Demand and Resource Planning
OVERVIEW
Congratulations! The work you did in helping Olde World Windows and Doors evaluate their capacity and
throughput challenges was very well received. Management has a much clearer picture of the nature of
the constraints they are experiencing and what options they should consider in addressing them. You are
now ready to move on and tackle demand and resource planning decisions.
The following problems require you to draw on what you have been reading in Krajewski and Malhotra’s Operations Management: Processes and Supply Chains, specifically:
• Chapter 8: Forecasting (pp. 293-319)
• Chapter 9: Inventory Management (pp. 337-364)
• Supplement C: Special Inventory Models (pp.381-389)
• Chapter 10: Operations Planning and Scheduling (pp. 395-415)
• Chapter 11: Resource Planning (pp. 459-485)
DECISION PROBLEM 1: Using Forecasts to Plan for Customer Demand
Reminder:
Managers use forecasts to plan ahead to ensure the company has sufficient products and resources to meet customer demand for the coming month, quarter, or year. Accurate forecasts enable managers to make better purchasing decisions, as well as to develop more efficient resource, staffing, and scheduling plans.
Olde World’s sales manager must make purchasing plans for the private-label products Olde World sells. One of the items the company stocks is SunPro, an add-on that customers buy to spray on their windows and doors for UV protection. The sales of this item are seasonal, with peaks in the spring, summer, and fall months.
Demand (in cases) for the past 12 months at Olde World are listed in the following table:
Month Sales ($) Month Sales ($)
January 2,000 July 5,000
February 2,800 August 5,400
March 3,200 September 6,000
April 3,900 October 5,000
May 4,300 November 3,800
June 4,900 December 3,300
A. Based on the numbers in the table above, forecast the sales (by month) from March through December using a 2-month weighted moving average. Use the weights of (3/4) and (1/4), giving more weight to more recent data.
B. Forecast the sales for the months of March through December using exponential smoothing with α = 0.7 beginning with an initial forecast in January of $3,000 and starting error measurement in March.
C. Using the mean absolute deviation as your performance criterion (with error measurement beginning in March), compare the two forecasting methods you used in A and B. Which method would you recommend as a more reliable predictor? Why?
D. Using the mean percent error as your performance criterion (with error measurement beginning in March), compare the two forecasting methods you used in A and B. Which method would you recommend as a more reliable predictor? Why?
