OPERATIONS

MANAGEMENT

TERM II Assignment

Name: Ananya Roy

Registration No: 180101616017
1. A sales analyst is interested in forecasting weekly firm sales in thousands of units. The analyst collects
15 weekly observations in 2018 as recorded below:

- Compute the forecast for the period 16 using 4 period moving average.
- Compute the forecast for the period 16 using weighted moving average taking the weights as 0.4 for
the most recent period, 0.3 for the next most recent ,0.2 for the next and 0.1for the next period.
- Compute the forecast for the period 16 using exponential smoothed series of forecasts, considering α =
0.4 and α = 0.8.
- Forecast for the period 16 , 17 and 18 using linear trend method.
- Compute the MSE, MAD, MAPE and tracking signal for the original data and conclude which method
might be best suitable and why?
Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Sales 925 940 924 925 912 908 910 912 915 924 943 962 960 958 955

Solution:

A. Moving Average (F4) = avg. of most recent observation values =

(962+960+958+955)/4= 958.75

B. Weighted Moving Avg. (F4) = Wt-1(At-1)+Wt-2(At-2)+ ……

Where At= observation value and Wt=Weight

F4= .4(962) +.3(960)+.2(958)+.1(955) =384.8+288+191.6+95.5=959.9

C. Exponential Smoothed Forecasts

Case 1 Where alpha =0.4

Then,

Forecast value for observation 15(F15) = 952.55, Actual Value (A15) =955

Forecast Observation Value (F16) = F15+Alpha (A15-F15)

= 952.55+ 0.4(955-952.55) = 952.55+0.4*2.45 = 952.55+0.98

= 953.53

Case 2 Where Alpha =0.8

Then,

Forecast value for observation 15(F15) = 958.29, Actual Value (A15) =955
Forecast Observation Value (F16) = F15+Alpha (A15-F15)

= 958.29+ 0.8(955-958.29) = 958.29+0.8*(-3.29) = 958.29-2.632

= 955.658

Week
No Sales Forecast
Actual Forecast Value for Alpha = Forecast Value for Alpha =
Value(At) 0.4 0.8
1 925 925 925
2 940 925 925
3 924 931 937
4 925 928.2 926.6
5 912 926.92 925.32
6 908 920.95 914.66
7 910 915.77 909.33
8 912 913.46 909.87
9 915 912.88 911.57
10 924 913.73 914.31
11 943 917.84 922.06
12 962 927.9 938.81
13 960 941.54 957.36
14 958 948.92 959347
15 955 952.55 958.29
16 953.53 955.66

D. Forecast linear trend method

Formula = Ft= a+b*t;

Where a = Value of Ft at t 0, which is the y intercept (a),

b= Slope of the line and t= Forecast Period

a= 909.361 [Using Excel Template/formula +INTERCEPT ()]

b= 2.77 [Using Excel Template/formula +SLOPE ()]

Forecast Period 16:

F16=909.362+2.77*16=953.68Ans

Forecast Period 17:

F17=909.362+2.77*17=956.45Ans
Forecast Period 18:

F18=909.362+2.77*18 =959.22

E. MAD, MAPE, MSE & TS values are given below:

All forecasting methods are correct on their own. Every forecast method can’t be fit in

each forecast evaluation. Each method has its own benefits for example:

If your data are in dollars, then the MSE is in squared dollars. Often you will want to

compare forecast accuracy across a number of time series having different units. In this

case, MSE makes no sense. The MAPE (mean absolute percentage error) is not scale-

dependent and is often useful for forecast evaluation. However, it has a number of

limitations. The MAD (mean absolute deviation) is just another name for the MAE (mean

absolute error). It is also scale-dependent and so cannot be used for comparisons across

series of different units.

Mean Squared Error (MSE) Mean Absolute Deviation (MAD)

Sales Error (At-Ft)^ 2 Sales Forecast Error |At-Ft|
Week Alpha = Week Alph Alpha = Alpha =
No Alpha 0.4 Alpha = 0.8 No a 0.4 0.8
1 925 0 0 1 925 0 0
2 940 225 225 2 940 15 15
3 924 49 169 3 924 7 13
4 925 10.24 2.56 4 925 3.2 1.6
5 912 222.61 177.42 5 912 14.92 13.32
6 908 167.75 44.41 6 908 12.95 6.66
7 910 33.31 0.45 7 910 5.77 0.67
8 912 2.14 4.55 8 912 1.46 2.13
9 915 4.5 11.74 9 915 2.12 3.43
10 924 105.54 93.81 10 924 10.27 9.69
11 943 633.23 438.36 11 943 25.16 20.94
12 962 1162.7 537.66 12 962 34.1 23.19
13 960 340.74 6.96 13 960 18.46 2.64
14 958 82.36 2.17 14 958 9.08 1.47
15 955 5.98 10.85 15 955 2.45 3.29
Sum of |At- Sum of |At-
Ft|^2 3045.11 1724.94 Ft|^2 161.94 117.03
 MSE 217.50763 123.2094 MAD 10.79626 7.8017089
Tracking Signal (TS) Mean Absolute Percentage Error (MAPE)
Sales Forecast Error |At-Ft| Sales Forecast Error |At-Ft|
Week Alph Alpha = Alpha = Alpha =
No a 0.4 Alpha = 0.8 Week No Alpha 0.4 0.8
1 925 0 0 1 925 0 0
2 940 15 15 2 940 1.6 1.6
3 924 -7 -13 3 924 0.76 1.41
4 925 -3.2 -1.6 4 925 0.35 0.17
5 912 -14.92 -13.32 5 912 1.64 1.46
6 908 -12.95 -6.66 6 908 1.43 0.73
7 910 -5.77 0.67 7 910 0.63 0.07
8 912 -1.46 2.13 8 912 0.16 0.23
9 915 2.12 3.43 9 915 0.23 0.37
10 924 10.27 9.69 10 924 1.11 1.05
11 943 25.16 20.94 11 943 2.67 2.22
12 962 34.1 23.19 12 962 3.54 2.41
13 960 18.46 2.64 13 960 1.92 0.27
14 958 9.08 -1.47 14 958 0.95 0.15
15 955 2.45 -3.29 15 955 0.26 0.34
Sum of |At- Sum of |At-
Ft|^2 71.33 38.32 Ft|/At*100 17.24 12.50
4.9122090
TS 6.607111 6 TS 1.1492857 0.8336034

2) What are the main functions of operations management within service industries?

Operations management for services has the functional responsibility for producing the services of an
organization and providing them directly to its customers.

The job of operations management (OM), then, consists of all the activities involved in transforming a
product idea into a finished product, as well as those involved in planning and controlling the systems
that produce goods and services. In other words, operations managers manage the process that
transforms inputs into outputs.

The main functions of operations management within service industry:

  Production planning. During production planning, managers determine how goods will be
produced, where production will take place, and how manufacturing facilities will be laid out.
 Production control. Once the production process is under way, managers must continually
schedule and monitor the activities that make up that process. They must solicit and respond to
feedback and make adjustments where needed. At this stage, they also oversee the purchasing
of raw materials and the handling of inventories.
 Quality control. Finally, the operations manager is directly involved in efforts to ensure that
goods are produced according to specifications and that quality standards are maintained.

3) Describe current issues in business that impact operations management?

There are a number of issues that are high priorities of many business organizations. Although not every
business is faced with these issues, many are. Chief among the issues are the following:

• Economic conditions. The lingering recession and slow recovery in various sectors of the economy has
made managers cautious about investment and rehiring workers who had been laid off during the
recession.

• Innovating. Finding new or improved products or services are only two of the many possibilities that
can provide value to an organization. Innovations can be made in processes, the use of the Internet, or
the supply chain that reduce costs, increase productivity, expand markets, or improve customer service.

• Quality problems. The numerous operations failures mentioned at the beginning of the chapter
underscore the need to improve the way operations are managed. That relates to product design and
testing, oversight of suppliers, risk assessment, and timely response to potential problems.

• Risk management. The need for managing risk is underscored by recent events that include the crisis
in housing, product recalls, oil spills, and natural and man-made disasters, and economic ups and downs.
Managing risks starts with identifying risks, assessing vulnerability and potential damage (liability costs,
reputation, demand), and taking steps to reduce or share risks.

• Competing in a global economy. Low labor costs in third-world countries have increased pressure to
reduce labor costs. Companies must carefully weigh their options, which include outsourcing some or all
of their operations to low-wage areas, reducing costs internally, changing designs, and working to
improve productivity.

4) Explain the strategic importance of product and service design.

It has implications for the success and prosperity of an organization which:

 Translates customer want and needs

  Refines existing products/services
 Develops new products/services
 Formulates quality goals
 Formulates cost targets
 Constructs and test prototypes
 Documents specifications

Products and services have typically had strategic implications for the success and prosperity of an
organization. Organizations have become more involved in product and service design or redesign for a
variety of reasons. The main forces that initiate design or redesign are market opportunities and threats.

Main objectives for  Customer satisfaction

product & service
design  Profitability – achieve low costs

 Quality

 Competitiveness

Company needs to take into consideration its capabilities when designing

products & the manufacturing process. This is called designing for operations.

5) Mention the new technologies used in product and process design?

Technology plays an important part in in design and production settings. The use of appropriate
technology can improve the quality and profit for the designer and manufacturer. By using technology
costs can be reduced through using less time and staff to perform tasks and electronic storage tools can
allow things to be manufactured quicker and more accurately.
Research
• The increase in technology in research - The Internet, Scanners, Digital Cameras, Software- word,
publisher, excels etc.

Communication
•The increase in technology in communication- The Internet, Mobile Phones, SMS, Digital Cameras, E-
Mail, Software- word, publisher, excel etc.

Management
• Software such as, Software- e-mail word, publisher, excel etc allow managers to keep track of projects,
costs and employees.

Marketing
• Products can be marketed more quickly and effectively using technology, TV, the Internet, Radio,
Spam Email etc.

Technology used in production

• The use of CAD (computer aided design) CAM (computer aided manufacture) allow products to be
designed and manufactured more quickly and accurately.
• Computer modeling and simulations allow designers to test designs for functionality before investing
in tool up for production.
• Rapid Prototyping (3D printing) allow designers to make models or prototypes of designs quickly.
• In manufacturing settings robot allow products to be manufactured more quickly and without the
need for people completing the tasks involved in manufacture.
• New materials allow designers to make products smaller, cheaper, stronger than before.

Benefits of Technology.
• A need for less employees and lower costs in all stages of design & production.
• Lower running costs once technology is put in place.
• More accurate processes.
• Speed is increased due to electronic tools.
• Larger volumes of production are possible.

Negative Impacts of Technology.

• Initial cost of technology are expensive.
• Fewer jobs available for lower skilled employees.
• Social problems resulting from unemployment.
• Maintenance costs and repair costs of machinery can be expensive.
• Pollution and large scale production tends to lead to environmental problems- not sustainable.