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Assignment 2: Demand, Inventory, Location

Student’s Name

Institutional Affiliation

Course Name and Code

Instructor’s Name

Date Due
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Question 1: Demand Management & Forecasting

Introduction

Seasonality refers to the regular fluctuations in demand or supply of a product that occur

at specific times of the year (Corluka, 2019). In the business world, companies need to

understand and anticipate these fluctuations to manage their operations effectively. This paper

will explore five examples of products that display seasonality of demand but the uniformity of

supply and five examples of products that display seasonality of supply but uniformity of

demand.

Explain five examples of products that display demand seasonality but supply uniformity.

For products that display seasonality of demand but the uniformity of supply, the demand

for the product fluctuates at specific times of the year, but the supply remains consistent (Joshi &

Chaturvedi, 2022). This means the company must be prepared to meet the increased demand

during peak seasons while ensuring enough inventory to meet the lower demand during non-peak

seasons. Holiday delicacies such as thanksgiving stuffing, cranberry sauces, pecan pie, school

supplies, methods of heat such as gas, wood, electricity, camping equipment, and ice cream are

five items with seasonality in demand but consistency in supply. All of these things are

accessible throughout the year, but stockouts are dangerous at specific seasons if a firm fail to

estimate demand and manage supply accurately. The demand for holiday meals spikes in Canada

three times a year, most likely Thanksgiving, Christmas, and Easter. Typically, grocery stores

would promote the sale of these commodities six to one month before the Christmas season to

encourage people to practice advance purchasing to meet the demand for these items. Even if

these products have poor profit margins, advertising them throughout the summer months is
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unlikely to be profitable since most consumers do not plan that far ahead. Instead, grocery

retailers frequently reduce non-perishable products after the holiday to promote forward

purchasing for the next holiday while the current holiday is still fresh in everyone's memory.

Another product that experiences a seasonal spike in customer demand is school supplies,

which are often in high demand in August, just before elementary school pupils return from

summer vacation. Even though university students are divided into four-month semesters, there

is significantly less demand for pens, pencils, and paper in December. Promotions for these

products are most effective in the weeks leading up to the end of the summer since the rival

businesses have a higher chance of snatching customers from one another and growing their

markets because there is more demand now. Heat sources like gas, electricity, and wood have

predictable fluctuations; therefore, businesses must prepare to regulate the supply and capacity.

If the gas and electricity providers could not satisfy their anticipated requests for wood, they

would also need to find subcontractors who provide these services. To satisfy the known

unpredictability of its demand and lower the cost of capacity, wood, on the other hand, benefits

from using seasonal labour during the summer. Ice cream and camping supplies are the final two

product categories that experience seasonal demand.

In contrast to holiday meals and school supplies, these goods benefit from advertising at

non-peak times to encourage people to purchase them in the future. In the off-season, such as the

winter or early spring, when consumers are looking to replace worn-out or outdated gear,

camping gear has the potential to gain market share from rivals. Due to some of this equipment's

size and nature, substantial manufacturer holding costs are probably to blame.

Explain five examples of products that display seasonality of supply seasonality but

demand uniformity
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The uniformity of demand has a consistent level of demand throughout the year.

However, the supply of the product fluctuates at specific times of the year. This can create

challenges for the company in terms of managing inventory and ensuring enough product is

available to meet the consistent demand display seasonality of supply. (Joshi & Chaturvedi,

2022). Fresh fish, berries, seasonal beverages like the pumpkin spice latte, girl scout cookies, and

flowers are the five items that I have selected as having a supply pattern that is influenced by the

seasons while having a consistent demand. Because of the cyclical nature of their availability, it

was more difficult for me to come up with ideas for these products, so I decided to poll some of

my immediate relatives and friends. The availability of most of these items is limited to specific

times of the year due to seasonal reasons, yet, several of these companies have discovered

marketing techniques that have brought in billions of dollars for them. Even though globalization

has made it easy to import many seasonal foods, local fresh fish and flowers might be difficult to

come by at different times of the year due to the climate and rules put in place by the government

to prevent overfishing. Because it might be difficult to create stocks of these items without

running the risk of their going bad, it is the responsibility of the company that supplies them to

manage the supply of the inventory of these products. On the other hand, fish and berries can be

frozen, but flowers that are only available seasonally, such as tulips and daisies, cannot, so we

will have to be patient and wait until spring.

Thanks to marketing and the products' limited availability, a cult-like demand has been

generated for the other two goods—girl guide cookies and the well-known pumpkin spice latte.

Both of these items can use the strategies of controlling the supply of capacity and inventory by

making use of flexibility within their workforces to build up stocks during the year. Because of

the unique nature of these products, the suppliers do not need to be concerned about managing
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the level of demand because customers have come to accept the high level of demand and the

possibility of stockouts if they cannot take advantage of the opportunities presented to them.

Stockouts, in a sense, generate greater demand for the items mentioned above and assist buyers

in being more prepared for the years that will follow. After determining the seasonality elements

that influence supply and demand for items, I can appreciate the significance businesses place on

their sales and operational planning.

Question 2

a) Use a simple moving average of three periods to forecast the demand for October-

2017. What is the forecast?

Period t Demand Dt Level Lt Forecast Ft

1 66753

2 67686

3 68641 67693.33

4 68979 68435.33 67693.33

5 69278 68966 68435.33

6 69577 69278 68966

7 69602 69485.67 69278

8 70348 69842.33 69485.67

9 70806 70252 69842.33

10 71011 70721.67 70252

11 71819 71212 70721.67

12 72752 71860.67 71212

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From the computation, the forecast for October 2017 would be $70252

b) Use exponential smoothing to forecast the demand for July-2017. What is the

forecast if α = 0.4 and the forecast for May was 69,000?

Month Actual demand Forecast α=0.4 Ft + α(Dt − Ft) Forecast for Month

(A) (F)

January 66753 66,753 66,753

February 67686 66753+0.4(66753-66753) 66753

March 68641 66753+0.4(67686-66753) 67350.12

April 68979 67350.12+0.4(68979-67350.12) 68297.2

May 69278 68297.2+0.4(67866.47-68297.2) 68857.32

June 69577 68857.32+ 0.4(69000 -68857.32) 68992.44

July 69602 68992.44+0.4(69,577–68992.44) 69369.28

August 70348 69369.28+0.4(69,602-69369.28) 69593

September 70806 69593+0.4(70,348-69593) 70079.44

October 71011 70079.44+ 0.4(70,806-70079.44) 70641.12

November 71819 70641.12+0.4(71,011-70641.12) 70937.2

December 72752 70937.2 +0.4(71,819 - 70937.2) 71528.12

As computed above, the forecast for the month of May 2017 at 69000 units is 68857 units.

c) Use the trend projection linear regression method to forecast the demand for

February 2018. You need to find the slope and intercept of the fitted line. What is

the forecast?
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Y= Mx+C

= 462.05+ 66768

=462.05

Intercept = 66768

Forecast for febuarary (x=14) = 462.05(14) + 66768

=6468.7 + 66768

= 73236.7

Question 3

Period Demand Forecast Error Error % Error

square

1 173 176.6 -3.6 12.56 -2.081

2 177 174.2 2.8 7.84 1.582

3 180 176.1 3.9 15.21 2.167

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4 151 178.7 -22.7 767.29 -18.34

5 168 160.4 7.6 57.76 4.52

6 189 165.4 18.6 345.96 10.109

7 138 177.7 20.3 412.09 10.252

8 191 195.1 -0.1 0.01 -0.0522

9 167 191 -2.4 576 -12.569

10 177 175.2 1.8 3.24 10017

110.04 2198.36 62.693

∑∈= 110.4

Error = Sales – Forecast * 100

Then,

MAD = ∑∈/ n = 110.4/10 = 11.04

MSE = ∑∈❑2 /n-1 = 2198.36/10-1 = 249.262

MAPE = ∑ 1%e/n = 62.693/10 = 6.2693

Question 4: Inventory Management & Modeling

a) Find the most economic order quantity

D= 6000

C = $1

S = $20
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H = $0.35 ($0.25 +$0.10)

Q ¿=√ 2∗6000∗20 0.35

EOQ¿=828.08 or 828 circuit boards

b) Find total inventory related relevant cost and total annual cost including the

purchase cost.

Ordering costs = S(D/Q) = 20*7.25 = $145.00

Holding costs = H(Q/2) = 0.35(828 /2) = $144.9 * round up to $145

Purchase cost = 6,000 * $1 = $6,000 + $145 + $145 = $6,290

c) How many orders need to be placed per year.

N = 6000 / 828.08 = 7.25 orders per year

d) If the manufacturer is open 300 days in a year, what should be the time

difference between orders i.e. cycle time?

828.08 6000 X 300=41.4 days

e) If the lead time to get the order is 7 days, what would be the re-order point?

6,000 units / 300 days = 20 * 7 days = 140

ROP = 140 units

Question 5: Facility location and supply chain network design

a) What location would you recommend for opening a distribution center forthese

stores using COG method?

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X cordinate of DC = (Sum of X cordinate * Demands) / Sum of demand

= (7*6000 + 40 * 8000 + 80*9000+ 70*5000) / 6000+8000+9000+5000

= 51.14

Y cordinate = (9*6000+20*8000+30*9000+25*5000)/ 6000+8000+9000+5000

= 21.75

Centre of gravity (51.14, 21.75)

A corporation should choose a site between B and D to construct a distribution outlet, however it

is critical to have both locations as it will interstate roads near the city to save delivery time.

Question 5b

I. The management would like to know over what range of production volume each

location is cost-effective.
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Option A: TC = 3M + 60x

Option B: TC = 4M + 45x

Option C: TC = 6M + 25x

Solving A & B: 60x = 1M + 45x

X = 66,667

Solving B & C: 45x = 2M + 25x

X = 100,000

Solving A & C: 60x = 3M + 25x

X = 85,714

PLOT

X Cost @A Cost @B Cost @C

0 $3,000,000.00 4,000,000.00 $6,000,000

66667 $7,000,020.00 7,000,015.00 $7,666,675.00

85714 $8,142,840.00 7,857,130.00 $8,142,850.00

100000 $9,000,000.00 8,500,000.00 $8,500,000.00

The bolded locations are the most cost effective at the designated production volume

II. Plot the total cost lines with free hand.

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III. They would also like to know when to shift from one location to another if the demand

keeps on growing.

If demand keeps on growing the company should switch from Company B’s location to company

C’s location once they surpass 100,000 units.

IV. If they plan to produce 150,000 units which location is the best in terms of cost?

150000 $ 12,000,000.00 $ 10,750,000.00 $ 9,750,000.00

Location C would be the best in terms of cost.

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References

Corluka, G. (2019). Tourism seasonality–an overview. Journal of Business Paradigms, 4(1), 21–

43.

Joshi, S., & Chaturvedi, K. R. (2022, February). Exploring the Feasibility of Geological Storage

of Hydrogen in Indian Porous Media: Challenges, Opportunities and the Way Ahead.

In International Petroleum Technology Conference. OnePetro.