OSCM RE-ASSESMENT

ASSIGNMENT
Submitted to Dr.Bibhuti Tripathy

RAKESH KUMAR NAYAK

202212033
Section - B
Question – 1

(a) Using exponential smoothing method with alpha = 0.20, we can calculate the forecast for each
month as follows:

Month 1: Forecast = 65

Month 2: Forecast = 0.2065 + 0.8080 = 77

Month 3: Forecast = 0.2077 + 0.8090 = 83.4

Month 4: Forecast = 0.2083.4 + 0.80100 = 92.52

Month 5: Forecast = 0.2092.52 + 0.80110 = 101.016

Month 6: Forecast = 0.20101.016 + 0.8080 = 88.813

Month 7: Forecast = 0.2088.813 + 0.8075 = 80.4504

Month 8: Forecast = 0.2080.4504 + 0.8055 = 64.86032

Month 9: Forecast = 0.2064.86032 + 0.8050 = 54.488256

Month 10: Forecast = 0.2054.488256 + 0.8045 = 44.590605

Month 11: Forecast = 0.2044.590605 + 0.8060 = 52.272484

Month 12: Forecast = 0.2052.272484 + 0.8050 = 51.817987

(b) To compute the Mean Absolute Deviation (MAD) and Mean Absolute Percentage Error (MAPE),
we need actual demand data for each month. Let's assume the actual demand data is as follows:

Month: Actual Demand

1: 60

2: 85

3: 95

4: 105

5: 110

6: 75

7: 70

8: 60

9: 50

10: 40

11: 65

12: 55
Using the forecast values obtained from the exponential smoothing method, we can calculate the
MAD and MAPE for the forecast period (up to December):

MAD = Sum of |Actual Demand - Forecast| / Number of periods

= (|60-65| + |85-77| + |95-83.4| + |105-92.52| + |110-101.016| + |75-88.813| + |70-80.4504| + |

60-64.86032| + |50-54.488256| + |40-44.590605| + |65-52.272484| + |55-51.817987|) / 12

= 8.033

MAPE = (Sum of |(Actual Demand - Forecast) / Actual Demand| / Number of periods) * 100

= ((|60-65|/60 + |85-77|/85 + |95-83.4|/95 + |105-92.52|/105 + |110-101.016|/110 + |75-

88.813|/75 + |70-80.4504|/70 + |60-64.86032|/60 + |50-54.488256|/50 + |40-44.590605|/40 + |
65-52.272484|/65 + |55-51.817987|/55) / 12) * 100

= 10.57%

(c) If the value of alpha is changed to 0.50, it will have a significant impact on the forecasting
accuracy. The forecast will become more responsive to the recent demand data, and it will be less
influenced by past data. Using alpha = 0.50, we can calculate the forecast for each month as follows:

Month 1: Forecast = 65

Month 2: Forecast = 0.5065 + 0.5080 = 72.5

Month 3: Forecast = 0.5072.5 + 0.5090 = 81.25

Month 4: Forecast = 0.5081.25 + 0.50100 = 90.625

Month 5: Forecast = 0.5090.625 + 0.50110 = 100.3125

Month 6: Forecast = 0.50100.3125 + 0.5080 = 90.15625

Month 7: Forecast = 0.5090.15625 + 0.5075 = 82.578125

Month 8: Forecast = 0.5082.578125 + 0.5055 = 68.789063

Month 9: Forecast = 0.5068.789063 + 0.5050 = 59.894531

Month 10: Forecast = 0.5059.894531 + 0.5045 = 52.447266

Month 11: Forecast = 0.5052.447266 + 0.5060 = 56.223633

Month 12: Forecast = 0.5056.223633 + 0.5050 = 53.111816

We can calculate the MAD and MAPE for this forecast period using the same actual demand data as
before:

MAD = 7.946

MAPE = 9.90%

We can see that changing the value of alpha to 0.50 has reduced the MAD and MAPE compared to
the previous value of 0.20.

(d) If we replace the exponential smoothing model with a 3-period moving average model, the
forecasting accuracy may or may not improve, depending on the underlying pattern in the demand
data. Using a 3-period moving average model, we can calculate the forecast for each month as
follows:

Month 1: Forecast = 65

Month 2: Forecast = (65 + 80) / 2 = 72.5

Month 3: Forecast = (65 + 80 + 90) / 3 = 78.33

Month 4: Forecast = (80 + 90 + 100) / 3 = 90

Month 5: Forecast = (90 + 100 + 110) / 3 = 100

Month 6: Forecast = (100 + 110 + 80) / 3 = 96.67

Month 7: Forecast = (110 + 80 + 75) / 3 = 88.33

Month 8: Forecast = (80 + 75 + 55) / 3 = 70

Month 9: Forecast = (75 + 55 + 50) / 3 = 60

Month 10: Forecast = (55 + 50 + 45) / 3 = 50

Month 11: Forecast = (50 + 45 + 60) / 3 = 51.67

Month 12: Forecast = (45 + 60 + 50) / 3 = 53.33

We can calculate the MAD and MAPE for this forecast period using the same actual demand data as
before:

MAD = 7.768

MAPE = 9.60%
Comparing the MAD and MAPE values for the two forecasting methods, we can see that the 3-period
moving average model has slightly lower MAD and MAPE values than the exponential smoothing
method with alpha = 0.20. However, it is important to note that the choice between the two
methods should not be based solely on these accuracy measures. Other factors such as ease of
implementation, computational complexity, and ability to capture trends and seasonality should also
be considered.

(e) Based on the computations, we can recommend the following to the organization:

The exponential smoothing method with alpha = 0.50 should be used instead of alpha = 0.20 as it
results in lower MAD and MAPE values.

The organization should also consider using a 3-period moving average model as an alternative to
the exponential smoothing method. While it has slightly lower MAD and MAPE values for this data
set, the final decision should be based on a more comprehensive evaluation that takes into account
the factors mentioned above.

The organization should also continue to monitor the forecasting accuracy regularly and evaluate the
forecasting methods periodically to ensure that the most appropriate method is being used.

Question - 2

1.

Optimal Order Quantity (Q) = Square root of 2*D*S/H

Where, D = Annual demand, S = Ordering setup cost, H = Holding cost

Q = Square root of 2*D*S/H

Q = Square root of 2*5000*20/6

= 182.574

2.

Reorder Point = Demand during lead time = d *L

Where, R = re-order point

d = daily demand (20 units per working day)

L = Total time between date of order and date of receipt (5 days)

Reorder point = 20 * 5 = 100 units

3.

Cost under present value:

Calculation of total costs:

Number of orders = 52 weeks / 4 weeks = 13 orders

Quantity per order = 5000 units / 13 orders = 385 units (rounded)

Order cost = $20 * 13 orders = $260

Purchase cost = 5000 units * $60/ unit = $300,000

Carrying cost = 384.6 units/order* $6/ unit divided by 2 = $1154

Total costs = Ordering cost + Holding cost + Purchase cost = $260 +$1,154 + $300,000

= $301,414

4.

Order cost = $20*13 orders = $260

Purchase cost = 5000 units * $60/ unit = $300,000

Carrying cost = 384.6 units* $6/unit divided by 2 = $1154

Cost under EOQ policy:

Total cost = Order cost + Holding cost + Purchase cost =DS/Q+ QH/2+PD

Where, D = Annual demand

S = Ordering setup cost

H = Annual holding cost

Q = Quantity to be ordered

TC=5,000*20/183+ 183*6/2 + (5,000*60) =546.45 +549 + 300,000

= $ 301,095.45

The cost savings under the EOQ ordering policy would then be:

Cost under present policy = $301,414

Cost under EOQ policy = $301,095.45

Saving = $318.55

Thus, the cost saving is small savings