M&L Manufacturing CASE M&L Manufacturing makes various components for printers a
ID: 429315 • Letter: M
Question
M&L Manufacturing CASE
M&L Manufacturing makes various components for printers and copiers. In addition to supplying these items to a major manufacturer, the company distributes these and similar items to office supply stores and computer stores as replacement parts for printers and desktop copiers. In all, the company makes about 20 different items. The two markets (the major manufacturer and the replacement market) require somewhat different handling. For example, replacement products must be packaged individually whereas products are shipped in bulk to the major manufacturer.
The company does not use forecasts for production planning. Instead, the operations manager decides which items to produce and the batch size, based on orders and the amounts in inventory. The products that have the fewest amounts in inventory get the highest priority. Demand is uneven, and the company has experienced being overstocked on some items and out of others. Being understocked has occasionally created tensions with the managers of retail outlets. Another problem is that prices of raw materials have been creeping up, although the operations manager thinks that this might be a temporary condition.
Because of competitive pressures and falling profits, the manager has decided to undertake a number of changes. One change is to introduce more formal forecasting procedures in order to improve production planning and inventory management.
With that in mind, the manager wants to begin forecasting for two products. These products are important for several reasons. First, they account for a disproportionately large share of the company’s profits. Second, the manager believes that one of these products will become increasingly important to future growth plans; and third, the other product has experienced periodic out- of-stock instances.
The manager has compiled data on product demand for the two products from order records for the previous 14 weeks. These are shown in the following table.
Week Product 1 Product 2
1 50 40
2 54 38
3 57 41
4 60 46
5 64 42
6 67 41
7 90* 41
8 76 47
9 79 42
10 82 43
11 85 42
12 87 49
13 92 43
14 96 44
*Unusual order due to flooding of customer’s warehouse.
Questions
1.What are some of the potential benefits of a more formalized approach to forecasting?
2.Prepare a weekly forecast for the next four weeks for each product. Briefly explain why you chose the methods you used. (Hint: For product 2, a simple approach, possibly some sort of naive/ intuitive approach, would be preferable to a technical approach in view of the manager’s disdain of more technical methods.)
Explanation / Answer
1. The potential benefits of a more formailized approach to forecasting are:
a. production planning will be done as per demand and not as per which items to produce and the batch size, based on orders and the amounts in inventory. This will be a rational process.
b. The problem of being overstocked and/or understocked will be solved.
c. forecasting will see a more scientific approach to draw production plan in the future. This will help manage the problem of rising cost of raw materials in the future.
2. For the 1st product we will use a moving average method. This method will take care of random demand fluctuations. We will use a 7 day maoving average.
For the 2nd product, a simple method is required. We will use the naive method of forecasting. Under this method, all forecasts are simply set to be the value of the last observation.
Forecast for period 15 is the actual value of period 14 = 44.
Week Product 1 7 day total 7 day average 1 50 2 54 3 57 4 60 5 64 6 67 7 90 442 63.14 8 76 468 66.86 9 79 493 70.43 10 82 518 74.00 11 85 543 77.57 12 87 566 80.86 13 92 591 84.43 14 96 597 85.29 15 85.29 606.29 86.61 16 86.61 613.90 87.70 17 87.70 619.60 88.51 18 88.51 623.11 89.02Related Questions
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