Assignment 2: Demand, Inventory, Location

Question 1: (up to 1000 words)

Explain five examples of products that display seasonality of demand but uniformity of supply.

o During the month of December, demand for Christmas trees reaches new heights.

o People go to the streets in December to buy crackers for New Year's Eve.

o People buy garments on weekends, holidays, and during certain seasons, such

as sweaters, which are only purchased during the winter.

o Students buy school bags and textbooks when they start a new class, therefore

demand spiked around the start of the new semester.

o During the summer, membership in a swimming pool club is in great demand.

Explain five examples of products that display seasonality of supply but uniformity of demand

o Mango fruit supply is seasonal, since the fruit ripens during the summer in India,

while demand is consistent throughout the year.

o During Olympic games or any big event, the supply of sports-related

equipment skyrockets, while demand remains steady.

o The number of international flights increases over the Christmas holidays, since

most people schedule their vacations around those dates.

o Toy manufacturers expand their supply of toys over the Christmas holidays because

the demand for toys skyrockets since every youngster wants a toy as a Christmas

present.

o On weekends and holidays, fast food restaurants must produce extra burgers, french

fries, and hot dogs, although their demand is consistent and regular on other days.

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 Question 2:

Month Demand (orders) Moving averages

January 66,753
February 67,686
March 68,641 67693.33333
April 68,979 68435.33333
May 69,278 68966
June 69,577 69278
July 69,602 69485.66667
August 70,348 69842.33333
September 70,806 70252
October 71,011 70721.66667
November 71,819 71212
December 72,752 71860.66667

a) Use a simple moving average of three periods to forecast the demand for October-2017. What is

the forecast?

The forecast for the month of october 2017 is 70721 units.

b) Use exponential smoothing to forecast the demand for July-2017. What is the forecast if α = 0.4

and the forecast for May was 69,000?

Month Actual Demand

Forecast α=0.4 Forecast for month (F)
(A)
Ft + α(Dt − Ft)

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 January 66,753 66,753
February 67,686 =66753+0.4(66753-66753)
66753
March 68,641 = 66753+0.4(67686-66753) 67350.12
April 68,979 = 67350.12+0.4(68979-67350.12) 68297.2
May 69,000 =68297.2+0.4(67866.47-68297.2) 68857.32
June 69,577 = 68857.32+ 0.4(69000 -68857.32) 68992.44
July 69,602 = 68992.44+0.4(69,577–68992.44) 69369.28
August 70,348 = 69369.28+0.4(69,602-69369.28) 69593
September 70,806 = 69593+0.4(70,348-69593)
70079.44
October 71,011 = 70079.44+ 0.4(70,806-70079.44) 70641.12
November 71,819 = 70641.12+0.4(71,011-70641.12) 70937.2
December 72,752 = 70937.2 +0.4(71,819 - 70937.2)
71528.12

TheforecastforthemonthofMay2017at69000unitsis68
857units.

c) Use the trend projection linear regression method to forecast the demand for February 2018. You

need to find the slope and intercept of the fitted line. What is the forecast?

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 Y= Mx+C

= 462.05+ 66768

=462.05

Intercept = 66768

Forecast for febuarary (x=14) = 462.05(14) + 66768

=6468.7 + 66768

= 73236.7

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 Question 3:

Period Demand Forecast Error Error square % Error

1 173 176.6 -3.6 12.56 -2.081
2 177 174.2 2.8 7.84 1.582
3 180 176.1 3.9 15.21 2.167
4 151 178.7 -22.7 767.29 -18.34

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 5 168 160.4 7.6 57.76 4.52
6 189 165.4 18.6 345.96 10.109
7 138 177.7 20.3 412.09 10.252
8 191 195.1 -0.1 0.01 -0.0522
9 167 191 -2.4 576 -12.569
10 177 175.2 1.8 3.24 10017
=110.04 2198.36 = 62.693
∑ ∈ = 110.4

Error = Sales – Forecast * 100

Then,

MAD = ∑ ∈ / n = 110.4/10 = 11.04

2
MSE = ∑ ∈❑ /n-1 = 2198.36/10-1 = 249.262

MAPE = ∑ 1%e/n = 62.693/10 = 6.2693

Question 4

The Econmic order Quantity (EOQ) =

√2 DS
H

=
√2∗6000∗20
0.35

= 828.07 Approx 828

boards Total inventory cost = (6000/828 *20) +

(828/2*0.35)

= 145 + 145

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 =$ 290

Total Annual Cost inventory purchase = 290 + (6000*1)

= 290 + 6000

= $6290

Question 5

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 X cordinate of DC = (Sum of X cordinate * Demands) / Sum of demand

= (7*6000 + 40 * 8000 + 80*9000+ 70*5000) / 6000+8000+9000+5000

= 51.14

Y cordinate = (9*6000+20*8000+30*9000+25*5000)/ 6000+8000+9000+5000

= 21.75

Centre of gravity (51.14, 21.75)

What location would you recommend for opening a distribution center for these stores using COG

method?

A corporation should choose a site between B and D to construct a distribution outlet, however it is

critical to have both locations as it will interstate roads near the city to save delivery time.

Question 5 b)

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 FC = Fixed Cost

VC = Variable Cost Per Unit

Location FC VC

A 3000000 60

B 4000000 45

C 6000000 25

Then, Cross Over Point Between Two Options = Absolute Difference Between Fixed Costs of Two

Options / Absolute Difference Between The Variable Cost Per Unit of Two Options

Cross Over Point Between Location A and B = | 3000000 - 4000000 | / | 60 - 45 | = 66667

Cross Over Point Between Location B and c = | 4000000 - 6000000 | / | 45 - 25 | = 100000

Cross Over Point Between Location A and c = | 3000000 - 6000000 | / | 60 - 25 | = 85714

(Rounded to the nearest whole number)

Let, Q = # No. of units

Then, Total Cost = FC + VC (Q)

Now, using the hypothetical numbers shown below, we'll display the total cost lines for all three options:

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 Hence For,

Quantity (Units) Best Location

0 to 66666 A

66667 to 99999 B

100000 and more C

For quantity > 150000

Total Cost For Location A = 3000000 + ( 150000 x 60 ) =

12000000 Total Cost For Location B = 4000000 + ( 150000 x 45 )

= 10750000 Total Cost For Location c = 6000000 + ( 150000 x 25 )

= 9750000

Thus, in order to produce 150000 units, the best location = C having the least cost of $ 9750000

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