Application Activity 2: Demand and Resource Planning
DECISION PROBLEM 1: Using Forecasts to Plan for Customer Demand
Olde World’s sales manager must make purchasing plans for the private–label products Olde World sells.One of the items the company stocks is SunPro, an add–on that customers buy to spray on their windows and doors for UV protection.
The sales of this item are seasonal, with peaks in the spring, summer, and fall months. Demand (in cases) for the past 12 months at Olde World are listed in the following table:
Month Sales ($) Month Sales ($)
January 2,000 July 5,000
February 2,800 August 5,400
March 3,200 September 6,000
April 3,900 October 5,000
May 4,300 November 3,800
June 4,900 December 3,300
A. Based on the numbers in the table above, forecast the sales (by month) from March through December using a 2–month weighted moving average. Use the weights of (3/4) and (1/4), giving more weight to more recent data.
B. Forecast the sales for the months of March through December using exponential smoothing with α = 0.7 beginning with an initial forecast in January of $3,000 and starting error measurement in March.
C. Using the mean absolute deviation as your performance criterion (with error measurement beginning in March), compare the two forecasting methods you used in A and B. Which method would you recommend as a more reliable predictor? Why?
D. Using the mean percent error as your performance criterion (with error measurement beginning in March), compare the two forecasting methods you used in A and B. Which method would you recommend as a more reliable predictor? Why?
DECISION PROBLEM 2: Inventory Management
Olde World’s accessories department operates 48 weeks per year. The warehouse manager is attempting to optimize an inventory policy for one of its accessories (an automated sunscreen that rolls down when temperatures exceed 85 degrees) that it purchases from a 3rd–party supplier. Use the following information to answer the questions below.
Demand (D) = 1500 units/year
Demand is normally distributed
Standard deviation of weekly demand = 2 units
Ordering cost = $50/order
Annual holding cost (H) = $6/unit
Desired cycle–service level = 95% percent
Lead time (L) = 3 weeks
A. If Olde World uses a periodic review system, what should the P and T be? Round P to the nearest week.
B. If Olde World uses a continuous review system, what should R be?
C. Which inventory review system would you recommend? Why?
DECISION PROBLEM 3: Operations Planning and Scheduling
In the window frame assembly department at Olde World, the manager estimates the following workforce requirements for its services over the next two years:
Quarter 1 2 3 4 5 6 7 8
Demand (in hours) 4,000 5,000 3,500 4,100 4,300 5,800 3,400 4,400
Currently, 8 certified machinists are employed to work in this department. Each employee works 400 hours every quarter but is also allowed to work up to an additional 100 hours of overtime. The company has a cost of $12,000 per employee per quarter for regular time worked up to 400 hours. This is based on $30/hour, which must be paid whether the machinists are active or idle. Overtime work is paid at a rate of $45 per hour on an as–needed basis. The company incurs costs of $15,000 to hire and train each new machinist and incurs costs of $6,000 for each machinist it lays off.
Based on the information above:
A. Use a level strategy to create a staffing plan for this department that results in no service delays. Your plan can use only overtime to meet the goals and must minimize the inactive undertime. What is the total cost of your plan based on these parameters?
B. Create a plan that uses a chase strategy to vary the workforce level, but that does not result in any overtime while minimizing undertime. What is the total cost of your plan based on these parameters?
C. Propose a staffing plan that would be superior to both a level strategy and a chase strategy. What benefits would the plan provide for Olde World? Consider the total cost of the plan as well as non–financial factors that make the plan a better choice to optimize performance.
DECISION PROBLEM 4: Resource Planning
One of the problems Olde World has is with master production scheduling and materials requirements planning. You have the expertise to teach them how to complete an MPS record and an MRP plan.
A. Complete the MPS record for Olde World’s Abbot door, based on the information below.
Order Policy: 50 Units
Lead Time: 2 Weeks
Item: Abbot Door Week
Quantity on Hand 35 1 2 3 4 5 6 7 8
Forecast 25 22 30 30 26 28 30 34
Customer Orders (Booked) 16 18 11 12 10 9
Projected On–Hand Inventory
MPS Quantity
MPS Start
B. The Abbot door has recorded inventory data and a bill of materials, as shown below. Assume the MPS start quantities for the door are 100 units in weeks 1,2,3,4,7,8,9, and 10. Create an MRP plan for the components going into the Abbot door using the data below.
INVENTORY RECORD DATA
BILL OF MATERIALS
ITEM A
C D E
D E
E
Data Category C D E
Lot–Sizing
Rule
L4L L4L FOQ = 300
Lead
Time
2 Weeks 1 Week 1 Week
Scheduled
Receipts
80 (in Week 2) 200 (in Week 2)
Beginning
Inventory
220 400 95
C. What specific managerial actions are required by Olde World Windows and Doors in Week 1?
Make sure you address any specific difficulties you encounter in the inventory records.
