care spending. Disease management is a combination of strategies devised to curb cost of chronic conditions that require considerable changes in behaviour. The goal of this strategy is to curb repeated hospitalizations, avoid incidences of acute illnesses, and lower mortality risks. Therefore, any forward-looking organization should think of implementing such strategies rather than punishing the emplo yees for their unhealthy lifestyles. 6-How can drug abuse affect the job behavior? Drug abuse has a lot of unfavourable effects on job behaviour. When employees become addicted to drugs abuse, they tend to lose concentration on their job, perhaps because they want to find time to go and take drugs, because their addicted body system cannot function well without taking the drugs, because they have lost their confidence and they are suffering from low self esteem. Other impacts include frequent request of early

An interview with a Safety Manager Essay Example | Topics and Well Written Essays - 1250 words

An interview with a Safety Manager - Essay Example fety and Health Policy statement should set forth the purpose and philosophy of the company, delineate the program’s goal and assign responsibility for all company personnel (Reese, 2003). Once the policy is set, responsibility to implement and supervise the same should be assigned to an individual. This in no way should relieve management from its commitment or the supervisors and employees from their responsibilities to enforce and adhere to the company’s health and safety requirements. Discipline is an integral part of implementing safety measures in a company. Employees should be strictly overseen as complying with these measures and failure of this will result in failure of the entire health and safety effort. Some companies take a further step in their discipline policy resulting in time off without pay for limited days followed by dismissal on the next offense (Reese, 2003). The first line supervisor is effectively the key to good occupational safety and health efforts. The supervisors should be held responsible for their safety performance as well as the performance of their crews. One of the most effective methods of implementing safety measures is through motivation to work in a safe manner. Data indicate that 85 to 90 percent of accident causes are likely the result of unsafe behavior. The aim should be to provide an environment where employers are induced to motivate themselves as well as their employees. Delegating more responsibilities to employees boost morale, inspiration to account one’s own behavior at the workplace, peer pressure, incentives and rewards when least expected, etc. are some methods of motivation (Reese, 2003). The Occupational Safety and Health Act have brought a restructuring of programs and activities relating to safeguarding the health of the worker. OSHA requires employers to protect their employees from workplace hazards such as machines, procedures at the workplace and harmful substances. Companies encourage employees

Sound and Music in Films Research Paper Example | Topics and Well Written Essays - 1500 words

Sound and Music in Films - Research Paper Example Filmmaking has transcended a challenging and colorful artistic journey. The fast pace of technological advancement profoundly influenced the growth of filmmaking from its crude origins of silent and black and white films to the intricately three dimensional movies of contemporary times. Kay, Ghent, Chumney & Lutkins presented the history of sound in films and traced its origins before the 1920s when Thomas Edison was quoted to say in 1925 that â€Å""My plan was to synchronize the camera and the phonograph so as to record sounds when the pictures were made, and reproduce the two in harmony. . . We had the first of the so-called "talking pictures" in our laboratory thirty years ago" (Kay, et.al., n.d., par. Edison’s persistent intent to invent the kinetoscope, granted patent in 1897, paved the way for the introduction of sound in films. In this regard, this essay aims to proffer relevant issues and perspectives of sound and music in movies and films. The discourse would initia lly present significant events from the origins of sounds and music, together with the people who were instrumental in making the discoveries. Likewise, the role of sound and music in films would also be discussed before presenting the characteristics of these elements in contemporary filmmaking.

Legal issues with hydraulic fracturing Essay Example for Free

Legal issues with hydraulic fracturing Essay State the primary legal issue raised by hydraulic fracturing; state the primary environmental issues raised by hydraulic fracturing; and state what part of hydraulic fracturing plays or will play in meeting U. S. energy needs. Finding more energy sources including oil and natural gas will help to meet the energy demand and help provide our country with reliable fuel supplies. The prediction is that oil and natural gas will continue to provide more than half of the energy needs for American consumers even as alternative and renewable energy sources expand. We have been drilling for years but the discovery of different methods to get gas out of the ground such as hydraulic fracturing. Hydraulic fracturing is enabling the development of unconventional domestic oil resources. Rapid expansion of fracturing with the growing complaints of well water contamination and water quality problems given to this process has requests for more state and federal regulations over hydraulic fracturing. According to the Department of Energy’s (DOE’s) Energy Information (EIA) reports that natural gas from tight sand formations is the largest source of unconventional production, while production from shale formations is the fastest growing source According to the Hydraulic Fracturing and Safe Water Act Issues state, the process of developing a shale gas well by drilling through an overlying aquifer, completing and casing the well, stimulating the well by hydraulic fracturing and producing the gas is an issue for increasing the risk of groundwater contamination. Another concern with the potential contamination of drinking water wells from surface activities. Leaky surface impoundments, accidental spills, or careless surface disposal of drilling fluids at the natural gas production site could increase the risk of contaminating the nearby water well. Still more concerns involve the management of storage, treatment, and disposal of water produced in the fracturing process. Broader environmental issues associated with geographically expanding development of unconventional gas resources include water withdrawals from streams, lakes and aquifer; potential air quality impacts; and land use changes. Until recently, the oil and gas industry has not been required to disclose what chemicals they were using in their fracking fluids. Oil and gas extraction activities are generally exempt from the disclosure requirements of the Emergency Planning and Community Right to Know Act (EPCRA) Thus, a movement has come for disclosure as part of the state permitting processes. The growing opinion has been that laws should require detailed reporting and broad public disclosure. It is undisputed the need for sources in natural gas and oil to enable us to be less dependent on outside sources. According to the EPA, â€Å"Natural gas plays a key role in our nations clean energy future. The U.S. has vast reserves of natural gas that are commercially viable as a result of advances in horizontal drilling and hydraulic fracturing technologies enabling greater access to gas in shale formations â€Å"The task at hand is to perform hydraulic fracturing within safe environmental methods to protect our water sources from contamination and protect the quality of air that we breathe. The push for legislative laws to govern the companies who perform hydraulic fracturing lend to accountability and the expectation of safe air and water. Resourced Cited Natural gas extraction hydraulic fracturing. (n.d.). Retrieved 09/22/2013 from http://www2.epa.gov/hydraulicfracturing Orford, A. (2011). Hydraulic fracturing: legislative and regulatory trends. Retrieved 09/21/2013 from http://www.martenlaw.com/newletter/20111004-fracking-roundup Vann, A. Congressional Research Service, (2011). Hydraulic fracturing and safe water act issues (7-5700). Retrieved 09/22/2013 from website: http://www.arcticgas.gov/sites/default/files/documents/hydraulic-fracturing-and-safe-drinking-water-act-issues.pdf

Design and Technology Essay Example for Free

Design and Technology Essay ChairJames Lillis fashion designer of Black Milk online shop â€Å"A lot of people want to know how Black Milk came to be. Well, its a long story, full of twists and turns, action and adventures. There are even a few scary bits. But seeing as you asked why dont you pull up a metaphoric chair around my metaphoric fire and Ill tell you the story of Black Milk â€Å" When James was young, there was a time that he was broke, and everyone around him seemed to have a great job that they enjoyed, â€Å"I was broke, bored and rather cold. At that point most people would have got a job and a beanie, but not I†. He woke up one morning with a desire to make himself a shirt, he went out and bought a second hand sewing machine, and with only $6 left in his wallet, he bought the cheapest nylon lining that he could find. He still does not know why he had such random impulse but he is very glad he did, â€Å"It was these fateful decisions that lead me down the path to Black Milk†. Nylon lining is one of the least attractive fabrics in the market; he had to make a fitted shirt with no one to teach him how to sew this complicated fabric. â€Å"It was tragic. The stitching was wrong, the pieces were cut weird, and the neck was a nothing more than a hole. And I loved it† From that moment, things changed. He began doing odd jobs, but â€Å"at the back of my mind I was plotting and planning. If I got ten bucks it wasnt just ten bucks it was half a meter of printed fabric. Three dollars was a new packet of needles. A hundred bucks meant I could get my machine fixed. † With all his enthusiasm he worked in trial and error testing different ways of sewing bits and pieces of fabric. â€Å"You will immediately notice: 1. Both legs are too short 2. The pattern on the right leg is upside down (Hey, Im a slow starter, alright?! ) However, despite this every girl who tried them on wanted to buy them. Which was super encouraging for me. So I kept going. † After one week of teaching himself how to sew with a half working machine, he went into a dance shop and bought some shiny sparkly fabric. â€Å"The shop was full of mothers, grandmothers, and me. They looked at me like I was from another planet†. He bought a tribal African print because he had seen on the shops that these prints were in fashion, he thought about the fabric and felt an intuition that it would look best on legs. He started working immediately, drew up a  pattern, cut it out and made a pair of leggings in an impressive time for a starter. He wanted to try the leggings on a model and talked to his friend who had a friend who agreed to be a model for James to see if they fit. She put them on, and they didnt. So he cut them again, and sewed them again several times. And they still didnt fit. â€Å"I must have recut those things ten times†. And finally, they fit. It was at that point that something remarkable and completely unexpected happened, this changed everything. She asked if she could buy them. She took out her wallet, gave him some money and walked off with James leggings. â€Å"I couldnt stop smiling for the rest of the day. † It was at that point that James felt that it was not impossible. â€Å"I knew that if there was one girl prepared to buy one pair of my leggings, there were (probably) a hundred girls out there who would do the same†. He felt even more confident and he worked even harder to start his own little business â€Å"I threw myself into it with a passion. I would spend 5-6 hours a day on the sewing machine trying to figure out how to sew properly. I even attended sewing lessons at the local sewing shop (yes, I stuck out like a sore thumb). It was pretty tough in those early days. On more than one occasion I came close to throwing everything in the bin. † The next in the list was getting out and selling his designs, so he went door to door, trying to get shops to sell a few of his pieces. And after several painful no’s, one place finally agreed to display a few of James clothes in a corner of their shop. Unfortunately, a week later and they gave him every single piece back. But he was very determined and bought markets to sell his clothes in the Saturday markets. Since 5:30am every single Saturday, James stood around under the sun all day, selling his creations. He was considerably unpopular at the markets, but hundreds of girls all around the world were very interested when they found his clothes through blogging, that soon became much more famous than the tent and so James decided fatefully to make Black Milk exclusively into an online fashion label. â€Å"I talked to a few people in the industry who told me I was making a big mistake and that I would go broke within the month. I was told that online selling was only for companies with real shops. But real shops werent interested in my clothes, so I went online. As it turns out, it was a very good idea. :)† Within 3 years Black Milk have gained over 15000 fan on Facebook been so huge that the team can’t keep up with the sales and a lot of â€Å"sharkies† (Black Milk fans) are getting disappointed on the low reach of the company. James is working as fast as he can with the team to improve his production. Black milk is selling products all around the world, but James himself blogged that the top countries currently buying black milk are â€Å"So what the heck maybe well just go nuts and set up a studio in the US. You only live once. And of course, we will still have our Australian studios and they will keep expanding. 🙂 Of course, it goes without saying that our strict policy about not manufacturing in the third world is not going to change any time soon. In fact never. :)† â€Å"I dont know what this hand signal means, but if it is something along the lines of Guess what Black Milk did a deal with LucasArts and so the most awesome clothing ever created will be available Soon then it is surprisingly accurate† James is very excited that the industry grows bigger every day and very fast. â€Å"Instead of me sewing away by myself at night, we have a fantastic team who pump out thousands of garments every month. Instead of trying to get our clothes into real shops, were online and loving it. Instead of selling to a few girls at the markets, we now have a community of the most amazing girls you could hope for who are passionate about the brand. However, there are some things that havent changed. I still love making clothes. I still love hearing from girls who buy the clothes. I love seeing all the different ways girls style their Black Milk pieces, and I love working with all the Black Milk team. Game Boy Print Swimsuit This swimsuit was posted by a number of fashion blogs and websites even before it was released, Black Milk ran out of stock in less than 2 days. Surprisingly a lot of males bought this piece to give it as a present. Spartan leggings Lindsay Lohan wearing Spartan Leggings from Black Milk’s liquid collection. The Muscle leggings â€Å"This is an idea that we have been thinking about for a while. A few people encouraged me to do it but I never quite got around to it. Then I got a spare afternoon one day and decided to have a good go at making it work. It worked†¦. perhaps a little too well! Definitely our most meaty design.. † Posted in over 30 blog entries and internet articles, these leggings have been very controversial, both males and females from many countries have been purchasing them, in the other side, the comments from sharkies and teens on social networks show either that they absolutely love them or would not wear them at all. Composition: Polyester/Spandex Oscar Tusquets Blanca: architect, painter and designer Born in Barcelona-Spain in 1941. Studied at the School Llotja of Barcelona and the ETSAB. In 1964 he founded the PER Studio with Lluis Clotet, in which worked regularly until 1984. In 1987 Blanca associated with the architect John Smith and carried out projects in countries like Japan and Germany. In 1980 participated in the enlargement of the Barcelona School of Medicine and two years later in the remodelling of the â€Å"Palau de le Musica catalana† in Barcelona (which will be explained latter on). He also participated in various urban projects such as remodelling of the Convent dels Angels area or the construction of the Olympic Village, two projects in the Catalan capital. He has been awarded several times with the gold prize FAD Delta and in 1987 received the Creu de Sant Jordi. His Italian tradition merely lies in his close cooperation with the manufacturers of products and with his close rtelationship with the technicians. At this time it was very rare for a Spanish or Italian designer to produce working drawings from their designs. Concept sketches serve only to convince the designer himself and his assistants within the studio that a design proposal is possible and to develop the main idea; but Blanca prefers to strike up face to face discussions with those responsible for manufacture and designs may be modified many times before the shape and form of the product is finalized. Blanca believes that there are two types of technicians, â€Å"those who only see difficulties and the usually older craft-men who say ‘this may seem impossible but if I make it this way perharts it is possible’ if a designer does not propose silly things the technician will respect him, it is not possible to improvise design†. His success consists in insistent supervision, not only because he prefers to build a comfortable environment for everybody but because he believes that â€Å"if the design is a failure it is completely my fault†. He worked for several companies a lot of them owned by personal friends, he was highly attached to the technicians â€Å"they are clever and full of suggestions rather than coercive†. But he also had his up and downs, such as the disagreement with the furniture manufacturer â€Å"knoll international† which Blanca believed was overdoing the suggestion that he submit three separate design solutions for a chair. Blanca found the task â€Å"impossible to come up with† because he was a strongly innovative man and in Spain at the time, the market was cost effective and manufacturers believed cheaper to copy Italian and Swedish designs, finding a cheaper solution than that, required a bit more than cleverness including the fact that the manufacturing had to be as cheap as possible and he found the deal with the rest of the workers very hard to accept because it went against his principles. Finding one solution only was hard enough. However soon enough, Spain entered the European Community and the industry around Barcelona and Valencia begun to change as imports tariffs had dropped. It was no longer cost effective, the Italian and Swedish designs were put aside because Spanish consumers could now afford the products of competitive wares which started looking for designers. Blanca had a lot of enthusiasm in trying new inventions which he would not have had the courage to try with Italian producers. The range begun in 1984 and comprises seven different chairs. The lattest was designed for the refurbishment of Domenech I Montaners 1903 previously mentioned â€Å"Palau de le Musica Catalana† in Barcelona. It is described as an auditorium chair and much study has been applied to the acoustical problems â€Å"a good chair for a cinema is a bad chair for a conference hall† This was the final solution, designed for auditoriums. It was first used when renovating the Palau de la Musica Catalana, in Barcelona. However this design was so successful, that if a designer saw it, would think it had been evolving and being perfectioned for years rather than the truth, a lucky clever design. Underneath each seat users find a Helmholtz resonator, which, absorbs the same amount of sound as a human body when the seat is upright. The result is little difference of reverberation no matter how many people were in the hall. This design is said to be successful because is now being used in more than 50 public halls in Spain, including the Senate. This chair was only one of the innovative solutions that Blanca introduced to the â€Å"Palau de le Musica Catalana† that he spent six years enlarging, restoring and air conditioning. The In the first phase, which took several years to achieve, Blanca among with his co-workers, repaired the very damaged parts of the old building and equipped it with sanitary facilities, accessibility, safety and comfort features. These were of course unimaginable a hundred years earlier, but his team made it possible. Palau de le Musica Catalana. Sketches in the process of refurbishment of Domenech I Montaners â€Å"Palau de le Musica Catalana† However the most noteworthy part of the project was to take advantage of the adjacent unfinished church part of the site, to open up the central hidden area properly and more efficiently, even though, remarkably, Domenech had bestowed on it a richness of treatment to be compared with that of the facades, thus opening up a new entrance to the Palau. In the extension adjacent to the stage, Blanca provided services for the performers: rehearsal room, dressing rooms, library, etc In 1979, Alessandro Mendini invited eleven architects from all over the world to design a tea and coffee set: Michael Graves, Hans Hollein, Charles Jencks, Richard Meier, Paolo Portoghesi, Aldo Rossi, Stanley Tigerman, Oscar Tusquets, Robert Venturi, Kazumasa Yamashita and Mendini himself. The overall set is an exercise in micro-architecture, reflecting the various architectural styles of the day. The outcome was presented as Tea ; Coffee Piazza and 99 sets were made in silver, bearing the monogram of each designer. According to Alessandro Mendini in the â€Å"Domus† magazine, Blanca became well known because of the design of the tea set. This product is everything but aimed at all formalistic or decorative it is in fact a detailed study of the history of the teapot, how the applied arts combine with aerodynamics to manage to resolve the problem of containing and pouring hot liquid. He soon saw that the spout, which should emerge from the lower part of the pot where the liquid is denser and less hot, had been gradually shortened and displaced towards the upper part of the vessel. This was because of the difficulty of making a separate piece and then soldering it to the base. As a result, many present-day teapots only have the slightest of notches in their upper rim for the liquid to be poured out through and this leads to problems with sloppy pouring and inevitable dripping. Another problem area is the handle, there being three traditional types: the top handle Japanese, the lateral handle which OTB preferred for its balance and accuracy, and, the least common the outjutting horizontal handle. OTB discovered that the handle had also been subjected to a gradual process of simplification, leading to unacceptable levels of discomfort: overheating, imbalance, insufficient surface grip area, and so on. Models of the teapot, His studio used balsa and papier Mache for model making. For the Alessi tea set he had a wooden model made professionally because of his distance from Italy. This product is everything but aimed at all formalistic or decorative it is in fact a detailed study of the history of the teapot, how the applied arts combine with aerodynamics to manage to resolve the problem of containing and pouring hot liquid. He soon saw that the spout, which should emerge from the lower part of the pot where the liquid is denser and less hot, had been gradually shortened and displaced towards the upper part of the vessel. This was because of the difficulty of making a separate piece and then soldering it to the base. As a result, many present-day teapots only have the slightest of notches in their upper rim for the liquid to be poured out through and this leads to problems with sloppy pouring and inevitable dripping. Another problem area is the handle, there being three traditional types: the top handle Japanese, the lateral handle which OTB preferred for its balance and accuracy, and, the least common the outjutting horizontal handle.

Literature Review Of Forecasting And Definitions Business Essay

Literature Review Of Forecasting And Definitions Business Essay Forecasting is supposed to be one of the oldest management activities. In biblical times there were frequent allusions to clairvoyants and prophets. Nowadays it is becoming increasingly necessary for companies to make forecasts; those that do not give the prospect to their competitors a clear advantage. No forecasting is a main cause of most of todays business failures. In the past, goods could be sold on company reputation alone and forecasting was not too important. In todays more competitive times, sentiment does not apply, and firms that do not challenge their selves to make an accurate forecast on which to base their future production will find it increasingly difficult to survive (Lancaster G.A. Lomas R.A., 1985). Forecasting is important for many aspects of the modern business. Organisations make plans which become effective at some point in the future so they need information about prevailing circumstances (Waters, 2003). This information must be forecast; but unfortunately forecasting is a difficult situation and despite its importance, progress in many areas has been limited (Waters, 2003). According to literature forecasting can be defined: Forecasting is predicting, projecting, or estimating some future event or condition which is outside an organizations control and provides a basis for managerial planning (Golden J. et.al, 1994, p.33) Forecasting is generally used to predict or describe what will happen (for example to sales demand, cash flow, or employment levels) given a set of circumstances or assumptions (Waddell D., et.al, 1994, p.41) Forecasting is a projection into the future of expected demand, given a stated set of environmental conditions (Mentzer J.T. Moon M.A., 2005, p.9) 2.3 Importance of Forecasting Todays globalized business market, the systematic move from push to pull manufacturing, and the rise in consumer oriented economies, have led to a much more complex forecasting world (Lapide, 2006). Forecasters are being asked to create plans for expanding geographies, increased numbers of sales channels, and broader, more diverse, and shorter life cycle product lines. This complexity means that markets are more dynamic and the business environment is not stable (Lapide, 2006). The importance of forecasting is finding in a great range of planning and decision making circumstances. It is essential to mention those perspectives that forecasting can become a useful tool for management in many departments of an organization. In marketing, a great amount of decisions can be improved significantly by connect them with dependable forecasts of market size and market characteristics (Makridakis and Wheelwright, 1989). Having this in mind for example, a company that produces and sells electrical devices should be able to forecast what the demand will be for each of its products by geographic region and type of consumer (Makridakis and Wheelwright, 1989). In production an essential need of forecasting is the area of product demand. This relates with the both prediction of volumes mix so as the organization can plan its production schedule and organize appropriate its inventories (Makridakis and Wheelwright, 1989). Another area that the recent years have linked a lot with forecasting is finance and accounting. These departments must forecast cash flows and the rates at which various expenses and revenues will occur if they are to maintain company liquidity and operating efficiiency (Makridakis and Wheelwright, 1989). Due to the nowadays difficult economic conditions that the whole business markets face up the importance of forecasting has become more imperative than ever. Marketing practitioners regard forecasting as an important part of their jobs. For example, in Dalrymple (1975), 93% of the companies sampled pointed out that sales forecasting was one of the most critical aspects, or a very important aspect of their companys success. Also Jobber, Hooley and Sanderson (1985), in a survey of 353 marketing directors from British textile firms, found that sales forecasting was the most common of nine activities on which they reported (Armostrong J. S. et. al, 2005). Moreover Dalrymple (1987), in a survey among 134 US companies, found that 99% prepared formal forecasts when they developed written marketing plans. Winklhofer et. al (1996) notes some basic factors that the importance of forecasting has become widely essential for the organizations in recent years: The increasing complexity of organizations and their environments led to difficulties for decision makers to take account of all the factors relating to the future growth of the organization into account; Organizations have moved towards more systematic decision making that contains explicit justifications for individual actions, and formalized forecasting is one way that these actions can be maintained; The development of the forecasting methods has enables not only forecasting experts but also managers to become familiar with these techniques. 2.4 Forecasting Methods Moving on, the next step is to present and to analyze the forecasting methods. Forecasting methods can be divided in three basic categories: a) Quantitative or Statistical b) Qualitative or Judgmental c) Time Horizon 2.5 Quantitative or Statistical Quantitative Forecasts base on mathematical models and suppose that past data and other relevant factors can be combined into reliable predictions of the future (The Journal of Business Forecasting, fall 2000). In preparing a quantitative forecast it should begin with a number of observed values, past data, or observations (Makridakis and Wheelwright, 1989). These observations may represent many things, from the actual number of units sold to the cost of producing each unit to the number of people employed (Makridakis and Wheelwright, 1989). Quantitative Forecasts can be divided into two alternative options; projective and casual. 2.5.1 Projective Methods These methods rely on historical data and they are known as time-series. These can be used to discover systematic, seasonal deviations in the data, cyclical patterns, trends and growth rates of the trends (Korpela J. et.al, 1996, p.162). Time-series analyze the data to find out which patterns exist and then develop a suitable forecast equation (Mentzer T. and Mark A.M., 2005). The main forecasting techniques included in this category are moving averages, exponential smoothing and a model for trend and seasonality. A short review of these methods follows. Moving Average Moving average takes account of the calculation of the average of the sample and then forecast the next period having as a driver this average. This is a proper method in order to predict from a series of data which has shown regular historical patterns and where there is a long series. Also they are suitable of predicting seasonal sales but they cant predict accurate rapid modifications in markets. Exponential Smoothing Exponential smoothing is the most popular and cost effective of the statistical methods. It bases on the principle that the latest data should be weighted more heavily and smoothers out cyclical variations to forecast the trend (Armostrong J. S. et. al, 2005). It relies on the idea that as data gets older it becomes less relevant and should be given less weight (Waters, 2003). In order to make this calculation it is needed the old average, the actual new demand and a weighting factor (Wild, 2002). Model for seasonality and trend The techniques that have been discussed so far have assumed that the basic underlying pattern of the past sales data has been horizontal. Waters (2003) proposes a model for use under some specific circumstances such as seasonality and trend in the demand. Demand can be divided in separate parts and more specifically: a) underlying value, which characterizes the main demand that should be adjusted for seasonality and trend b) trend which is the change in demand, c) seasonality which is the cyclical variation around the trend and finally d) noise which is a random effect. 2.5.2 Casual Methods The core assumption behind the casual methods is to use refined and specific information concerning variables to develop a correlation between a lead event and the event being forecasted (Korpela J. et.al, 1996, p.162). The idea based on the hypothesis that there is a discernible relationship between the forecasted variable and a measurable independent variable (Lancaster G.A. Lomas R.A., 1985). A typical example of casual methods is regression method. Regression Method By using a regression method the demand forecast is based on a relationship of one event to another. The use of regression method requires a large amount of data for the forecast variable and the casual variables. 2.6 Qualitative or Judgmental Qualitative Forecasts (The Journal of Business Forecasting, fall 2000) are based on opinions, knowledge and skills rather than more formal analysis. They are used where there is no historical data. These types of forecasts are one of the simplest and widely used forecasting approaches available (Makridakis and Wheelwright, 1989). Its core idea rely on the corporation of the executives by discussing and deciding as a group what their best estimate for is for the item to be forecast (Makridakis and Wheelwright, 1989). The most important judgmental methods are Delphi, Market Surveys and Historical Analogy. Delphi In the Delphi method at least two rounds of forecasts are obtained independently from a small group of experts. This group can be between five and twenty experienced and suitable experts and poll them for their forecasts and reasons (Armstrong J.S, et.al, 2005). The experts never actually meet and typically do not know who the other panel members are (Wisniewski, 2006). After each round, the experts forecasts summed up and reported back to the experts (Armstrong J.S., 2006). The cycle can go on from a second to a third round and so on if appropriate (Lancaster G.A. Lomas R.A., 1985). Typically the Delphi method is used to produce a narrow range of forecasts rather than a single view of the future (Wisniewski, 2006). Market surveys Logic dictates that the most sensible approach to preparing a sales forecast might be ask ones customers (Lancaster G.A. Lomas R.A., 1985). It is a simple matter to ask customers what their likely purchases will be for the period it is desired to forecast. So companies make surveys in order to collect these data from customers and then by analysing their answers produce the forecasts. This method is best used when the number of users is small, when they are likely to state their purchasing intention with reasonable accuracy and when the forecaster knows the extent of competition in the market-place and the companys likely share of the total market (Lancaster G.A. Lomas R.A., 1985, p. 131). Historical Analogy Under limited circumstances it may be possible to produce forecasts based on observed patterns of some similar variable in the past (Wisniewski, 2006).The concept of this method based on the product life-cycle which assumes that the most of the products follow the reasonable stages of introduction, growth, maturity, decline (Lancaster G.A. Lomas R.A., 1985) as the figure 2.1 shows. The product life-cycle theory has been applied in many industries and has proved useful in identifying future strategies for products and services (Lancaster G.A. Lomas R.A., 1985). Maturity Sales/Profit Decline Growth Introduction Time Figure 2.1: Product life cycle Source: (Wisniewski M. (2006), Quantitative Methods for Decision Makers (4th Edition), Prentice Hall, p. 295) 2.7 Time Horizon Forecasts can be classified in terms of time span they cover in the future. The basic types of time horizon forecasts are long-term, medium-term and short-term (Korpela J. et.al, 1996, p.161). The long-term forecasts cover a time span of 3-10 years and they are used in the analysis of standard commitments and can be characterized as strategic decisions. The medium-term forecasts are made for one year to support production planning in the face of highly cyclical demand and can be characterized as tactical decisions. Finally short-term forecasts cover a time of one week to three months and they are used to control manufacturing levels and stock replenishment in the face of short demand variation. Short-term forecasts are concerned for operational decisions (Korpela J. et.al, 1996; Waters, 2003). 2.8 Forecast Error Inaccurate forecasts are the single most common problem that every company faces. Nowadays due to the rise of the technology there are many events or areas that can be predicted such as 1) seasonality, 2) average relationships, 3) average cyclical patterns, 4) emerging technological trends and their influence and many other factors. But on the other hand because future is something unknown there are always situations that are very difficult to predict such as 1) special events, 2) competitive actions or reactions, 3) sales of new products, 4) the start and depth of recessions, 5) changes in trends, 6) changes in relationships or attitudes, 7) and technological innovations (Makridakis and Wheelwright, 1989). Golden J. et.al, 1994, points out three ways-aspects that can reduce the forecast error by taking into consideration the followings: Knowing the market: take the pulse of those who will actually buy and use the product. Be independent. Deflate forecasts for a margin of safety. It is generally known that every forecaster knows that he/she should measure forecast errors. Most of them do it however only for the reason to see how well they are doing. The important is to measure forecasting errors for two primary reasons: to learn from them and to manage demand risk (Lapide L., 2007). Regarding learning from them, forecasts errors should be analyzed to access where errors are too high or have gotten to large so that more focus can be placed in those areas for improvement (Lapide L., 2007). Regarding managing for demand risk, users of the forecast need to know how accurate they are in order to leverage risk management strategies designed to mitigate the risk (Lapide L., 2007). 2.9 Forecasting methods criteria When carrying out market demand forecasts, one often confronts with the problem of the inappropriate selection of a forecast method. It should be noted that in every actual forecast situation methods have their advantages and disadvantages, hence, it is important to define and analyse forecast method selection criteria (Pilinkiene, 2008). In order to select the appropriate method several criteria should be considered such as a) forecast accuracy degree, b) time span, c) amount of necessary initial data, d) forecast costs, e) result implementation and applicability level (Pilinkiene, 2008). According to Cox and Mentzer study (Table 2.1) (1984;cited by Mentzer and Kahn,1995) identified accuracy (92%) and credibility (92%) as top criteria for choosing a forecast technique. Criteria Sample Size % Important Accuracy 205 92 Credibility 206 92 Customer Service Performance 199 77 Ease of Use 206 75 Inventory Turns 198 55 Amount of Data Required 205 46 Cost 205 41 Return on Investment 199 35 Table 2.1: Top criteria for choosing a forecast technique (Source: Mentzer J.T Kahn K.B., (1995) Forecasting Technique Familiarity, Satisfaction, Usage, and Application, Journal of Forecasting, vol.14, p.474) Moreover another important research made by Yokum and Armstrong (1995) (Table 2.2) which based in a survey among 322 experts in forecasting identified the most important criteria. There were 94 researchers, 55 educators, 133 practitioners (i.e. forecast preparers) and 40 decision makers (i.e. forecast users). From this study accuracy was the dominant criterion -rated 6.2 on average-, next was timeliness in providing forecasts, and cost savings resulting from improved decisions. After that five other criteria rated based on ease such as ease of use. Mean agreement rating Question Avg. Decision Maker (DM) Practitioner (PR) Educator (ED) Researcher (RS) Accuracy 6.20 6.20 6.10 6.09 6.39*DM,PR,ED Timeliness in providing forecasts 5.89 5.97 5.92 5.82 5.87 Cost savings resulting from improved decisions 5.75 5.97 5.62 5.66 5.89 Ease of interpretation 5.69 5.82 5.67 5.89 5.54 Flexibility 5.58 5.85*PR,ED,RS 5.63 5.35 5.54 Ease in using available data 5.54 5.79 5.44 5.52 5.59 Ease of use 5.54 5.84*PR,RS 5.39 5.77*PR, RS 5.47 Ease of implementation 5.41 5.80*PR,ED,RS 5.36 5.55 5.24 Incorporating judgmental input 5.11 5.15 5.19 5.12 4.98 Reliability of confidence int. 4.90 5.05 4.81 4.70 5.09 Development cost(computer, human resources) 4.86 5.10 4.83 5.02 4.70 Maintenance cost (data storage, modifications) 4.73 4.72 4.73 4.75 4.71 Theoretical relevance 4.40 3.72 4.43*DM 4.20*DM 4.81*DM *denotes significantly higher ratings (p Table 2.2: Importance of criteria in selecting a forecasting technique (scale- 1 unimportant to 7 important) (Source: Yokum, J. J.S. Armstrong (1995) Beyond Accuracy: Comparison of criteria Used to Select Forecasting Methods, International Journal of Forecasting, 11, p. 593) 2.10 Planning Practices for Improving Forecasting After the analysis of the available forecasting methods and their selection criteria the next step is to propose some planning practices that can improve forecasting, It is known that these practices are not necessary best fit with every company and before someone wants to implement them an evaluation of companys core practices should be made. That can help a company to identify its advantages and disadvantages in order to survive in todays tough market environment and with the help of these practices can become the leader of the market. The complexity and uncertainty that exist in the todays business environment creates many problems to every function of a company. This also affects supply chain management which its initial target is to meet the needs of the final consumer by supplying the right product at the right place, time and price (Helms et.al, 2000). This complexity elevates forecasting accuracy and effectiveness as an elusive target. Many companies are, however, making significant, improvements by using an approach that supports and facilitates the concept of supply chain management by improving the forecasting practices (Helms et.al, 2000). So the planning practices that can improve forecasting are: a) Sales and Operation Planning (SOP) and b) Collaborative Planning Forecasting and Replenishment (CPFR). These practices will be analyzed and explained in the following subchapters. 2.10.1 Sales and Operation Planning****FRAMEWORKS*** Sales and Operating Planning (SOP), is a cross-functional process that brings together teams of individuals on a routine basis to plan for where businesses are going on a operational/tactical basis and is considered a supply chain best practice (The Journal of Business Forecasting, 2005; Lapide, 2006). Sales and Operations Planning (SOP) has emerged as a powerful decision-making tool for executives and managers (Wallace et.al, 2005). It is a set of decision making process that 1) balances demand and supply, 2) links a companys day-to-day operations with its strategic and business plans and 3) integrates operational planning with financial planning (Wallace et.al, 2005). ***ÃŽâ„ ¢ÃƒÅ½Ã‚ £ÃƒÅ½Ã‚ ©ÃƒÅ½Ã‚ £ ÃŽÂ ÃƒÅ½Ã¢â‚¬Ëœ ÃŽÅ ¡ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã‚ ÃƒÅ½Ã‚ © ÃŽÂ £ÃƒÅ½ÃƒÅ½-ΜΑ ÃŽâ€Å"ÃŽâ„ ¢ÃƒÅ½Ã¢â‚¬Ëœ ÃŽÂ ¤ÃƒÅ½Ã¢â‚¬Ëœ 1,2,3** Each team member brings to the process a specific perspective during the development of supply and demand plans/forecasts (Lapide, 2006). Each SOP team member may have to generate, review and revise demand forecasts that reflect the aspects of a business with which they are most familiar (Lapide, 2006). SOP, leverages Supply-Demand Matching, an operating principle that involves balancing supply and demand over time in order to satisfy demand, optimize operations, and minimize wasted resources (The Journal of Business Forecasting, 2005). Under an SOP process, a companys sales and marketing plans are aligned with the plans of operations, logistics, manufacturing, and procurement in order to jointly optimize future demand-supply operations. It is a process from which the final constrained and unconstrained demand forecasts are developed and then used to drive operational planning activities (The Journal of Business Forecasting, 2005). ***Ά¢ÃƒÅ½Ã‚ £ÃƒÅ½Ã¢â‚¬â„¢ÃƒÅ½-ÃŽÂ £ÃƒÅ½Ã¢â‚¬Ëœ ÃŽÂ ¤ÃƒÅ½Ã… ¸ ÃŽâ„ ¢ÃƒÅ½Ã‚ ÃƒÅ½Ã‚ ¤ÃƒÅ½Ã¢â‚¬ ¢ÃƒÅ½Ã‚ ¡ÃƒÅ½Ã‚ ÃƒÅ½Ã¢â‚¬ ¢ÃƒÅ½Ã‚ ¤, ÃŽÂ ÃƒÅ½Ã¢â‚¬Ëœ ÃŽâ€Å"ÃŽÂ ¡ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã‚ ¨ÃƒÅ½Ã‚ ©*** The major input for the implementation of SP is the behavioural change of the people inside the organisation and is regarded to be as the most difficult element (Wallace, 2010). Other elements such as software tools, data and the specifics of the process may be essential, but theyre of far less significance. Taking this as a standard the point is that a successful implementation of SOP is a matter of change management. The amount of change is significant. Its not a matter of doing something better; its about doing things differently-to be better (Wallace, 2010). In order to understand SOP process in is important to present and explain the four fundamentals which are demand and supply, volume and mix figure 2.2. Volume (How much?, Rates, Product families) Supply Demand Mix (Which ones?, Timing/Sequence, Products/SKUs) Figure 2.2: The Four Fundamentals Source: Wallace T. Stahl B., (2005), Sales Operation Planning- The Next Generation, pp.6) SOP is a tool to balance demand and supply at the volume level. It deals with rates of sales and production, aggregate inventories and backlogs. It is typically expressed in product families or other aggregate groupings; it answers the question how much. At the mix level the matter is about with which individual products run first, second, third and which customer orders will ship when. It answers the question which ones giving the details (Wallace et.al, 2005). Another important mission for SOP is to tie together the companys operational plans with its financial plans. The financial plans represent, critically essential evident, to deliver X amount of revenue and profit dollars for a specific period of the year. These commitments are made to some very important people such as the corporate office, the board of the directors, the Wall Street and ultimately to owners of the business: the stockholders (Wallace et.al, 2005). On the other hand, the operational plans focus on things like procurement, production, sales, inventories and so on. When these operational plans are not aligned with the business and financial plans, there is a detach. (Wallace et.al, 2005). 2.10.1.1 Sales and Operation Planning Benefits Implementing SOP in a business the benefits will be essential and immediate. These benefits can be categorized into two groups, the hard benefits and the soft benefits. As far as it concerns the hard benefits these can be the following (Wallace et.al, 2005): Higher Customer Service, by developing the ability to ship on time and complete at a higher rate than before SOP. Lower Finished Goods Inventories, by doing a better job of shipping to customers with lower, not higher, inventories. Shorter Customer Lead Times, through an enhanced ability to manage the customer order backlog and keep it at a low level. More Stable Production Rates, due to the ability to predict the future shifts in customer demand sooner and thus make smaller adjustments to production rates. Higher Productivity, by avoiding extreme fluctuations in production volumes with their attendant layoffs and rehiring. Moving on to the soft benefits these include (Wallace et.al, 2005): Enhanced Teamwork, at both the executive and operating management levels, resulting from the holistic view of the business that SOP provides. Better Decisions, by decreasing effort and time. SOP offers, increases effectiveness which improves the quality and the structure of decisions on demand and supply issues. Greater Accountability and Control, due to the backward and forward visibility that SOP provides. 2.10.1.2 Examples of Implementing Sales and Operation Planning a) Coca-Cola Midi (CCM): In France there is a manufacturing regional plant that produces -over 700 SKUs, encompassing 79,000 tons- soft drinks concentrates and juice beverages bases for Europe, Asia and Africa. SOP was implemented at CCM when the plant was started in 1991. SOP is for CCM the backbone for planning, manufacturing and supply-chain activities. SOP enables disciplined and formalized communications across the company, and between all the suppliers, partners and customers. Continuous improvement in customer service, inventory management, obsolete products, and freight costs were some of SOP benefits after the implementation. (www.partnersforexcellence.com). b) ***ÃŽÂ ÃƒÅ½Ã¢â‚¬Ëœ ΒΑΆºÃƒÅ½Ã‚ © ΑΆºÃƒÅ½Ã¢â‚¬ ºÃƒÅ½Ã… ¸ ÃŽÂ  ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã‚ ¡ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã¢â‚¬ ÃƒÅ½Ã¢â‚¬ ¢ÃƒÅ½Ã¢â€ž ¢ÃƒÅ½Ã¢â‚¬Å"ΜΑ*** 2.10.2 Collaborative Planning Forecasting Replenishment (CPFR) Collaborative planning forecasting and replenishment (CPFR), is a revolutionary business practices where in trading partners use technology and a standard set of business processes for Internet-based collaboration on forecasts and plans for replenishment (KJR Consulting, 2002). CPFR can be categorized into these collaborative business practices that enabled trading partners to have visibility into ones other critical demand, order forecasts and promotional forecasts. The objective of CPFR is to improve efficiencies across the extended supply chain, reducing inventories, improving service levels and increasing sales (KJR Consulting, 2002). Wal-Mart and Warner-Lambert embarked on the first CPFR pilot, involving Listerine products, in 1991. In their pilot, Wal-Mart and Warner-Lambert used special CPFR software to exchange forecasts. Supportive data, such as past sales trends, promotion plans, and even the weather, were often transferred in an iterative fashion to allow them to converge on a single forecast in case their original forecast differed (Avin Y., 2001). As a result of CPFR implementation Warner-Lamberts service levels increased from 87% to 98%, while the lead times to deliver the product decreased from 21 to 11 days (Boone T. et.al, 2000).***ÃŽÂ ÃƒÅ½Ã¢â‚¬Ëœ ΆÃƒÅ½Ã‚ © ÃŽ-ΜΆ¢ÃƒÅ½Ã‚ ¡ÃƒÅ½Ã… ¸ÃƒÅ½Ã…“ÃŽ-ÃŽÂ ÃƒÅ½Ã¢â€ž ¢ÃƒÅ½Ã¢â‚¬Ëœ** Also this pilot was very successful, having as a result an increase in Listerine sales and better fill rates, having also a reduction on inventory investment (Avin Y., 2001). The key idea behind CPRF is that the trading partners (retailer and manufacturer), work together in order to produce a common forecast. Both the retailer and the manufacturer collect market intelligence on product information, store programs etc., and share it in real-time over the Internet. In most cases, the retailer owns the sales forecast; if the manufacturer agrees with the forecast, automatic replenishments are made to the retailer via predetermined business contracts so that a specific level of inventory or customer service is maintained (Boone T. et.al, 2000). In the case that the retailer and the manufacturer cant agree on the forecasts or if there are exceptions, such as unusual demand season or a store opening, the forecasts are reconciled manually. An important point is before the implementation of CPFR when the partners should agree on several key questions such as how to measure service levels and stock-out, how to set inventory and service targets (Boone T. et.al, 2000). The difference between CPFR and other business process tools and initiatives, such as Efficient Consumer Response (ECR), is that the other models require critical mass before any benefits are realized. Promotional plans and the business goals are the most famous areas of collaboration between the trading partners. After that order/replenishment plans, inventory status and sales forecast seems to be very critical themes for this relationship. 2.10.2.1 CPFR Process Model ***ÃŽÂ ÃƒÅ½Ã¢â‚¬Ëœ ÃŽÂ ¤ÃƒÅ½Ã… ¸ ÃŽÅ ¾ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã‚ ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã¢â‚¬ ÃƒÅ½Ã‚ © ΑН ΒΠ¡ÃƒÅ½Ã‚ © ÃŽÅ ¡ÃƒÅ½Ã¢â‚¬ËœÃƒÅ½Ã‚ ¤ÃƒÅ½Ã¢â€ž ¢*** 2.10.2.2 CPFR Benefits There have been recorded and identified many benefits of CPFR. The CPFR documents that are available on the VICS Committee sites show that there is a 30%-40% improvement in forecast accuracy, significant increases in customer service, sales increase between 15% and 60% and reduction in days of supply 15%-20% (Sheffi Y., 2002). AMR Research (2001) reported a range of benefits that came through CPFR implementation in many companies and there are divided into retailer benefits and manufacturer benefits as it is shown in table 2.3. Retailer Benefits Typical Improvement Better store shelf stock rates 2% to 8% Lower inventory levels 10% to 40% Higher sales 5% to 20% Lower logistics costs 3% to 4% Manufacturer Benefits Typical Improvement Lower inventory levels 10% to 40% Faster replenishment cycles 12% to 30% Higher sales 2% to 10% Better customer service 5% to 10% Table 2.3: Typical CPFR Benefits Source: Sheffi Y.,(2002), The value of CPFR, RIRL Conference Proceedings As far as it concerns the retailers benefits the highest is the reduction in inventory levels which has a drop from 10% to 40%. After that the increase in sales from 5% to 20% is another essential benefit. On the other hand the manufacturers benefits relate again with a elimination in inventory levels from 10% to 40% and also it offers a faster replenishment cycles from 12% to 30%. In accordance with a questionnaire constructed by KJR Consulting and sent via e-mail to 130 GMA (Grocery Manufacturers of America) companies that have implement CPFR best practice a great range of benefits raised that can indicate the importance of CPRF for the modern complexity businesses. These benefits have been categorized in the following Figure 2.1. Figure 2.4: Anticipated Benefits of CPFR Sou