Annual Demand Cost Setup Cost Holding Cost (@20%) Lead Time Production Schedule Standard Deviation Working

per year Service Level Normsinv of 95%

Given Data D C S H L Sigma

5600 45 1350 9 2 1 15 50 95% 1.6449

per unit/year Weeks per month for Weekly Demand Weeks

KOREAN ALTERNATIVE Annual Demand No of Containers Required Fixed Cost per container Total Fixed Cost per year Per Chair Cost Total Cost of Chair Total Final Cost Loss if Importing from Korea v/s Current Setup Loss if Importing from Korea v/s 4 Setups/Year Loss if Importing from Korea v/s 4 Setups/Year 5600 10 800 8000 47 263200 271200

Answer 1: In the current production mode run is small due to which the setup cost is Lot size for each production run dependin reduce the no of production runs hence d

Answer 3: As per the calucations done for we clearly see that even if the current lot cheaper to make the chairs inhouse rathe

-900

-7500

-7410

Current Scenario Current Production Lot Q Total Production Cost D*C Total Setup Cost S*12 Total Holding Cost H*(Q/2) Final Cost to Company

EOQ Modeling 466.67 252000 16200 2100 270300 EOQ Production Run Required

Reorder Point Sigma * sqrt(L) Weekly Demand Weekly Demand in 2 Weeks Saftey Stock Reorder Point 21.21320344 112 224 34.89261461 259

Total Cost Considering 4 Production Run Total Production Qty/Run Production Cost Setup Cost Holding Cost Total Cost Total Saving

Total Cost Considering 5 Production Run Total Production Qty/Run Production Cost Setup Cost Holding Cost Total Cost Total Saving

n the current production model, the lot size of each production due to which the setup cost is more. If we you use EOQ to find the each production run depending on the annual demand, this will no of production runs hence decreasing the annual setup cost.

As per the calucations done for importing the chairs from korea ee that even if the current lot size of production is used it is make the chairs inhouse rather than importing it from korea.

EOQ Modeling Q* Q*/D

1297 4.31765613

dering 4 Production Run/Year 1400 252000 5400 6300 263700 6600

dering 5 Production Run/Year 1120 252000 6750 5040 263790 6510

S.No

Month

Demand

Sales staff forecast

Error

Abs. Error

CFE

Cummulat Point Wise ive MAD Abs.Error

1 2 3 4 5 6 7 8 9 10

April May June July August September October November December January

234 254 264 227 242 233 254 266 351 212 253.7

225 240 263 230 239 227 239 260 320 234 MAD CFE TS BIAS MAPE

9 14 1 -3 3 6 15 6 31 -22 60

9 14 1 3 3 6 15 6 31 22 110 11 60 5.454545 6 0.043358

9 23 24 21 24 30 45 51 82 60

9 23 24 27 30 36 51 57 88 110

9.00 11.50 8.00 6.75 6.00 6.00 7.29 7.13 9.78 11.00

Exponential Smoothening
alpha S.No 1 2 3 4 5 6 7 8 9 10 Month April May June July August September October November December January 0.4 Demand 234 254 264 227 242 233 254 266 351 212 255 Forcasting Using Alpha 0.4 245 241 246 253 243 243 239 245 253 292 Error -11 13 18 -26 -1 -10 15 21 98 -80 17 abs error 11 13 18 26 1 10 15 21 98 80 251 MAD CFE TS CFE -11 2 20 -6 -7 -17 -2 19 117 37 Cummulat Point Wise ive MAD Abs.Error 11 24 42 68 69 79 94 115 213 293 11.00 12.00 14.00 17.00 13.80 13.17 13.43 14.38 23.67 29.30

35.85714 17 0.474104

BIAS MAPE

4 0.140616

Month

Demand

Forcastin Forcast g Using after Sales staff forecast Alpha Bias 0.4 Removal 225 240 263 230 239 227 239 260 320 234 245 241 246 253 243 243 239 245 253 292 231 246 269 236 245 233 245 266 326 240

April May June July August September October November December January

234 254 264 227 242 233 254 266 351 212

360 340 320 300 280 260 240 220 200

Point Wise Tracking Signal

Point Wise Tracking Signal Exisiting Method

9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

S.No 1 2 3 4 5 6 7 8 9 10

1.00 2.00 3.00 3.11 4.00 0 2 4 6 8 10 12 5.00 6.18 7.16 In this method of forcasting the issue lies in the continous increasing tracking 8.39 signal, this is because of the bias in the forcasting system. 5.45

Point Wise Tracking Signal -1.00 0.17 Ignoring the 1st 3 values as the fist value is based on assumed forcast of 245, the second value will be 60% base 1.43 forcast, the third value will be 40% 0f 60% which is 36% based on initial assumed value of fo -0.35 Point Wise Tracking Signal For Exponential Smoothing -0.51 -1.29 Method -0.15 6.00 1.32 5.00 4.94 4.00 1.26 3.00
2.00 1.00 0.00 -1.00 0 -2.00

In the exponential smoothing method the TS is found to be in between the limits of +/1.5 but then the MAD is 35.85, which shows that the Abs error variation is still very high. And this causes a lag between demand and forcast.

COMPARISION BETWEEN FORCASTING METHOD

Demand Sales staff forecast Forcasting Using Alpha 0.4 Forcast after Bias Removal

Alternative Method
Forcast after Bias Removal 231 246 269 236 245 233 245 266 326 240 MAD CFE TS BIAS MAPE

Month April May June July August September October November December January

demand sales staff forecast 234 225 254 240 264 263 227 230 242 239 233 227 254 239 266 260 351 320 212 234 253.7

error 3 8 -5 -9 -3 0 9 0 25 -28 0 9 0 0 0 0.035475

abs. Error 3 8 5 9 3 0 9 0 25 28 90

CFE 3 11 6 -3 -6 -6 3 3 28 0

Point Wise Tracking Signal Bias Removal Method

5.00 4.00 3.00 2.00 1.00 0.00 0 -1.00 -2.00 2 4 6 8

he second value will be 60% based on our assumed first ed on initial assumed value of forcast

In this Bias removal method we have taken out the bias which was acting in s method. By this we have made a model which has a Tracking signal of Zero an biasness.

This comparision graph between the demand and the different forcasted values by using different method, shows clearly that Bias removal method is the best method which can be used in forcasting because it follows the trend of the demand and there is no biasness in ther system which is there in sales force model. Exponetial smoothing shows a lage in forcasting te spike in demand.

Cummulat ive Abs.Error 3 11 16 25 28 28 37 37 62 90

Point Wise MAD 3.00 5.50 5.33 6.25 5.60 4.67 5.29 4.63 6.89 9.00

Point Wise Tracking Signal 1.00 2.00 1.13 -0.48 -1.07 -1.29 0.57 0.65 4.06 0.00

l Bias Removal Method

10

12

out the bias which was acting in sales force forcasting ch has a Tracking signal of Zero and MAD of 9 with no

lues by using different can be used in ess in ther system

Current Decentralized Model Demand (Weekly Avg) 25 cars/outlet No of Outlets 4 Total Demand 100 Std Deviation 5 Lead Time 2 Std Deviation of Demand 7.071067812 Target Service Level 90% Z 1.281551566 Saftey Stock per Outlet 9.061938024 Saftey Stock for 4 Outlet 37 Proposed Centralized Model Demand (Weekly Avg) 100 (25 cars/outlet) Std Deviation 10 Lead Time 2 Std Deviation of Demand 14.14213562 Target Service Level 90% Z 1.281551566 Saftey Stock 19

When we have a decentralized model the safety more because std deviation for each outlet is tak centralized model the std deviation gets lowere level the safety stock decreases in Centralized m The Assumption here are: 1. Target Service Level remains Same. 2. Demand between the outlets are negatively c

ntralized model the safety stock requirement is iation for each outlet is taken. When we use a std deviation gets lowered. Hence for the same Service decreases in Centralized model. are: l remains Same. he outlets are negatively correlated.

Annual Demand Cost Setup Cost Holding Cost (@30%) Lead Time Standard Deviation Working per year Service Level Normsinv of 95%

Given Data D C S H L Sigma

25300 112 1560 33.6 3 54 50 95% 1.644853627

boxes per box

Weeks for Weekly Demand Weeks

Production Run Required as per EOQ Modeling EOQ Q* 1533 Production Run Required Q*/D 16.50358774 Reorder Point Sigma * sqrt(L) Weekly Demand Weekly Demand in 3 Weeks Saftey Stock Reorder Point 93.53074361 506 1518 153.8443829 1672

As per the calculation my recommentdation would be to go for a the maximum cost benefit, also It is seen that the EOQ is less tha case the first order which has to be made by warehouse should b sum of Re-order qty and EOQ quantity, and then as per the dema reorder again once they go below re-order qty. Inventory Position Inventory Position On-Hand Inventory Open Order in Pipeline Back-order IP=OH+SR-BO 0 1000 500 500

IP OH SR BO OH SR BO IP

As the Inventory Position is less than the Re-order point the ware the order to the factory.Assuming that the Avg demand is 500 an are allowed and does not result in lost sales, the company should 2672 units (Reorder Quantity (1672) + Accumulated back order ti (present 500 + next one week 500) + Week 2 & 3 demand (1000) 3rd week the company should order EOQ quantity and if reqd. sa depleted.

Present Stock On Hand Scheduled Receipts Backorders Avg Weekly Demand Planned Orders 0 1000 500 2672

Week 1 1000 2672 1000 500 0

Week 2 0 2672 500 500 0

Week 3 2672 0 1000 500 1500

Total Cost Considering 16 Production Run/Year Total Production Qty/Run 1582 Production Cost 2833600 Setup Cost 24960 Holding Cost 26577.6 Total Cost 2885138

Total Cost Considering 17 Production Run/Year Total Production Qty/Run 1489 Production Cost 2833600 Setup Cost 26520 Holding Cost 25015.2 Total Cost 2885135

ulation my recommentdation would be to go for a 17 Production run/year to have ost benefit, also It is seen that the EOQ is less than the Re-order point qty. In this rder which has to be made by warehouse should be equal to or greater than the r qty and EOQ quantity, and then as per the demand or usage they should nce they go below re-order qty.

y Position is less than the Re-order point the warehouse should place e factory.Assuming that the Avg demand is 500 and that backorders d does not result in lost sales, the company should place an order for order Quantity (1672) + Accumulated back order till next week next one week 500) + Week 2 & 3 demand (1000) - SR(1000). After ompany should order EOQ quantity and if reqd. safety stock if it is

Week 4 1172 1500 0 500 0

Week 5 Week 6 672 1672 1500 0 0 0 500 500 0 1500

Week 7 Week 8 Week 9 1172 672 1672 1500 1500 0 0 0 0 500 500 500 0 0 1500