Operations and Production Management

MGMT 405

Answer set 3

MGMT 405 Operations and Production Management Answer set 3 (Reference chapter 3 William J. Stevenson-2007, ninth edition) Problems and Solutions
1. A commercial bakery has recorded sales in dozen for the products as shown below: Blueberry Muffins 30 34 32 34 35 30

Day 1 2 3 4 5 6

Cinnamon buns 18 17 19 19 22 23

Cupcakes 45 26 27 23 22 48

12 31 28 26 13 35 29 27 14 34 31 24 15 33 33 22 (a) Predict orders for the following day for each of the products using an appropriate nave method. Also Plot each data set. (b) What should the use of sales data instead of demand imply?? Ans: (a) We need to use naive methods. This means that any simple appropriate method can conducted. For example: Ploting each data set reveals that muffins orders are almost stable, varying around an average (e.g. 33). The demand for cinnamon buns has a trend. If we get the last three period, we realized that number increased two by two so 3331=2 and last one is 33+2=35. This is for the following day for cinnamon buns. 2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed. 1

Operations and Production Management

MGMT 405

Answer set 3

Demand for cupcakes has an apparent seasonal variation with peaks every five days. Day 1=45, Day 6=48, Day 11=47 and the next peak would be Day 16=50.

A commercial bakery
60 50 40 sales 30 20 10 0 1 2 3 4 5 Days 6 12 13 14 15 Blueberry Muffins Cinnamon buns Cupcakes

(b) The use of sales data instead of demand implies that sales adequately reflect demand. We are assuming that n stock-outs because demand equals sales if there are no shortages. 2. A company records indicates that monthly sales for a seven-month period are as follows:. Month Feb Mar Apr May Jun July Aug Sales (000, unit) 19 18 15 20 18 22 20

(a) Plot the monthly data as can be seen in the table above. (b) Forecast the monthly sales using linear trend equation,

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 3

(c) A five-month moving average and exponential Smoothing technique? Assume that smoothing constant and march forecast value are 0.20 and 19 respectively. (d) The nave approach (e) A weight average method conducting 0.60 for August, 0.30 for July, and 0.10 for June. (f) Which method seems least appropriate? Why?

Ans: (a)

Sales 25 20 000 15 Sales 10 5 0 Feb Mar Apr May month Jun July Aug

(b) T (or x) 1 2 3 4 5 6 7 Square of t 1 4 9 16 25 36 49 Y 19 18 15 20 18 22 20 tY 19 36 45 80 90 132 140 3

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management Sum= 28 n= 7

a=

MGMT 405 Sum= 132

Answer set 3 Sum= 542

Sum of square= 140

x y- xy x nx -( x)
2 2 2

b=

n y- y x x n -( x x 2 )
2

Or If formula b is used first, it may be used formula a in the following format: n xy x y n x ( x )

2 2

b=

7(542) 28(132) = 0.50 7(140) 28(28) 132 0.50(50) = 16.86 7

a=

Y b X
n

a=

Y = 16.86 + 0.50X After Aug (7), For sept: Y = 16.86 + 0.50(8)=20.86 (b) MA5 = 15 + 18 + 22 + 20 = 19 5

(c) Ft = Ft-1 + (At-1 - Ft-1) Ft = forecast for period t Ft-1 = forecast for the previous period = smoothing constant At-1 = actual data for the previous period

April-F=19+0.20(18-19)=18.8 May- F=18.8+0.20(15-18.8)=18.04 2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed. 4

Operations and Production Management June- F=18.04+0.20(20-18.04)=18.43 July- F=18.43+0.20(18-18.43)=18.34 Aug- F=18.34+0.20(22-18.34) =19.07 Sep- F=19.07+0.20(20-19.07) =19.26 (d) It may be around 20 (19.26)

MGMT 405

Answer set 3

(e) WA=0.60 (20) + 0.30 (22) + 0.10 (18) =20.4 (f) Probably trend method because the data appear to vary around Y = 16.86 + 0.50(4) =18.86. 3. A cosmetics manufacturers marketing department has developed a linear trend equation that can be used to predict annual sales of its popular hand-foot cream.

Ft = 80 + 15 t
Where Ft =Annual sales (000 bottles), and assume that t= 0 in1990 (a) Are annual sales increasing or decreasing? By how much. (b) Predict annual sales for the year 2006 using the equation. (c ) Predict changes in annual sales the year between 1995 and 2005 using the equation. Ans: (a) Ft = 80 + 15 t 15 is the slope of the equation so this value show us whether annual sales increase or decrease. The sign of the value is positive thats why annual sales are increasing by 15000 bottles per year. 2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed. 5

Operations and Production Management

MGMT 405

Answer set 3

(b) Ft = 80 + 15 t= 80+ 15(16) = 320000 Where t=2006-1990=16 (c) Ft = 80 + 15 t= 80+ 15(5) = 155000 in 1995

Ft = 80 + 15 t= 80+ 15(15) = 305000 in 2005 Change in sales between the relevant years= 305000-155000=150000

4. New Car sales with monthly indexes (seasonal relatives) for a dealer for the past years are shown in the following table: Month Jan Feb. Mar Apr May Jun Unit sold 640 648 630 761 735 850 index 0.8 0.8 0.7 0.94 0.89 1.00 Month Jul Aug Sept Oct Nov Dec Unit sold 765 805 840 828 840 800 index 0.9 1.15 1.20 1.20 1.25 1.25

(a) Plot the data. Does there seem to be a trend?

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 3

U n it S a le s
90 0 80 0 70 0 60 0 50 0 40 0 30 0 20 0 10 0 0 Ja n F e b . M a r A p r M a y Ju n Ju l A u g S e p t O c t N o v D e c M o n th

sales volume

U n it s o ld in d e x

It seems that there exists a trend starting from 600 to 800.

(b) Compute the Deseasonalized car sales Month Jan Feb. Mar Apr May Jun Jul Aug Sept Oct Nov Dec Unit sold 640 648 630 761 735 850 765 805 840 828 840 800 index 0.8 0.8 0.7 0.94 0.89 1.00 0.9 1.15 1.20 1.20 1.25 1.25 Deseasonalize =actual sales/seasonal relative 640/0.8=800 810 900 809.6 825.8 850 850 700 700 690 672 640

(c ) Plot both seasonalized and Deseasonalized car sales data on the same graph. Briefly
explain.

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 3

sales
1000 800 volume 600 400 200 0 Jan Feb. Mar Apr May Jun Jul Aug Sept Oct Nov Dec Month seasonal index deseasonal

Seasonalized car sales data are upward trend in sales and Deseasonalized car sales data are downward trend in sales. 5. Two different forecast techniques (F1 and F2) were used to forecast demand for cases of bottled water. Actual demand the two sets of forecasts are as follows:

Period and Demand Period Unit sold 1 68 2 75 3 70 4 74 5 69 6 72 7 80 8 78

Predicted Demand F1 F2 66 66 68 68 72 70 71 72 72 74 70 76 71 78 74 80

(a) Compute MAD for each set of forecast. Which forecast is better or appears to be more accurate? Briefly explain. (b) Compute MES for each set of forecast. Which forecast is better or appears to be more accurate? Briefly explain. (c) Compute MAPE for each set of forecast. Which forecast is better or appears to be more accurate? Briefly explain. (d) Compute a tracking signal for the 8th month for each forecast using the cumulative error for 1 and 8. 2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed. 8

Operations and Production Management

MGMT 405

Answer set 3

(e) Compute 2s control limits for each forecast. Ans: Period 1 2 3 4 5 6 7 8 Demand 68 75 70 74 69 72 80 78 586 F1 66 68 72 71 72 70 71 74 e 2 7 -2 3 -3 2 9 4

e
2 7 2 3 3 2 9 4 32

e2 4 49 4 9 9 4 81 16 176

( e /actual)*100 3 9.3 2.8 4 4.3 2.7 11.2 5.1 42.4

Period 1 2 3 4 5 6 7 8

Demand 68 75 70 74 69 72 80 78

F2 66 68 70 72 74 76 78 80

e 2 7 0 2 -5 -4 2 -2

e
2 7 0 2 5 4 2 2 24

e2 4 49 0 4 25 16 4 4 106

(e /actual)*100 3 10.2 0 2.7 6.7 5.2 2.5 2.5 32.9 9

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 3

(a) Compute MAD for each set of forecast. Which forecast is better or appears to be more accurate? Briefly explain. Ans: MAD= Actual-Forecast/n MADF1= 32/8= 4 MADF2= 24/8= 3 F2 forecast results appears to be more accurate because MAD model gives less error than F1. (b) Compute MES for each set of forecast. Which forecast is better or appears to be more accurate? Briefly explain. Ans: MES= Actual-Forecast2/ (n-1) MESF1= 176/7= 25.14 MESF2= 106/7= 15.14 F2 forecast results appears to be more accurate because MES model gives less error than F1. (c) Compute MAPE for each set of forecast. Which forecast is better or appears to be more accurate? Briefly explain. Ans: MAPE= ( (Actual-Forecast/actual)*100)/n MAPE F1=42.4/8=5.34 2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed. 10

Operations and Production Management MAPE F2==32.9/8=4.11

MGMT 405

Answer set 3

F2 forecast results appears to be more accurate because MAPE model gives less error than F1. (d) Compute a tracking signal for the 8th month for each forecast using the cumulative error as well as limits of 4 for 1 and 8. Ans: Tracking Signalt = (Actual-Forecast)/MADt Control Limits= 0 +/- 2 MSE

CUM

Period 1 2 3 4 5 6 7 8

Demand 68 75 70 74 69 72 80 78

F1 66 68 72 71 72 70 71 74

e 2 7 -2 3 -3 2 9 4

e
2 7 2 3 3 2 9 4

ERROR

2 9 7 10 7 9 18 22

CUM

Period

Demand

F2

ERROR

1 68 66 2 2 2 2 75 68 7 7 9 3 70 70 0 0 9 4 74 72 2 2 11 2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed. 5 69 74 -5 5 6 6 72 76 -4 4 2 7 80 78 2 2 4 8 78 80 -2 2 2

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Operations and Production Management

MGMT 405

Answer set 3

MADF1= 32/8= 4 MADF2= 24/8= 3 MESF1= 176/7= 25.14 MESF2= 106/7= 15.14 MAPE F1=42.4/8=5.34 MAPE F2==32.9/8=4.11

Tracking Signalt = (Actual-Forecast)/MADt =cumulative error/ MADt Tracking Signalt for F1= 22/4=5.5 Tracking Signalt for F2= 2/3=0.66 Tracking Signal is used to monitor a forecast whether the method is biased or not. Values can be positive or negative and zero value would be ideal. Since 5.5 >4 the forecast method 1 is biased. This means that using F1, we are underestimating (positive bias)* demand. Since 0.66 < 4, the forecast is in control.
*

overestimating (negative bias).

(e) Compute 2s control limits for each forecast. Ans: Control Limits= 0 +/- 2 MSE

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Operations and Production Management Control Limits for F1 = 0 +/- 2 Control Limits for F2 = 0 +/- 2

MGMT 405

Answer set 3

MSE =0 +/- 2 (25.14=+10.01 and -10.01 MSE =0 +/- 2 (15.14=+7.78 and -7.78

Since all errors for both forecasts 1 and 2 are within these limits, the forecasts are in control (see column e for both F1 and F2 in the tables above).

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