MM5004 Operations Management

Final Semester Exam

Selina Astiri
29120184
EMBA 63

1. TACORE Case
a. What are the problems causing the failure of TACORE Ceramic in fulfilling demand?

The root cause of the problem is TACORE has not done any demand forecasting. Resulting in
other failure factors such as:

- the exploding demand could not be handled since there is no time to plan the production
process such as workers availability.

- There is only one production permanent worker, the 10 others are contracts. So the availability
of workers is uncertain.

- From production on August 2015, it is proven that 10% of total production are defects. A
quality examination and training for freelancers and contract workers should be done.

- One of the main process in producing ceramic is still done manually ; the drying process. With
demand increasing drastically, it is important for TACORE to consider purchasing a
tools/machine for drying.

b. Create forecasting for 2018 (monthly) for the next 3 months using at least 3 time series
forecasting method, compare and choose the best forecast number based on the nest method.

• Moving Average Method (with length of 2 and 3) – chosen because the data is just a few
 • Single Exponential Method (alfa 0.2) – method chosen because suitable for short-term forecast

• Decomposition (with seasonal length of 3 and 4) - sales are suspected to be seasonal.

Forecast Methods Comparison

Decomposition Decomposition
SL 3 SL 4 MA 2 MA 3 SE 0.2
MAP 14.9 13.1 16 15.7 16.2
MAD 104.2 88.1 120 120.4 115.6
MSD 15716.1 12528.8 19375 21327.2 18037

From the comparison of 3 time series methods, it is found that Decomposition with Seasonal Length of 4
is the best forecasting method by looking at 3 parameters. The MAP, MAD, and MSD of Decomposition
method with Seasonal Length of 4 is the lowest than other methods. Thus, the forecast that is used is:
 Period Forecast Forecast
(Rounded)
13 966.563 967
14 800.553 801
15 850.084 850

c. Create aggregate planning with at least 3 scenarios, compare and choose the best scenario.

Aggregate Production Planning Requirements

January February March
Beginning Inventory 200 0 0
Demand Forecast 967 801 850
Safety Stock 0 0 0
Production Requirement (Demand forecast +
Safety Stock - Beginning Inventory) 767 801 850
Ending Inventory (Beginning Inventory +
Production Req. - Demand Forecast) 0 0 0

Production Plan 1: Exact Production; Vary Workforce

January February March

Production Required 767 801 850
Production Hours Required 3068 3204 3400
Working days per month 22 19 21
Hours per month per 176 152 168
worker
Workers required 18 22 21
(Production hours
required/Hours per month
per worker)
New workers hired 8 4 0
(assuming opening
workforce equal of 10
workers)

Hiring cost (New workers

$400.00 $200.00 0
hired x $50)
Workers laid off 1
Layoff cost (Workers laid
$100.00
off x $100)
Straight-time cost
(Production hours required $38,350.00 $40,050.00 $42,500.00
x $12.5)
TOTAL COST $121,600.00
 Production Plan 2: Constant Workforce; Vary Inventory and Stock Out

Constant Worker = (Sum Production Req. x 4 hr/unit) / Sum of Working Days per month x 8
hr/day)

= (2418 x 4)/(62 x 8)
= 20 workers

January February March

Beginning inventory 200 113 72
Working days per month 22 19 21
Production hours available (Working days x 8 hr/day x 20 workers) 3520 3040 3360
Actual production (Production hours available/4 hr/unit)
880 760 840

Demand Forecast 967 801 850

Ending inventory (Beginning inventory + Actual production -
113 72 62
demand forecast)
Shortage cost (Units short x $20)
0 0 0
Safety stock 0 0 0

Units excess (Ending inventory - Safety stock; if positive amount)

113 72 62
Inventory cost (Units excess x $10)
$ 1,130.00 $ 720.00 $ 620.00

Straight-time cost (Production hours available x $12.5) $44,000.00 $38,000.00 $42,000.00

TOTAL COST $126,470.00

Production Plan 3: Constant Workforce; Subcontract

Constant Worker = (min. prod req. x 4 hr/unit) / working days/month x 8 hr/day)
= (767 x 4)/(22 x 8) >> January has the minimum production requirement
= 17
 January February March
Production requirement 767 801 850
Working days per month 22 19 21
Production hours available 2992 2584 2856
(Working days x 8 hr/day x 17
workers)
Actual production (Production 748 646 714
hours available/4 hrs per unit)

Units subcontracted 19 155 136

(Production requirements -
Actual production)
Subcontracting cost (Units $1,900.00 $15,500.00 $13,600.00
subcontracted x $100)
Straight-time cost (Production $37,400.00 $32,300.00 $35,700.00
hours available x $12.5)

TOTAL COST $136,400.00

SUMMARY
Straight Excess
Strategy Hiring Layoff Subcontract Time Shortage Inventory Total Cost
$600.00
Exact production;
vary workforce $100.00 $120,900.00 $121,600.00
Constant
workforce; vary
inventory and $
shortages $124,000.00 2,470.00 $126,470.00
Constant
workforce;
subcontract $31,000.00 $105,400.00 $136,400.00

Because the first strategy; exact production with vary workforce (chase) has the lowest total cost of
$121,600.00, it is chosen as the best strategy to apply.

2. Refrigator Case
a. What is the economic order quantity?

Qopt = √2𝐷𝑆/𝐻
= √2 𝑥 500 𝑥 $100 / 20% 𝑥 $500
= √1000
 = 31.6 ≈ 32 units

b. If the distributor wants a 97 percent service probability, what reorder point should be
used?

R = 𝑑𝐿 + 𝑧𝜎𝐿
= (500/365 x 7) + (1.88 x 10)
= 28.39 ≈ 29 units

To summarize, the policy derived in this case, an order for 32 units is placed whenever the
number of units remaining in inventory drops to 29.

3. What is the optimal order quantity and the minimum cost for Bell computers to order, purchase,
and hold these integrated chips?

Chips Price = $450

Holding Cost = $25
Ordering Cost = $140
Sales = 400/month
Annual Demand = 400 x 12
= 4800
i = Holding Cost/Price x 100%
= $25/$450 x 100%
= 5.56%

𝑄 = √2𝐷𝑆/𝑖𝐶

1-99 units $350 100-199 units $325

2DS 1344000 2DS 1344000
iC 19.44 iC 18.06
Q^2 69120 Q^2 74437
Q 262.91 Q 272.83
unfeasible because 263 > 99 units unfeasible because 273 > 199 units

200 or more units $300

2DS 1344000
iC 16.67
Q^2 80640
Q 283.97
284
feasible because more than 200 units

Thus, we use Q = 284 for equations.

Holding Cost

Q/2 142
iC 16.67
Holding Cost $2,367.14

Ordering Cost

Ordering Cost $2,366.20

Item Cost
Item Cost $1,440,000.00

Total Cost
$1,444,733.34

The optimal order quantity is 284 with the total cost of $1,444,733.34.