Operations Management Assignment 1

       
  Submitted By:  
  Group 1 - Section 1  
   
   
  Name FT Number  
  Roshni Biswas FT231053  
  Satyam Chingale FT231038  
  Mangesh Makde FT231059  
  Soham Agarwal FT231076  
  Abhishek Pimple FT231089  
  Yatin Bargale FT231049  
       

FORECASTING

1. Historical demand for a product is:

3- Absolute WMA AMD ES (alpha = AMD

month Mean (0.6, 0.3, (WMA) 0.2) (ES)
MA Deviation (3- 0.1)
Months Demand MA)
January 12
Februar 12 =|11 – 12|
y 11 =1
=0.2*11+08* = |15 –
March 15 12 =11.8 11.8| = 3.2
= =|12 -12.67| = = 0.6 * 15 = |12 – =0.2*15+0.8* = |12 –
(12+11+ 0.67 + 0.3 * 11 13.4| = 11.8 =12.44 12.44| =
15)/3= + 0.1 * 12 1.4 0.44
April 12 12.67 = 13.4
= = |16- 12.67|= = 0.6 * 12 = |16 – =0.2*12+0.8* = |16 –
(11+15+ 3.33 + 0.3 * 15 12. 8| = 12.44 =12.35 12.35| =
12)/3 = + 0.1 * 11 3.2 3.65
May 16 12.67 = 12.8
= = |15 – 14.33| = 0.6 * 16 = |15 – =0.2*16+0.8* = |15 –
(15+12+ = 0.67 + 0.3 * 12 14.7| = 12.35 =13.08 13.08| =
16)/3 = + 0.1 * 15 0.3 1.92
June 15 14.33 = 14.7
= = 0. 6 * 15 =0.2*15+0.8*
(12+16+ + 0.3 * 16 13.04 = 13.46
15)/3 = + 0.1 * 12
July 14.33 = 15
 Operations Management Assignment 1

a. Using a weighted moving average with weights of 0.60, 0.30 and 0.10, find the July
forecast.
Soln. Mean Absolute Deviation (WMA) = 1.63
b. Using a simple three-month moving average, find the July forecast.
Soln. Mean Absolute Deviation (WMA) = 1.56
c. Using single exponential smoothing with α=0.2 and a June forecast=13, find the July
forecast. Make whatever assumptions you wish
Soln. Mean Absolute Deviation (ES) = 2.04
d. Using simple linear regressions analysis, calculate the regression equation for the
preceding demand data.
n ∑ xy−∑ x ∑ y
b=
n ∑ x −( ∑ x )
2 2

a=Y −b x

Month xy x2
Soln. Months Index (x)
Demand
(y)
1 12 1
January 12
2 22 4
February 11
3 45 9
March 15
4 48 16
April 12
5 80 25
May 16
June 6 15 90 36
7
July
Sum 21 81 297 91

6∗297−21∗81
b= 2
6∗91−(21)
b = 0.7714
a=Y −b x
a = (81/6) – 0.7714 (21/7)
a = 10.8
Regression equation of model is y = 10.8 + 0.7714 x

e. Using the regressions equation in d, calculate the forecast for July.

Soln. Regression equation of model is y = 10.8 + 0.7714 x
Y= 10.8 + 0.7714*7 = 16.1998
 Operations Management Assignment 1

2. The following tabulations are actual sales of units for six months and a starting forecast
in January.
a. Calculate forecasts for the remaining five months using simple exponential smoothing
with α=0.2

Months Actual Forecast

January 100 80
Februar =0.2*100+0.8*80=8
y 94 4
March 106 =0.2*94+0.8*84=86
=0.2*106+0.8*86=9
April 80 0
May 68 =0.2*80+0.8*90=88
June 94 =0.2*68+0.8*88=84
b. Calculate MAD for the forecast:

Months Actual Forecast MAD

January 100 80 = |100 – 80| = 20
February 94 =0.2*100+0.8*80=84 = |94 – 84| = 10
March 106 =0.2*94+0.8*84=86 = |106 – 86| = 20
April 80 =0.2*106+0.8*86=90 = |80 – 90| = 10
May 68 =0.2*80+0.8*90=88 = |68 – 88| = 20
June 94 =0.2*68+0.8*88=84 = |94 – 84| = 10

MAD = (20+10+10+10+20+10)/6
MAD= 15
 Operations Management Assignment 1

3. The following table shows the past two years of quarterly sales information. Assume that
there are both trend and seasonal factors and that the seasonal cycle is one year. Use time
series decomposition to forecast quarterly sales for the next year.
Soln.
Average Seasonality De- De-Seasonalized Seasonalized
Sales (Qu- Factor Seasonalize Forecast Forecast
on-Qu) (Average d Sales
Sales Q-on-
Q / Overall
Quarter Sales Average)
= =187.5/186.87 =160/1.0033
(160+215)/ 5 =1.0033 =159.4667
1 160 2 = 187.5
= =217.5/186.75 =195/1.1638
(195+240)/ =1.1638 =167.5431
2 195 2 = 217.5
= =177.5/186.87 =150/.9498
(150+205)/ 5 =.9498 =157.9225
3 150 2 = 177.5
= =165/186.875 =140/.8829
(140+190)/ =.8829 =158.5606
4 140 2 = 165
= 187.5 1.003 =215/1.0033
5 215 =214.2833
= 217.5 1.1638 =240/1.1638
6 240 =206.2069
= 177.5 0.9498 =205/.9498
7 205 =215.8275
= 165 0.8829 =190/.8829
8 190 =215.1894
1.0033 =142.3005+9.9054*9 =231.4495*1.003
9 =231.4495 3 =232.2235
1.1638 =142.3005+9.9054*1 =241.3549*1.163
10 0 =241.3549 8 =280.908
0.9498 =142.3005+9.9054*1 =251.2603*.9498
11 1 =251.2603 =238.6553
0.8829 =142.3005+9.9054*1 =261.16558*.882
12 2 =261.1658 9 =230.5945

Overall Average Demand = (160+195+150+140+215+240+205+190)/8 = 186.875

n ∑ xy−∑ x ∑ y
Regression Equation: b= 2 a=Y −b x
n ∑ x −( ∑ x )
2

Y= 142.3005+9.9054*X
 Operations Management Assignment 1

4. Here are the actual tabulated demands for an item for a nine-month period (Jan through
Sep) your supervisor wants to test two forecasting methods to see which method was
better over this period.
Months Actual
January 110
February 130
March 150
April 170
May 160
June 180
July 140
August 130
Septembe
r 140

a. Forecast April through September using a three-month average

b. Use simple exponential smoothing with an alpha of .3 to estimate April through
September
c. Use MAD to decide which method produced the better forecast over the six-month
perio
Soln.
3-month MA Absolute Exp. Smoothing Absolute
Deviation (α = 0.3) Deviation
(3- (ES)
Months Actual MWA)
January 110
February 130
March 150 =130
=(110+130+150)/3 40 =0.3*150+0.7*130
April 170 =130 =136 34
=(130+150+170)/3 10 =0.3*170+0.7*136
May 160 =150 =147 13
=(150+170+160)/3 20 =0.3*160+0.7*147
June 180 =160 =151 29
=(170+160+180)/3 30 =0.3*180+0.7*151
July 140 =170 =160 20
=(160+180+140)/3 30 =0.3*140+0.7*160
August 130 =160 =154 24
=(180+140+130)/3 10 =0.3*130+0.7*154
September 140 =150 =147 7
Mean Absolute Deviation from April to September (WMA) = 23.333
Mean Absolute Deviation from April to September (ES) = 21.167
MAD is minimum in case of the Exp. Smoothing method for forecast over six-month period.
 Operations Management Assignment 1

5. Historical demand for a product is

Deman
Months d
April 60
May 55
June 75
July 60
August 80
Septemb
er 75

a. Using a simple four-month average, calculate a forecast for October

b. Using single exponential smoothing with α=0.2 and a September forecast =65,
calculate a forecast for October
c. Using simple linear regression, calculate the trend line for the historical data. Say the
X axis is April=1, May=2 and so on, while the Y axis demand.
d. Calculate a forecast for October
Soln.
Index Forecast (4- Forecast (ES, XY X^2
Months Demand Month Average) α=0.2)
1 April 60 60 1
2 May 55 110 4
3 June 75 225 9
4 July 60 240 16
5 August 80 400 25
6 September 75 65 450 36
7 =(75+60+80+75)/4 =0.2*75+0.8*65
October = 72.5 =67
Sum 405 =1485 =91

n ∑ xy−∑ x ∑ y 6∗1485−(21∗405)
b= 2
=
n ∑ x −( ∑ x ) 6∗91−¿ ¿
2

a=Y −b x= ( 4056 )−3.8571 ( 216 )=54

Regression Equation: Y=54+3.8571*X
Forecast for October = 54+3.8571*7 = 80.9997
 Operations Management Assignment 1

90
80
70 R² ==0.4843853820598
f(x) 3.85714285714286 x + 54
60
50
40
30
20
10
0
1 2 3 4 5 6

6. Use regression analysis on de-seasonalized demand to forecast demand in all quarters of

2008, given the following historical demand data

Actual
Year Season Demand
2006 Spring 205
Summe
  r 140
  Fall 375
  Winter 575
2007 Spring 475
Summe
  r 275
  Fall 685
  Winter 965
Soln.

Average Seasonality De- De- Forecast

Yea Actual Season Factor seasonalized seasonalized
r Season Demand Demand Demand Forecast
= (205 + = 340 / = 205 / 0.7361
475) / 2 461.875 = =278.49
2006 Spring 205 = 340 0.7361
= (140 + =207.50 / = 140 / 0.4493
275) / 2 461.875 = = 311.63
  Summer 140 = 207.5 0.4493
= (375 + = 530 / = 375 / 1.1475
685) / 2 461.875 = = 326.80
  Fall 375 = 530 1.1475
= (575 + = 770 / = 575 / 1.6671
965) / 2 461.875 = = 344.91
  Winter 575 = 770 1.6671
0.7361 = 475 / 0.7361
2007 Spring 475 = 645.29
0.4493 = 275 / 0.4493
  Summer 275 = 612.12
  Fall 685 1.1475 = 685 / 1.1475
 Operations Management Assignment 1

= 596.95
1.6671 = 965 / 1.6671
  Winter 965 = 578.84
0.7361 = 210.87 + = 712.89
55.78 * 9 = * 0.7361
2008 Spring 712.89 = 524.79
0.4493 = 210.87 + = 768.67
55.78 * 10 = * 0.4493
Summer 768.67 = 345.36
1.1475 = 210.87 + = 824.44
55.78 * 11 = * 1.1475
Fall 824.44 = 946.04
1.6671 = 210.87 + = 880.23
55.78 * 12 = * 1.6671
Winter 880.23 = 1467.42

Overall average demand = 461.875

De-
Season
seasonalized XY X2
ID (X)
Demand (Y)
1 278.48 278.48 1
2 311.63 623.26 4
3 326.80 980.40 9
4 344.91 1379.64 16
5 645.27 3226.60 25
6 612.12 3672.72 36
7 596.95 4178.65 49
8 578.84 4630.70 64
Sum 36 3695 18970.22 204

n ∑ xy−∑ x ∑ y 8∗18970.22−(36∗3695)
b= =
n ∑ x −( ∑ x ) 8∗204−¿ ¿
2 2

a=Y −b x= ( 3695
8 ) −55.78∗( )=210.87
36
8
Regression on time Model is Y = 210.87 + 55.78
7. Actual demand for a product for the past three months was
Three months ago 400 units
Two months ago 350 units
Last month 325 units

a. Using a simple three-month moving average, make a forecast for this month
b. If 300 units were actually demanded this month, what would your forecast be for next
month?
 Operations Management Assignment 1

c. Using simple exponential smoothing, what would your forecast be for this month if
the exponentially smoothed forecast for three months ago was 450 units and the
smoothing constant was 0.20?
Soln.
Time Actual Demand Forecast (3month-Average Forecast (ES, α=0.2)
Three months ago, 400 units 450
Two months ago, 350 units =0.2*400+0.8*450 =440
Last month 325 units =0.2*350+0.8*440 =422
=(400+350+325)/3=358.33 =0.2*300+0.8*422
This Month 300 =397.6
Next Month =(350+325+300)/3=325

a. This month forecast = (400+350+325)/3 = 358.33 units

b. Forecast for the next month = (350+325+300)/3 = 325 units

C. Forecast two month ago = 0.2*400+0.8*450= 440 units

Forecast of last month = 0.2*350+0.8*440 = 422 units
Forecast of this month = 0.2*300+0.8*422 = 397.6 units

8. Here are earnings per share for two companies by quarter from the first quarter of 2009
through the second quarter of 2012. Forecast earnings per share for the rest of 2012, 2013
and 2014. Use exponential smoothing to forecast the third period of 2012 and the time
series decomposition method to forecast the last two quarters of 2012 and all four
quarters of 2013. (It is much easier to solve this problem on a computer spreadsheet so
you can see what is happening)

Quarte
  Company A Company B
r
2009 I $1.67 $0.17
  II 2.35 0.24
  III 1.11 0.26
  IV 1.15 0.34
2010 I 1.56 0.25
  II 2.04 0.37
  III 1.14 0.36
  IV 0.38 0.44
2011 I 0.29 0.33
  II -0.18 (loss) 0.4
  III -0.97 (loss) 0.41
  IV 0.2 0.47
 Operations Management Assignment 1

2012 I -1.54 (loss) 0.30

  II 0.38 0.47

a. For the exponential smoothing method, choose the first quarter of 2009 as the
beginning forecast. Make two forecasts: one with α=0.10 and one with α=0.30.
b. Using the MAD method of testing the forecasting model’s performance, plus actual
data from 2009 through the second quarter of 2012, how well did the model perform?
c. Using the decomposition of a Time series method of forecasting, forecast earnings
per share for the last two quarters of 2012 and all four quarters of 2013 and 2014. Is
there a seasonal factor in the earnings?
d. Using your forecasts, comment on each company.

COMPANY A
Avg.
abs abs
Season
Company dev MAD dev MAD seasonalit
    Quarter ES(0.1) ES(0.3) al
A ES(0.1 (0.1) ES(0.3 (0.3) y factor
deman Deseasonalize Deseasonalize Reseasonalize
) )
d d demand d forecast forecast
200
1 I 1.67
9                 2.309    
  2 II 2.35 1.670 1.670 0.680   0.680       1.401    
  3 III 1.11 1.738 1.874 0.628   0.764       1.780    
  4 IV 1.15 1.675 1.645 0.525   0.495       1.365    
201
5 I 1.56
0 1.623 1.496 0.063   0.064       2.157    
  6 II 2.04 1.616 1.515 0.424   0.525       1.217    
0.96 0.78
  7 III 1.14
1.659 1.673 0.519 3 0.533 6     1.828    
  8 IV 0.38 1.607 1.513 1.227   1.133       0.451    
201
9 I 0.29
1 1.484 1.173 1.194   0.883       0.401    
  10 II -0.18 1.365 0.908 1.545   1.088       -0.107    
  11 III -0.97 1.210 0.582 2.180   1.552       -1.556    
  12 IV 0.20 0.992 0.116 0.792   0.084       0.237    
201
13 I -1.54
2 0.913 0.141 2.453   1.681   0.50 0.723 -2.129    
  14 II 0.38 0.668 -0.363 0.288   0.743   1.15 1.677 0.227    
  15 III               0.43 0.624   -1.218 -0.759448852
  16 IV               0.58 0.843   -1.4716 -1.240158386
201
17 I
1                 0.723   -1.7252 -1.247978706
  18 II                 1.677   -1.9788 -3.318311273
  19 III                 0.624   -2.2324 -1.391948782
  20 IV                 0.843   -2.486 -2.095021573
                             
 Operations Management Assignment 1

Deseasonalized demand
3

2 f(x) = − 0.253561497099749 x + 2.58599694253383

0
0 2 4 6 8 10 12 14 16
-1

-2

-3
Regression Equation => y=-0.2536x+2.586

      COMPANY B
Avg.
abs MA abs MA
Season
Quart Compa ES(0. ES(0. dev D dev D seasonali
    al
er ny B 1) 3) ES(0. (0.1 ES(0. (0.3 ty factor
deman Deseasonaliz Deseasonaliz Reseasonal
1) ) 3) )
d ed demand ed forecast ize forecast
200
1 I 0.17  
9               0.223    
  2 II 0.24 0.170 0.170 0.070   0.070       0.223    
  3 III 0.26 0.177 0.191 0.083   0.069       0.260    
  4 IV 0.34 0.185 0.212 0.155   0.128       0.280    
201
5 I 0.25  
0 0.201 0.250 0.049   0.000     0.327    
  6 II 0.37 0.206 0.250 0.164   0.120       0.344    
0.12 0.07
  7 III 0.36  
0.222 0.286 0.138 0 0.074 8   0.360    
  8 IV 0.44 0.236 0.308 0.204   0.132       0.363    
201
9 I 0.33  
1 0.256 0.348 0.074   0.018     0.432    
1
  II 0.40  
0 0.264 0.342 0.136   0.058     0.371    
1
  III 0.41  
1 0.277 0.360 0.133   0.050     0.410    
1
  IV 0.47  
2 0.291 0.375 0.179   0.095     0.388    
201 1
I 0.30
2 3 0.309 0.403 0.009   0.103   0.26 0.764 0.393    
1
  II 0.47
4 0.308 0.372 0.162   0.098   0.37 1.077 0.436    
1 0.3529833
III
  5               0.34 0.999   0.462 68
1 0.5145538
IV
  6               0.42 1.213   0.4778 46
201 1 0.4932579
I
1 7                   0.4936 35
1 0.6177754
  II
8                     0.5094 68
1 0.4012702
  III
9                     0.5252 7
2 0.5826153
  IV
0                     0.541 85
 Operations Management Assignment 1

final average of
seasonal demand 0.34
u=0.0158x+0.225

Deseasonalized demand
0.5
0.45
f(x) = 0.0158094462151018 x + 0.225000581958165
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
0 2 4 6 8 10 12 14 16

Company A is declining in Earnings per share, hence the predicted value for the
consequent quarrters are coming in -ve. Where as, in company B there is groeth in EPS
and the company is not losing money, rather having a steady increase
INVENTORY MANAGEMENT
1)A local newspaper vendor buys newspaper from a local publisher at Rs 2.50 per paper. He
manages to sell this paper at Rs. 5.60 per paper to his customers. Any paper that the vendor
cannot sell can be salvaged at Rs 0.50 per paper. Based on past data, the demand for paper
follows a normal distribution with mean 30 and standard deviation 10. Given this information,
how many papers should the vendor stock in his store tomorrow morning?

Soln. Buy Price = Rs2.5 /newspaper

Selling Price = Rs 5.6 /newspaper
Salvage Value = RS 0.50 /newspaper
Profit if sold (Cost of understock, CU) = 5.6-2.5 = RS3.1
Loss if not sold (Cost of overstock, CO) = 2.5-0.5= RS2
Probability <= Cu/(Cu+Co) <= 3.1/(3.1+2) <= 0.6078
Z from table, (P<=0.6078) = 0.2737
Z = (X- Mean)/S.D.
X = Z*S.D. + Mean = 0.2737*10+30 = 32.73 ~ 32 units (Rounded-Down).

2)Jill’s job shop buys two parts (Tegdiws and Widgets) for use in its production system from two
different suppliers. The parts are needed throughout the year. Tegdiw are used at a relatively
 Operations Management Assignment 1

constant rate and are ordered whenever the remaining quantity drops to the reorder level.
Widgets are ordered from a supplier who stops by every 3 weeks. Data for both products are as
follows.

Item Tegdiw Widget

Annual demand 10,000 5,000
Holding cost (% of 20% 20%
item cost)
Setup / order cost $150 $25
Lead time 4 weeks 1 week
Safety stock 55 units 5 units
Item cost $10 $2

a) What is the inventory control system for Tegdiws?

b)What is the inventory control system for Widgets?

Soln. a) Inventory Control System for Tegdiws is Fixed Order Quantity Model

Annual Demand (D) =10000

Setup/ Order Cost =$150

Holding Cost =20%*10 = $2/unit/year

Lead Time = 4 weeks

Cost per unit = $10

EOQ = √ 2 DS /H = √(2∗1000∗150)/ 2 =1224.744 ~1225

TC = CD+(D/Q*)S+(Q*/2+SI)H = 10*10000+(10000/1225)*150+(1225/2+55)*2 =
100000+1224.489+1335= 102559.489 ~ $102560

b)Inventory Control for Widgets is Fixed-Time Period Inventory Model

Annual Demand (D) =5000

Setup/ Order Cost =$125

Holding Cost =20%*2 = $0.4/unit/year

Lead Time = 1 weeks

Time Period = 3 weeks

 Operations Management Assignment 1

Safety Stock = 5units

Cost per unit = $10

Demand per week = 5000/52 = 96.15 ~97units

Q= Demand per week * (T+L)+Safety Stock -Inventory

Q= 97*4+5-0 =383 Units.

3)Sarah’s Muffler shop has one standard muffler that fits a large variety of cars. Sarah wishes to
establish a reorder point system to manage inventory of this standard inventory. Use the
following information to determine the best order size and the reorder point.

Annual demand = 3500 mufflers; Ordering cost = $50/order;

Standard deviation of daily demand= 6 mufflers per working day;
Item cost = $30 / muffler; Service probability = 90%;
Lead time = 2 working days; annual holding cost = 25% of item value;
Working days = 300 / year.

Soln. Average Daily Demand = 3500/300 = 11.666 ~ 12 Mufflers

H = 25%*30 = $ 7.5

Z (p=90%) = 1.28

S.D = 6 Mufflers / day

S.D.L (Lead Time) = √ L∗S . D=√ 2∗6=8.48

ROP = SI + DL = 1.28*8.48 + 12*2 = 34.85 ~ 35 Muffler

MATERIALS REQUIREMENT PLANNING SYSTEM

For the example problem solved in class (Electric Meter problem), extend the materials
requirement plan for the periods between 9 and 17 for all 4 items (Meter A, Meter B,
subassembly C and subassembly D).

Week
Item 3 4 5 6 7 8

Meter A Gross Requirement 1250

LT = 2 weeks Scheduled Receipts
 Operations Management Assignment 1

Projected Available
On Hand = 50 Balance 50 50 50 50 50 0
Safety Stock = 0 Net Requirements 1200
Order qty = lot-for-
lot Planned Order Receipts 1200
Planned Order Releases 1200

Meter B Gross Requirement 470

LT = 2 weeks Scheduled Receipts 10
Projected Available
On Hand = 60 Balance 60 60 70 70 70 0
Safety Stock = 0 Net Requirements 400
Order qty = lot-for-
lot Planned Order Receipts 400
Planned Order Releases 400

Subassembly C Gross Requirement 1600

LT = 1 week Scheduled Receipts
Projected Available
On hand = 40 Balance 35 35 35 435 435 435
Safety Stock = 5 Net Requirements 1565
Order qty = 2000 Planned Order Receipts 2000
Planned Order Releases 2000

Subassembly D Gross Requirement 4000 1200 270

LT = 1 week Scheduled Receipts 100
Projected Available 18
On hand = 200 Balance 0 280 1280 80 80 4810
Safety Stock = 20 Net Requirements 3720 190
Order qty = 5000 Planned Order Receipts 5000 5000
Planned Order Releases 5000 5000

  9 10 11 12 13 14 15 16
                 
Gross Requirement       850       550
Scheduled Receipts                
Projected Available
0 0 0 0 0 0
Balance 0 0
Net Requirements       850       550
Planned Order
Receipts       850       550
 Operations Management Assignment 1

Planned Order
Releases   850       550    
                 
Gross Requirement       360       560
Scheduled Receipts                
Projected Available
Balance 0 0 0 0 0 0 0 0
Net Requirements       360       560
Planned Order
Receipts       360       560
Planned Order
Releases   360       560    
                 
Gross Requirement                
111
Scheduled Receipts
  1210       0    
Projected Available 122
Balance 435 1225 5 1225 1225 115 115 115
Net Requirements   775       0    
Planned Order
Receipts   2000       0    
Planned Order
Releases 2000         0    
                 
Gross Requirement 4000 850   250   550   320
Scheduled Receipts                
Projected Available 496 416
Balance 810 4960 0 4710 4710 0 4160 3840
Net Requirements   40            
Planned Order
Receipts   5000            
Planned Order
Releases 5000              

Projected Available Balance (t) = Projected Available Balance (t-1) + Scheduled

Order Receipts (t) + Planned Order Receipts (t) – Gross Requirement (t)

Net Requirement (t) = Gross Requirement (t) – Projected Available Balance (t-1)

Planned Order Receipt (t) = Net Requirement (t) or a multiple of the order quantity

Planned Order Release (t-l) = Planned Order Receipt (t)