MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise1: The costs of producing the goods sold by a manufacturing operation last
year were 3,200,000. It carries 7 items in inventory, as shown in the following table.
A) What is the average aggregate inventory value?
B) What weeks of supply do the firm maintain?
C) What was the inventory turnover last year?

Part No:
1
2
3
4
5
6
7

Average Level
Unit Value
15000
2500
3000
6000
4000
2500
1000

Total Value
2.50
5.00
0.90
12.50
17.50
47.50
62.00

MMC203 Week 6 Exercises Page 1 of 7

MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise 2: A company purchases one of its raw materials from 3 suppliers. The
current policy is to split purchases equally between the 3 suppliers. A new Purchasing
Manager joins the company and proposes that the suppliers be rated on performance
(high numbers represent good performance). 6 performance criteria are used as
shown in the following table, and these are weighted. A threshold total score of 0.60 is
proposed to screen suppliers. Purchasing policy will be revised to order raw materials
from suppliers with performance scores greater than the threshold score, and orders
will be placed in proportion to their performance rating scores.
1) Calculate the total weighted score for each supplier.
2) Which suppliers achieved greater than the threshold scores? What proportion of
orders did each supplier receive?
3) What advantages does the proposed policy have over the current policy?
Performance Criteria

Weight
Supplier A

Price
Quality
Delivery
Production Facilities
Warranty and Claims Policy
Financial Position

Performance Criteria
Price
Quality
Delivery
Production Facilities
Warranty & Claims Policy
Financial Position
TOTALS

Supplier C

0.2
0.2
0.3
0.1

0.6
0.6
0.6
0.5

0.5
0.4
0.3
0.9

0.9
0.8
0.8
0.6

0.1
0.1

0.7
0.9

0.8
0.9

0.6
0.7

Wght
0.2
0.2
0.3
0.1
0.1
0.1

Ratings
Supplier B

Supplier A
S(A) W * S(A)
0.6
0.6
0.6
0.5
0.7
0.9

Ratings
Supplier B
S(B) W * S(B)
0.5
0.4
0.3
0.9
0.8
0.9

MMC203 Week 6 Exercises Page 2 of 7

Supplier C
S(C) W * S(C)
0.9
0.8
0.8
0.6
0.6
0.7

MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise 3: GENcom believes its product demand may be strongly influenced by its
advertising campaigns, and by the price of competitor products. The company wishes
to improve its product demand forecasts, and to do this it wants to determine which
variable has the greatest cause and effect influence on product demand. The 3
predictive (independent) variables to be considered are time (in years), advertising
spend (in K) or competitors average yearly product prices (in ). The company has
8 years of data available, and this is given in the following table. Complete the
calculations of the correlation coefficients and choose the one that has the greatest
degree of relationship. What are the coefficients of determination and nondetermination and how can you interpret these coefficients?
Demand
K
Y

(X1) (X1Y)

Time
Years
(Y2)

(X12)

(X2)

Advertising Spend
K
(X2Y)
(Y2)
(X22)

Competitors Average Price

(X3) (X3Y)
(Y2)
(X32)

378

81

130

491

100

100

547

117

90

524

105

95

485

98

110

391

83

120

417

90

110

685

151

112

3918

36

825

867

Predictive Variable: Time

Correlation coefficient. r =
Coefficient of determination =
Coefficient of non-determination =
Predictive Variable: Advertising Spend
Correlation coefficient. r =
Coefficient of determination =
Coefficient of non-determination =
Predictive Variable: Competitors Average Price
Correlation coefficient. r =
Coefficient of determination =
Coefficient of non-determination =

But remember that the quality of a forecast is very dependent upon

the quality of the information it is based on.
MMC203 Week 6 Exercises Page 3 of 7

MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise 4: Having identified a causal link between its advertising spend and product
demand figures, GENcom intend to produce a mathematical model of the relationship.
Use linear regression to create a linear trend model. Use your model to predict the
number of units required next year if GENcoms advertising budget has been set at
140,000.

Demand
(K Units)

Y
(X2)
378
81
491 100
547 117
524 105
485
98
391
83
417
90
685 151
3918 825

Advertising Spend
(K)
(X2Y)
(Y2)
(X22)
30618
142884
6561
49100
241081
10000
63999
299209
13689
55020
274576
11025
47530
235225
9604
32453
152881
6889
37530
173889
8100
103435
469225
22801
419685 1988970 88669

MMC203 Week 6 Exercises Page 4 of 7

MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise 5: Given below are the monthly demand figures for a particular product.
Month
Demand 3 month averages 6 month averages
January
75
February
78
March
81
April
92
May
108
June
116
July
110
August
108
September 92
October
87
November 78
December 72
(a) calculate the 3 month moving averages for the data
(b) calculate the 6 month moving averages for the date
(c) Which appears to be more stable? Why?

MMC203 Week 6 Exercises Page 5 of 7

MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise 6: A manufacturing company is assessing different forecasting methods. In

the following table is a series of weekly demands for Product A, and the forecasts
produced by two forecasting methods under consideration.
Demand
536
590
554
622
718
673
640
595
542
588

Forecast Model 1
575
600
580
595
610
625
630
640
600
605

Forecast Model 2
550
580
545
600
670
645
650
645
565
570

(d) Compute the MAD for each forecast model

(e) Compute the MSE for each forecast model
(f) Which forecast model do you think is better and why?
Demand

Forecast
Model 1
536
575
590
600
554
580
622
595
718
610
673
625
640
630
595
640
542
600
588
605
TOTALS

a-f

(a-f)2

Forecast
Model 2
550
580
545
600
670
645
650
645
565
570

MMC203 Week 6 Exercises Page 6 of 7

a-f

(a-f)2

MMC203: Manufacturing Planning & ControlWeek 6 Exercises Handout

Exercise 7: How would you judgmentally classify the following inventory items to
differentiate their relative volume costs?
Item
X231
X232
X425
X437
X198
X199
Total

Item
Cost
()
450
660
15
11
0.60
0.55

Annual
Demand
(units)
50
25
600
500
1000
1,500

Total Annual
Volume Cost ()

%
Volume Cost

ABC Class

(a) What percentage of total materials management resources should be allocated

to each of the 3 classes?
(b) If the materials management (inventory control) budget is 10,000, how much
should be allocated to each class of items?

MMC203 Week 6 Exercises Page 7 of 7