Tata Timken Company Limited:

The Timken Company of the US is planning to acquire the controlling stake in Tata Timken Ltd,
manufacturer of tapered roller bearings. The American company will purchase the Tata’s 40 per
cent holding in the joint venture to take its own share to 80 per cent. Tata will get about Rs. 117
crore for the sale. The balance 20 per cent will remain with the public. Tata Timken started its
operations in 1992. Tata has invested Rs. 26 crore in the venture through the Tata Iron and Steel
Company (TISCO), which saw prospects of selling its alloy steel to the new bearings maker. The
venture is the second largest manufacturer of tapered roller bearings in India. But bearings are a
difficult business. The company accumulated losses of Rs. 50 crore by the end of 1995.

Tata Timken has an installed capacity of 3 million units (standard bearings and bearings for trucks,
utility vehicles, and railways). The company undertook a Rs. 32 crore expansion programme,
which was completed in March 1998. It’s technical and research centre at Bangalore was set up at
a cost of Rs. 6 crore. The company has plans to invest an additional Rs. 15 crore in expansion.
Acquisition of Tata’s stake in the joint venture is in line with Timken’s approach the world over.
The group’s acquisitions include MPB Corporation (now Timken Aerospace and Super Precision
Bearings), Desford Steel Tubes, and Latrobe Steel Company (now Timken Latrobe Steel). Timken
is the global leader in tapered roller bearings used in manufacturing of various automobiles and
trains.

The Tata group has clarified that it has withdrawn from the joint venture in order to concentrate
on its core competence. Greater control will also encourage Timken to bring in new technology.
The decision to part was mutual. The company will be renamed Timken India Ltd. The
composition of the board will also change. Timken is considering undertaking a market expansion
plan after the takeover. It is looking at the past sales data to forecast the sales for the future. It is
looking at the monthly sales of last four years to forecast for the future years.

Sales (in crores)

Month 2007 2008 2009 2010
January 27 34 39 38
February 28 39 47 49
March 36 43 49 61
April 49 57 48 58
May 38 56 59 64
June 48 59 67 69
July 56 64 69 73
August 62 67 78 86
September 65 73 84 92
October 69 76 87 96
November 78 76 83 95
December 87 78 98 98
The vice president of the company has to prepare a report for Timken India summarizing the
findings, forecasts, and recommendations. He is planning to include the following:

a) A graph of the time series.

b) An analysis of the seasonality of the data indicating the seasonal indices for every month
with comments on the low seasonality and high trend nature of the data.
c) Forecast sales from January to December for the next year.

QUESTION:

Assuming that the January sale for the next year turns out to be Rs. 105 crore, find out the vice
president’s forecast error. If the error is large, what factors might have contributed to the same?
What should the vice president do to reduce this error?

Provide a schedule for updating the system as per your above suggestions.