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Operations Management (Forecasting)

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A manager receives a forecast for next year. Demand is projected to be 600 units for the first half of the year and 900 units for the second half. The monthly holding cost is $2 per unit, and it costs an estimated $55 to process an order.

a. Assuming that monthly demand will be level during each of the six-month periods covered by the forecast (e.g., 100 per month for each of the first six months), determine an order size that will minimize the sum of ordering and carrying costs for each of the six-month periods.

b. Why is it important to be able to assume that the demand will be level during each six-month period?

c. If the vendor is willing to offer a discount of $10 per order for ordering in multiples of 50 units (e.g., 50, 100, 150), would you advise the manager to take advantage of the offer in either period? If so, what order size would you recommend for each of the six-month periods?

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Solution Preview

A manager receives a forecast for next year. Demand is projected to be 600 units for the first half of the year and 900 units for the second half. The monthly holding cost is $2 per unit, and it costs an estimated $55 to process an order.

a. Assuming that monthly demand will be level during each of the six-month periods covered by the forecast (e.g., 100 per month for each of the first six months), determine an order size that will minimize the sum of ordering and carrying costs for each of the six-month periods.

EOQ = SQRT [ 2 x demand x ...

Solution Summary

Operations management forecasting for the next year is examined. The importance to be able to assume that the demand will be level during each six-month period is determined.

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See Also This Related BrainMass Solution

Operations Management- Capacity & Forecasting

Question:
As we increase productivity we still need to consider how to deal with capacity as our demand increases. I am asking all Product Managers to do a capacity analysis in their areas of responsibility and develop both a short-term and long-term plan. As we begin to feel the crunch in the short-term, we can implement some of the ideas you propose in the short term plan, while at the same time, I will begin to have the Executive team consider the options for long term investment and capacity expansion. Your input on this matter is extremely important. I am looking for a thorough review and a plan with your recommendations and justification.

Specifics:

Analyze the capacities including the rates of production, the amount of physical space and needs for equipment and people. At what level of capacity are these processes operating? What are some of the possible bottlenecks?
What impact does the forecast have on future capacity needs? What are the implications if the forecast is inaccurate (too high or too low?)
What are some possible ways of increasing capacity and what are the implications for the short term and long term such as costs and investment in capital?
Determine a plan for the capacity situation in the Plasti-brack product line.
Justify your plan based on the concepts of capacity management.

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