INVENTORY MODEL

LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 INVENTORY MODEL
• WHAT: Inventory models are mathematical frameworks that help engineering
managers optimize the ordering, storing, and handling of physical goods. In
essence, these models assist managers in determining the ideal amount of
inventory to hold at any given time.
• WHY: The primary purpose of using inventory models is to strike a balance
between two opposing forces:
• Minimizing inventory costs: Holding too much inventory can be expensive
due to storage costs, the risk of obsolescence, and potential damage.
• Ensuring sufficient stock to meet demand: On the other hand, running out of
stock can lead to lost sales, customer dissatisfaction, and production
slowdowns. Inventory models help managers find the sweet spot that
minimizes overall costs while ensuring they have enough stock to meet
customer needs.

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 INVENTORY MODEL
• WHO: The responsibility for implementing the inventory model lies with the
engineering management team. Collaboration with procurement specialists,
project managers, and faculty members overseeing research and development
is essential for a comprehensive and successful execution.
• WHEN: Inventory models are employed throughout the planning and control of
inventory. They are particularly useful during:
• Demand forecasting: Inventory models can be used to predict future
demand for products, which is crucial for determining how much inventory to
order.
• Safety stock management: These models help managers establish safety
stock levels, which is the extra amount of inventory kept on hand to buffer
against unexpected fluctuations in demand or supply.
• Reorder point determination: Inventory models can be used to calculate
the reorder point, which is the point at which a new order for inventory needs
to be placed. 3
 INVENTORY MODEL
• WHERE: Inventory models are applicable in any industry that manages physical
goods, from manufacturing and retail to healthcare and construction.
• HOW: Inventory models take into account various factors such as:
• Demand forecasting: As mentioned earlier, forecasting future demand is
essential for determining inventory levels.
• Lead time: This is the time it takes for a new order to be received once it is
placed. Lead time needs to be factored in when determining reorder points to
avoid stockouts.
• Safety stock: As discussed, safety stock is the buffer of extra inventory to
mitigate against demand or supply variations.
• Ordering costs: These are the costs associated with placing an order, such as
administrative costs and transportation fees. Inventory models help
managers balance ordering costs against holding costs.

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 EXAMPLE OF INVENTORY MODEL
An engineering manager for a company building educational robots is
facing challenges with a specific type of sensor used in their robots. These
sensors are expensive and have long lead times, so the manager needs to
optimize inventory to avoid stockouts that could stall production.
Throughout the product lifecycle, they can leverage different models.
During the design phase, an ABC analysis can categorize the sensors
based on cost and importance. Later, as production increases, a reorder
point system with safety stock can be implemented. This system identifies
the point at which a new sensor order is needed and adds a buffer of extra
stock (safety stock) to account for potential variations in demand or lead
times. This two-pronged approach ensures the manager keeps enough
sensors on hand to avoid production delays, while still minimizing the
overall cost of holding excessive inventory.
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QUEUING THEORY
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 QUEUING THEORY
• WHAT: Queuing theory is the study of how lines form, function, and why they
malfunction. It analyzes waiting components like arrival processes, number of
customers, and more
• WHY: Queues are essential for managing limited resources efficiently. Queuing
theory helps optimize queues, reducing wait times and improving service
• WHEN: Queuing theory is used in various real-world situations across different
industries to optimize performance, efficiency, and quality by analyzing waiting lines
or queues of customers, tasks, or events.
• WHERE: Queuing theory finds applications in various fields like business logistics,
banking, telecommunications, project management, and emergency services
• WHO: This theory is crucial for businesses in various sectors such as retail,
telecommunications, transportation, finance, banking, computing, logistics, and
project management
• HOW: Queuing theory involves analyzing parameters like arrival rates, service times,
number of servers, queue capacity, and queuing discipline to optimize systems 7
efficiently.
 EXAMPLE OF QUEUING THEORY
An example of queuing theory in action can be seen in a fast-food
restaurant. Consider a scenario where customers arrive at the
restaurant, form a line, place their orders at the counter, wait for
their food to be prepared, and then receive their orders before
leaving. In this setting, queuing theory can help optimize the
number of servers (counter staff and kitchen staff), determine the
best queuing discipline (first-come-first-served, priority-based,
etc.), and manage the flow of customers efficiently to minimize wait
times and maximize customer satisfaction.

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NETWORK MODELS
– PERT/CPM
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 NETWORK MODELS – PERT/CPM
• WHAT: PERT and CPM are techniques for project scheduling that utilize network
diagrams. These diagrams visually represent the project activities, their
dependencies, and the estimated time required to complete each activity.
• WHY: The primary purpose of using PERT and CPM is to achieve efficient project
scheduling. By creating a network diagram, project managers can:
• Identify the critical path, which is the sequence of activities that determines the
minimum project duration.
• Allocate resources effectively.
• Mitigate risks by pinpointing potential delays.
• WHEN: PERT and CPM can be applied throughout the project lifecycle, from the initial
planning stages to project execution and control.
• WHERE: These techniques are applicable to a wide range of projects, particularly those
with well-defined activities and clear dependencies between them. Construction, software
development, and research projects are all common examples.

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 NETWORK MODELS – PERT/CPM
• WHO: Network models like PERT (Program Evaluation and Review Technique)
and CPM (Critical Path Method) are commonly used by various industries for
project management to plan, schedule, and control complex projects
effectively. These models help in identifying critical activities, determining the
shortest time to complete a project, and managing resources efficiently.

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 NETWORK MODELS – PERT/CPM
• HOW: Both PERT and CPM involve creating a network diagram with the
following steps:
1. Define Activities: Break down the project into smaller, manageable
tasks.
2. Establish Dependencies: Determine the precedence relationships
between activities (i.e., which activities must be completed before others
can begin).
3. Estimate Activity Times: Assign estimated durations for each activity.
PERT uses three time estimates (optimistic, most likely, pessimistic) to
account for uncertainty, while CPM uses a single deterministic time
estimate.
4. Draw the Network Diagram: Create a visual representation of the project
activities and their dependencies using nodes and arrows.
5. Critical Path Analysis: Identify the critical path, which is the longest path
through the network diagram. Delays in any activities on the critical path
will directly impact the overall project timeline.
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EXAMPLE OF NETWORK MODELS – PERT/CPM
In the construction of a new office building, these models can be
utilized to sequence activities, estimate task durations, identify
critical paths, and optimize project timelines. By creating a network
diagram that visualizes the interdependencies of tasks such as
excavation, foundation pouring, framing, and interior finishing,
project managers can effectively allocate resources, manage risks,
and ensure timely project completion. Through the use of
PERT/CPM, project stakeholders can gain valuable insights into the
project's progress, make informed decisions, and adapt to changes
in real-time to achieve successful outcomes.

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FORECASTING
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 FORECASTING
• WHAT: Forecasting is a technique that utilizes statistical methods and
historical data to predict future outcomes. It's essentially an informed guess
about what might happen based on what has happened before.
• WHY: The primary purpose of forecasting is to gain insights into the future,
enabling better decision-making in the present. By having a predicted idea of
what might happen, businesses and organizations can:
• Proactively plan and strategize for the future.
• Mitigate risks associated with unexpected changes.
• Optimize resource allocation and utilization.
• Identify potential opportunities and capitalize on them.
•WHO: Businesses of all sizes, Marketers, Economists, Investors

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 FORECASTING
• WHEN: Forecasting is employed in various situations where predicting future
trends or values is crucial. Here are some common examples:
• Sales forecasting: Businesses use forecasts to predict future sales
volume and revenue, which helps with budgeting, inventory management,
and resource allocation.
• Market forecasting: Marketers leverage forecasts to predict market
trends, consumer behavior, and competitor activity, informing marketing
strategies and product development.
• Economic forecasting: Economists use forecasts to predict economic
growth, inflation rates, and unemployment levels, aiding in formulating
economic policies.
• Financial forecasting: Investors utilize forecasts to predict future stock
prices, interest rates, and currency exchange rates, guiding investment
decisions.

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 FORECASTING
• WHERE: Forecasting is applicable across various industries and functional
areas within a business. Some specific examples include:
• Retail: Forecasting product demand to optimize inventory levels and
prevent stockouts.
• Manufacturing: Predicting production needs to ensure efficient use of
resources and timely delivery of products.
• Healthcare: Forecasting patient admissions and resource requirements
to manage hospital capacity effectively.

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 FORECASTING
• HOW: There are various forecasting methods, but they all share some
common elements:
1. Data Collection: Gather historical data relevant to what you're trying to
forecast (e.g., sales figures, market trends, economic indicators).
2. Model Selection: Choose a forecasting model that aligns with the data
and the type of prediction you need. Common models include moving
averages, exponential smoothing, and regression analysis.
3. Model Fitting: Apply the chosen model to the historical data to establish
a mathematical relationship that captures the underlying trends.
4. Forecasting: Use the fitted model to generate predictions for future
values.
5. Evaluation: Monitor the accuracy of the forecasts over time and refine
the model as needed.

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 EXAMPLE OF FORECASTING
An example of a quantitative forecasting model is the Time Series
Model. In a retail setting, suppose a store wants to prepare for the
holiday season. By utilizing a time series model, the store can
analyze sales data from previous years to forecast demand for
various products accurately. This analysis enables the store to
manage inventory efficiently by ensuring they neither run out of
popular items nor overstock items that do not sell well. The time
series model leverages historical sales data to predict future
trends, allowing businesses to make informed decisions regarding
inventory management and product demand forecasting.

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REGRESSION ANALYSIS
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 REGRESSION ANALYSIS
• WHAT: Regression analysis is a statistical technique for modeling the relationship
between a dependent variable (what you're trying to predict) and one or more
independent variables (factors that influence the dependent variable). It helps us
understand how changes in the independent variables affect the dependent
variable.
• WHY: The primary reasons to use regression analysis include:
• Prediction: Once a regression model is established, it can be used to predict
the value of the dependent variable based on the values of the independent
variables.
• Explanation: By analyzing the coefficients of the model, we can gain insights
into the strength and direction of the relationships between the variables.
• Control: In some cases, regression analysis can help us isolate the effect of
one variable on another while controlling for external factors.
•WHO: Data Analysts, Scientists, Economists, Marketers, Researchers
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 REGRESSION ANALYSIS
• WHEN: Regression analysis is applied in various scenarios where we want to
quantify the relationship between variables and use that knowledge for
prediction or explanation. Here are some examples:
• Marketing: A marketing team might use regression analysis to understand
how advertising spending influences sales figures.
• Finance: An investment advisor might use it to model the relationship
between stock prices and various economic indicators.
• Science: A scientist might use it to study how fertilizer application affects
crop yield.
• WHERE: Regression analysis finds application in numerous fields:
• Business: Understanding the factors that influence sales, customer
churn, or product pricing.
• Healthcare: Predicting patient risk factors or analyzing the effectiveness
of medical treatments.
• Social Sciences: Examining the relationships between social phenomena
like poverty, education, and crime rates. 22
 REGRESSION ANALYSIS
• HOW: The core steps involved in regression analysis are:
1. Data Collection: Gather data on the dependent variable and the
independent variables you believe might influence it.
2. Model Selection: Choose a regression model that aligns with the data
and the research question. Common models include linear regression,
logistic regression, and polynomial regression.
3. Model Fitting: Use statistical methods to estimate the coefficients of the
model that best fit the data. These coefficients represent the magnitude
and direction of the influence of each independent variable on the
dependent variable.
4. Evaluation: Assess the accuracy and goodness-of-fit of the model. This
involves checking for statistical significance and ensuring the model's
predictions are reasonably aligned with the actual data.
5. Interpretation: Analyze the coefficients to understand how changes in
the independent variables affect the dependent variable.

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 EXAMPLE OF REGRESSION ANALYSIS
An example of regression analysis can be seen in finance, where it
is used to determine the relationship between variables and make
predictions. For instance, in asset valuation, regression analysis
helps investment managers understand the relationships between
factors like commodity prices and asset prices. Linear regression, a
common form of this technique, establishes a linear relationship
between variables based on a line of best fit.

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REFERENCES
https://hbr.org/2015/11/a-refresher-on-regression-analysis
https://surveysparrow.com/blog/regression-analysis/
https://www.statisticshowto.com/probability-and-statistics/regression-analysis/
https://www.indeed.com/career-advice/career-development/example-of-forecast
https://joinhomebase.com/blog/forecasting-models/
https://corporatefinanceinstitute.com/resources/financial-modeling/forecasting-
methods/
http://www.netmba.com/operations/project/pert/
https://queue-it.com/blog/queuing-theory/
https://www.qminder.com/blog/queue-management/queuing-theory-guide/
https://corporatefinanceinstitute.com/resources/accounting/queuing-theory/
https://www.whitman.edu/documents/academics/majors/mathematics/berryrm.pdf

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