Ans 5.

A)

From the graph of demand we can observe that there is both trend and seasonality in the given
demand data. Hence demand can be forecasted using Holt’s inter Model. There is increasing trend
year on year and seasonality after each year.

Actual Demand Plot

12000000
11000000
10000000
9000000
8000000
7000000
6000000
July

July

July
January
February

January
February

January
February
May
June

May
June
August

October
November

August

October
November

May
June

October
November
March

March

August

March
April

April

April

December
December

December
September

September

September
2008-2009 2009-2010 2010-2011

Calculating Seasonal Factor and De-seosonalized Demand

Year Month Period Month Actual Demand Seasonal Factor Deseasonalised Demand
April 1 4 6436977 0.914209782 7041028.36
May 2 5 8038673 1.058579671 7593828.997
June 3 6 7699105 1.019174706 7554254.396
July 4 7 7446966 1.058502484 7035378.859
August 5 8 6893954 0.988170876 6976479.642
September 6 9 7266777 0.94718163 7671999.508
2008-2009
October 7 10 9577732 1.210826886 7910075.432
November 8 11 6959258 0.981844253 7087944.934
December 9 12 9196648 1.177549073 7809991.285
January 10 1 7703373 1.02672491 7502859.75
February 11 2 6337111 0.782813168 8095304.548
March 12 3 6661873 0.834422562 7983812.168
April 13 4 8168753 0.914209782 8935315.684
May 14 5 9042377 1.058579671 8541990.036
June 15 6 8535593 1.019174706 8375004.749
July 16 7 9159860 1.058502484 8653602.741
August 17 8 8660746 0.988170876 8764421.427
September 18 9 7985469 0.94718163 8430768.446
2009-2010
October 19 10 10287574 1.210826886 8496321.086
November 20 11 8865297 0.981844253 9029229.403
December 21 12 10106207 1.177549073 8582408.351
January 22 1 8763792 1.02672491 8535676.807
February 23 2 6573767 0.782813168 8397619.339
March 24 3 7012498 0.834422562 8404012.935
April 25 4 8727300 0.914209782 9546277.206
May 26 5 9936678 1.058579671 9386802.217
June 27 6 9777312 1.019174706 9593362.105
July 28 7 10408932 1.058502484 9833639.65
August 29 8 9666011 0.988170876 9781720.18
September 30 9 8922312 0.94718163 9419853.296
2010-2011
October 31 10 11038170 1.210826886 9116224.732
November 32 11 9234684 0.981844253 9405446.913
December 33 12 10751284 1.177549073 9130221.614
January 34 1 9737546 1.02672491 9484084.692
February 35 2 7068566 0.782813168 9029697.363
March 36 3 7622280 0.834422562 9134796.147
Calculating Level & Trend using De-seasonalized demand as dependent variable and period as
independent variable

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.880049
R Square 0.774486
Adjusted R Square
0.767853
Standard Error
402641.4
Observations 36

ANOVA
df SS MS F Significance F
Regression 1 1.89E+13 1.89E+13 116.7668 1.55E-12
Residual 34 5.51E+12 1.62E+11
Total 35 2.44E+13

Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 7216159 137059.6 52.64977 3.57E-34 6937621 7494698 6937621 7494698
X Variable 169804.38 6459.858 10.80587 1.55E-12 56676.37 82932.39 56676.37 82932.39

Level= Intercept

Trend= Slope

Forecasted Demand = (Level + Trend*Period)*Seasonal factor

Hencenh

Year Month Forecasted Demand

April 8958269.847
May 10446832.55
June 10129098.61
July 10593847.04
August 9958923.426
September 9611945.536
2010-2011
October 12371923.68
November 10100773.93
December 12196295.55
January 10705825.82
February 8217162.635
March 8817150.995
 Demand forecasting for next year using Holt’s Winter Model

Ans 5b) The respective margins for procuring milk from different sources are:

Source Cost Margin

Premium Milk Cost from other unions per litre 20.5 1.5
Premium Milk Cost from farmers per litre 19 3
SMP & Butter Recombination 21 1

Since the margins for procuring milk from different unions is higher, hence the Aavin would prefer to
source it from unions instead of following the process of recombination and storing inventory.

Hence we would meet the entire unmet demand by procuring milk from different unions and we will
be able to generate extra profit of Rs. 3143723 for those given 4 days.

Ans. C) Even if the price is increased by farmer by 1Rs we would be having impact on our bottom line
but means of procuring milk will remain the same because margins are still higher in case of
procuring it from farmers directly i.e Rs2 and from unions it is Rs. 1.5.

Ans. D) even if demand is increasing we don’t have any constraint on amount of milk we procure it
from the different unions, also the margins are higher on procuring milk from unions. Hence it won’t
affect our solution to problem B.