Solutions to Exercises for Chapter 11 MBA 6150 Schvaneveldt By receiving this document, you agree to use these solutions for your own study only and to not share or distribute them to anyone who is not currently enrolled in this semester's section of MBA 6150, Thope that these solutions are helpful to you in your study efforts. Chapter 11 Demand Management and Forecasting DA,S P.2,7, 11,27 SuperQuiz D-1. Examine Exhibit 11.3 and suggest which model you might use for (1) bathing suit demand, (2) demand for new houses, (3) electrical power usage, (4) new plant expansion plans. While any of the models in Exhibit 11.3 can potentially be used to forecast any of the items, the following models are generally appropriate: (1) Bathing suit demand could be forecasted using seasonal factors to get an advance idea of what demand might be since there is such a pronounced seasonality to the nature of the product demand. Also usefil would be exponential smoothing, since the time horizon is short, model complexity and cost is low, model accuracy is fair and data requirements are very low. (2) Demand for new houses can be forecasted using linear regression. The time horizons are long, model complexity is medium high, model accuracy is medium high and data requirements are high. (3) Causal regression models might be used to forecast electrical power usage. The time horizon is long, model complexity is fairly high, model accuracy is high and data requirements are high, (4) New plant expansion plans can be forecast using qualitative forecasting techniques. This takes into account non-quantifiable issues when planning plant expansion. D-5. What strategies are used by supermarkets, airlines, hospitals, banks, and cereal manufacturers to influence demand? ‘The methods used primarily relate to changing the pricing to differentiate between peak and off-peak demand and to changing the promotion in terms of type and level Supermarkets—sale items; sales on certain days only, double coupons on certain days only, free giveaway items (such as a dozen eggs or a loaf of bread), rewards cards, special rewards promotions on certain types of purchases, ete. Airlines— off-season or off-peak rates, lower rates for advance purchase, age discount rates (senior citizens, children, youth fares), frequent flier mile bonuses or promotions for new destinations, frequent flier mile discounts for certain times or places, charter flights, more flights, tie-in with hotels or auto rental, and tour agencies for “package tours,” free champagne, free stop-over at a third point. Hospitals—patients generally go to the hospital recommended by their physician. Therefore, hospitals offer perks such as office space, staff positions, and patient billing to physicians. Hospitals sometimes advertise their occupancy rate and room rates or advertise the waiting time for emergency room service, which tend to influence demand. Also, they could become a preferred provider organizationBanks—changing the interest rates for deposits or for loans to be more attractive or to motivate customers toward certain types of accounts, lower fees for certain types/places of transactions, limits on certain types of transactions, free gifts for new accounts, free checking, free safety deposit box, free use of “executive lounges” for depositors in various size account ranges, community rooms for club meetings. Cereal manufacturers—coupons and sales, TV advertising, sponsorship of some youth events, free prizes in cereal boxed, using prime display space. P2 a. Fray = .60(15) + 30(16) + .10(12) = 15.0 b. Fuy=(15 +16 + 12)/3= 143 ©. Bia = Frine + 0(Aswe ~ Fiore) = 13 +.2(15-13) = 13.4 x y xy 1 mz 12 «20 2 uo 4 3 3 459 4 12 48 16 5 16 8025 6 15 9036 Total__21 8129791 35 13.5 07 108 ¥bx= 108+ .77x 4. yy, where July is the 7 month. Yat bx=108+.71(1)= 162‘Average from same quarterly Seasonal Deseasonalized xtdeseasonalized x y period factor demand 2 demand 1 1601875 1.003 159.47 1 159.47 2 198 2178 1.164 167.54 4 335.09 3 150-1778 0.950 157.92 9 437 4 140 165.0 0.883 158.56 16 634.24 5 25 1.003 214.28 25 1071.42 6 240 1164 206.21 36 1237.24 7 205 0950 215.83 49 1510.79 Gt) 0.883, 215.18 64 ¥721.82 | Total 36 1495 1495.00 204 7143.53 Fe 186.875 Pt 45 991 142.30 Period Yy Seasonal Forecast factor 9 23145 1.003, 232 | 10 24135 1.164 281 11 25126 0.950 239 12_261.17 0.883 231Pal a-c. For the exponential smoothing forecast we need a beginning forecast for March and an a. For the beginning forecast use the average of the first three periods and select « produce different answers Jamary February March April May June uly ‘August September MAD 110 130 150 170 160 180 140 130 140 3-Mo. Absolute ‘Month Demand MA Deviation Smoothing Deviation 130 150 160 170 160 150 z 40 10 20 30 30 10 3 130.00 136.00 34.00 14620 13.80 15034 29.66 15924 19.24 153472347 146.43, 643 21.1 30. Other choices will Exponential Absolute Based upon MAD, the exponential smoothing model appears to be the best. came using LINEST function in Microsoft Excel. Sales Price Advertising Fitted Values 400 280 600 451.72 700 21s 835 97721 900 aun 1100 1090.98 1300 210 1400 1198.40 1150 215 1200 1095.85 1200 200 1300 1231.99 900 25 900 929.25 1100 207 1100 1118.62 980 20 700 898.79 1234 2u1 900 1025.98 925 2 700 850.42 800 24s 690 722.80 Constant 191.3374 Price 6.9094 Advertising 0.3250 Paathx, +b,x, =2191.3374-6.9094x, +.3250x,bi =slope of price advertising lope of advertising . Price has a large effect on sales because it slope value is much higher (-6.9094 versus 3250). Price actually has a negative effect since raising price decreases sales. ce. Sales = 2191.3374 - 6.9094 (300) + 3250 (900) Sales= 411.04 SuperQuiz ‘Compare your answers with the Answer Key provided at the end of the quiz in the textbook.