Q.

1 Aggregate Planning

1. The primary difference is that, Manager A oversees the cashiering department, which
includes the handling of certificates, checks, and cash. Messengers, clerks, and supervisors
work in the cashiering department. The equipment is simple—file cabinets, vaults, and
calculators.
Manager B, on the other hand, is in charge of orders, which is a data-processing function.
Keypunch operators, EDP professionals, and systems analysts make up the team. Cathode
ray tubes, key-punch machines, computers, and communication devices that link national
operations with the branches make up the complicated equipment.

2. Manager B retains the capacity to handle 17000 transactions per day since the lead times
required to improve the capacity of the information-processing operation are considerable
and the incremental cost of the capacity to handle the last 5000 transactions is minimal.
Even if the average number of daily transactions for any month has never exceeded 11000
and the number of transactions for any single day has never exceeded 1600, he maintains
this level. The scenario in cashiering is fundamentally different since there is a significant lot
of uncertainty about the future status of the stock certificate. Attempts to automate the
cashiering function to the same degree as the order-processing group have been let down
due to the significant risk of selecting a technology that is incompatible with the stock
certificate's future format.
Thus, these due to these differences and reasons, choices for either managers have been
eliminated.
Manager A, in other words, is committed to the "chasing demand" strategy, whereas
Manager B, in the adjacent office, is committed to the "level capacity" plan.

3. Service managers (i.e. A) that adopt the chase technique are typically in charge of
inexperienced workers who perform jobs with little or no discretion for low pay in an
unappealing setting. Managers (i.e. B) often use the level strategy, in which more highly
skilled workers undertake high-paying positions with some or a lot of discretion in a pretty
pleasant setting.
Hence, due to these factors A and B have chosen Chase and level strategies respectively, as
also because the skill-level needed for "chase" is lower than that for "level," "chase" will
have a lower training cost per employee.
4.

MRP

Q.1
Answer.

1W requires 1-A, 2-B and 4-C

Therefore,

100 W will require

100A = 200D and 100 E

200B = 400E and 200F

400C = 1200D and 800G (=800D)

Q.2

Manager want 120 E units by 5th week

For E- 120 units requires, hence for 1 week lead time, order to be given at beginning of week 4

For 120 E= M are 3x

Hence,

For M

360 units required. But 60 available at start of week 2 (Given)

Hence, 300 units should be available at start of week 4

For 300 M – R required are 2x

For R

Hence, 600 units required of R. But, 100 units will be available (Given), Hence

500 units of R required, but because lead time for this level is 2 weeks.

500 units should be ordered at start of week 1.

Q.3 MRP is often referred as "push" system, whereas JIT is said to be "pull" system. Comment.

Answer.

Material Requirements Planning (MRP) and Just-In-Time (JIT) processing are two different forms of
materials planning and control that work well together to improve manufacturing processes. These
methods are helpful for manufacturers as they can help provide low-cost, high-quality products that
can meet and even exceed customer requirements.

In a push-based supply chain, products are pushed through the channel from production up to the
retailers. This means that production happens based on demand forecast.

In a pull-based supply chain, procurement, production, and distribution are demand-driven rather
than based on predictions. Goods are produced in the amount and time needed.

A company using the push system will forecast demand and employ the Material Requirements
Planning (MRP) process to produce goods and services ahead of time. This is related to the Just-in-
Case concept.

This forecast may not always be accurate and will require inventory stockpiling, but it remains a
useful strategy for products that tend to have a lot of work in progress (WIP) or long lead times.

The push system is particularly useful for products with low demand uncertainty or with high
importance of economies of scale in reducing costs.

MRP looks at the customer demand to identify which materials are required for production and
determines when they are needed. JIT is mostly used in scheduling and purchasing to ensure that
products are produced only when they are needed and materials are ordered to arrive just before
they are required for production.

MRP is a resource and planning tool that is forward-thinking, and time-phased. The philosophy of JIT,
on the other hand, is based on the riddance of waste. One important feature of JIT is known as
‘kanbas’, which is a method of performance based on restoring used material that has no forward
visibility.

While operating a manufacturing business, it is possible to operate only with MRP, but the case isn’t
the same with JIT, because it does allow for forward planning, which is a vital planning requirement
when running a manufacturing operation. There is a need to ensure that materials which cannot be
replaced by ‘kanbas’, can be availed when needed. This makes MRP a tool that gives more control,
while JIT increases the value of your processes.

Hence, reference is done to JIT as a ‘pull’ system, and to MRP as a ‘push’ system. MRP is a system
which focuses on satisfying the requirements of the ‘projected’ usage in a determined time frame.
JIT is very much focused on the current, ‘real’ usage, where parts of the production system are
‘connected’ with the use of Kanban’s, while the system runs. It is this kind of linkage that is the main
distinguishing feature between JIT and MRP. The JIT system is dynamically linked, whereas MRP is
not. This means that JIT is most applicable when lead times are short, whereas MRP is suited for
longer lead times. To add to that, for computerized operations, you are better off implementing
MRP, than JIT.
Q.4 What is the purpose of S&OP? Describe the process.

Answer.

Sales and operations planning is an aspect of supply chain planning whose goal is the creation of a
unified, consensus-based business plan. It draws input from an organization’s key functional areas,
including sales, marketing, manufacturing, distribution, and finance. Cross-functional collaboration
results in plans that all stakeholders understand and are committed to supporting.

On the spectrum of supply chain planning activities, S&OP is typically a more advanced discipline.
Many smaller organizations or startups may require only inventory planning. They may add
capabilities such as demand planning and supply planning as they grow. Organizations typically seek
out S&OP functionality once they begin to sell larger numbers of differentiated products.

Some planning activities, such as statistical forecasting, can produce excellent results. And yet those
results tend to be fairly narrow in scope. For example, a good statistical forecast will rely on
algorithms and an item’s history to produce estimates. But other data, such as revenue and profit
projections, as well as marketing events are often not a formal part of statistical forecasting. As a
consequence, collaboration is lacking with key constituents of the business.

In contrast, the aim of sales and operations planning is to gain a holistic view of planning by
extending the forecasting process to sales, marketing, finance, and operation for their collective
input and adjustments. More advanced S&OP practices also incorporate point of sale (POS) and
other market-related information. Organizations seeking to acquire S&OP capabilities can find them
in leading supply chain planning software solutions.

Sales and operations planning is typically led by senior management and is most often executed
monthly.

It is an iterative process in which results from one planning cycle are compared with the next to
provide management with trend information from across the business. Participants evaluate time-
phased projections for supply and demand to ensure that the tactical plans in all business functions
and geographies align and support the company’s strategy.

With traditional “silo-based” companies, sales, manufacturing, and financial functions often
compete against each other. Without a consolidated plan, small problems can quickly grow into
much larger issues. These can be quickly identified and proactively addressed through S&OP reports
and other measures.
S&OP Benefits

Some of the benefits of effective sales and operations planning process include:

 Increased customer service levels

 Improved profitability
 Higher product revenues
 Lower inventories and obsolescence
 Reduced lead times
 Quicker responsiveness
 Top-down management control
 Predictable operating performance for shareholders
Q.5 What is the single period model and under what circumstances is it appropriate?

Answer.

Some finished goods inventories have very short selling seasons. Items such as holiday decorations,
Christmas trees, long-stemmed red roses, newspapers, and magazines are good examples. These
products typically have a high value for a relatively short period; then the value diminishes
dramatically to either zero or some minimum salvage value. For example, week-old newspapers are
inexpensive compared to newspapers offering fresh news. The question is how many of these
products you should order to maximize your expected profit.

The single-period model is designed for products that share the following characteristics: -

 Designed for use with products that are highly perishable.

 They are sold at their regular price only during a single time period.
 Demand for these products is highly variable but follows a known probability distribution.
 Salvage value of these products is less than their original cost, so you lose money when they
are sold for their salvage value.

The objective is to balance the gross profit generated by the sale of a unit with the cost incurred for
each unit that is not sold until after the primary selling period has elapsed. The main aim of the
single period model is to identify the ordering levels so as to reduce the excess or shortage of the
items under this category.

Single-period inventory control systems attempt to strike a balance. If you have too little inventory,
you'll sell out, and you'll have to turn away business. If you have too much, you may be unable to sell
the excess. In the first case, the money you lose is the revenue you don't earn. In the second case,
the money you lose is the cost you paid for the unsold inventory. Knowing the correct amount of
inventory to order comes down to your past experience and your understanding of the market.

With single period inventory control, in order for a company to determine the quantity that it should
stock, it must consider the expected profit and loss associated with either too much expiring or
perishable inventory or too little. The optimal inventory level occurs where the overall expected
benefit to the company for stocking the next product unit is less than the expected total cost for that
product unit. Benefits and costs are problem dependent. For example, the benefits and costs for
excess hotel room space is different than that for sports event gear.

Usage Example

For hotel overbooking, hotels often overbook for conferences or special events to capture as much
possible revenue and because a number of customers cancel last minute. The cost of
underestimating the number of cancellations is the average room rate charged times the number of
vacant rooms. The cost of overestimating the cancellations is the fee the hotel must pay another
hotel to house the customer. Single point inventory control helps hotels determine the number of
rooms to oversell.
Q.6. What is the purpose of using a Tracking signal, explain its significance. How is different from
forecast control limits?

Answer.

Tracking signal is a measure used to evaluate if the actual demand does not reflect the assumptions
in the forecast about the level and perhaps trend in the demand profile. In Statistical Process
Control, people study when a process is going out of control and needs intervention.

Similarly tracking signal tries to flag if there is a persistent tendency for actuals to be higher or lower
systematically. If Forecast is consistently lower than the actual demand quantity, then there is
persistent under forecasting and Tracking Signal will be positive.

Tracking Signal is calculated as the ratio of Cumulative Error divided by the mean absolute deviation.
The cumulative error can be positive or negative, so the TS can be positive or negative as well.

The use of tracking signals involves establishing an upper and a lower control limit to determine
whether the forecasting errors related to a method are within these limits. A tracking signal value
that goes outside of these control limits is an indicator that the forecasting method being used
should be modified or changed. The second tool that can be used in monitoring and controlling
forecasts is a control chart. Constructing a control chart is similar to calculating a tracking signal
except we use the standard deviation of forecast errors to construct the control limits and plot the
computed forecasting errors on the control chart.

The Error in Forecast is usually normally distributed, which can be said to indicate the forecast is
favorable. But it is not always normally distributed. Tracking Signal is used to determine the larger
deviation (in both plus and minus) of Error in Forecast, and is calculated by the following formula:

Tracking Signal = Accumulated Forecast Errors / Mean Absolute Deviation

For example, when Errors (F1 and F2) in Forecast occur, each Mean Absolute Deviation (MAD) is 45.
But, the Tracking Signal of F1 is 0.22, while that of F2 is 6, which shows the forecast of F1 is better
and, as for that of F2, the actual data should be analyzed and its forecast model should be
reconsidered.