# OPMT 310 –Summer 2015/ Statistics OPTM 310 hw2

OPMT 310 –Summer 2015/     Statistics OPTM 310 hw2

Homework Guidelines

1.    Your assignments should be labeled with your name, HW#, and date.
2.    Where possible, your work should by typed with correct grammar and spelling.
3.    Mathematical problems, equations, or drawings may be hand drawn, but they must be legible and neat.
4.    Your work must be stapled, in correct order, if there are multiple pages.
5.    Show your work!  Partial credit cannot be awarded if your work is not shown. You get partial credit for good methodology.
6.    Be sure to state and support your answers clearly. It is important that you show your thought process in solving problems.
7.    Ask for clarification, if necessary.

Q1. Forecasting Problem(10 Points)

Please complete Problem 22 (pg. 481 in the 14th edition).

Only complete calculations through week 6 and show work for at least three of the six periods. Using Excel is fine, even preferred, but please show your work in some way.

Q2. Forecasting Problem (10 Points)

Assume a previous forecast including trend of 100 units, a previous trend estimate of 15 units, an alpha of .25 and a delta of .25. If actual demand turned out to be 110 units rather than the forecast of a 100 units, calculate the forecast including trend for the next period.

Q3. Aggregate Planning (S&OP) Problem (10 Points)

Consider the following modifications to the Good and Rich Candy Company example from class. How would the aggregate planning strategy change in each case provided?

Data from class lecture slide:
Spring: forecasted demand=80,000
Summer: forecasted demand=50,000
Fall: forecasted demand=120,000
Winter: forecasted demand=150,000

Hiring cost = \$100 / worker
Firing cost = \$500 / worker
Regular Production Cost = \$2 / pound
Inventory carrying cost = \$0.50 / pound / quarter
Production per employee = 1,000 pounds / quarter
Beginning work force = 100 workers
Beginning inventory = 0

Cost of level production strategy = \$870,000
Cost of chase demand strategy = \$835,000

a) Inventory carrying cost is reduced to \$0.25 per lb. per quarter. Consider both level production and chase demand strategies.

b)  Sales promotions are successful in shifting demand of 25,000 lbs. of candy from Fall to Summer and 20,000 lbs. from Winter to Spring. Which planning strategy is best?
Level Production Strategy
Quarter    Sales    Production    Inventory
Spring
Summer
Fall
Winter

Cost =

Chase Demand Strategy

Quarter
Sales
Production
Workers Needed
Workers  Hired
Workers Fired
Spring
Summer
Fall
Winter

Cost =
Q4. Forecasting Error Problem (10 Points)

The following table shows predicted product demand using a particular forecasting method along with the actual demand that occurred.

Period    Forecast    Actual    Deviation    RSFE    Absolute deviation    Sum of Absolute deviations    MAD    TS
1    1500    1550
2    1400    1500
3    1700    1600
4    1750    1650
5    1800    1700

a) Compute the tracking signal using the MAD and the running sum of forecast errors.

b) Discuss whether the forecasting method is giving good predictions.

Q5. Single Period Inventory Problem(5 Points)

Mac wishes to determine the number of copies of The Computer Journal he should purchase each Sunday.

A study of the historical data showed that the demand is approximately normally distributed with mean = 11.73 and standard deviation = 4.74. Mac purchases the magazines for 25 cents and can sell them for 75 cents. He can salvage unsold copies for 10 cents.

a) Calculate the overage cost.

b) Calculate the underage cost.

c) How many copies of the Journal should Mac purchase?

Q6. InventoryManagement Problem (5 Points)

Refer to the inventory management models: Q-model (exhibit 20.7) and P-model (exhibit 20.8) on pages 527 and 530, respectively, in the 14th edition.

Describe the 3-4 key differences between these two models/approaches to inventory management. Use full, descriptive, well-written sentences.