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# Question 5: Forecasting (8 p) The table below shows the demand (in units per quarter) of...

Question 5: Forecasting (8 p)

The table below shows the demand (in units per quarter) of a specific product in the past three years.

 Quarter Year 1 2 3 4 2015 350 254 176 228 2016 367 258 169 236 2017 342 250 166 228

Predict demand in quarter 1 and quarter 2 of 2018, given that the demand forecast for the whole year is a total of 1,040 units.

Question 6: DRP (8 p)

A central DC supplies a specific product to the regional DCs A and B.

A has a planned order release of 150 units in week 3, 4 and 5.

B has a planned order release of 125 units in week 2, 3 and 4.

Complete the DRP schedule of the central DC (below). You don’t have to consider a safety stock.

Lot size = 250 (or multiple)

 Week 1 2 3 4 5 Gross requirements - In transit - 250 - - - - Projected available 50 Planned order release -

Question 7: Optimal lot size (6 p)

The expected quantity required for a certain component is 6,400 units per year. It is made for 16 euros each (value), within the own factory. The machine in question has a production speed of 25,600 units per year. Set a year equal to 320 days. The setup costs are 80 euros per changeover. The inventory costs per item are 10% per year over the value of the component. Calculate the optimal lot size, that minimizes the total costs per year.

Question 8: Service level (4 + 8 p)

A store orders products from its supplier 10 times a year (on average). The expected annual demand is 4,000 units. Set a year equal to 50 weeks.

The store manages the stock with the order point system. The weekly demand is normally distributed with a standard deviation of 15 units. The supplier has a delivery time of 2.5 weeks. It costs the store 12 euros to keep 1 product in stock for a year.

a. Calculate the order point if the store wants to achieve a service level SL1 of 94%.

b. The store is taken over by an ambitious chain that only wants to accept an expected shortage of 4 units per year. Calculate the total inventory costs per year for this new situation.

Question 9: Case (2 x 10 p)

Read the text about Valcon in the appendix and answer the following questions. Do not quote extensively from the text, but use your own words (with the correct terms) as well as your knowledge and understanding (that you acquired through studying theory).

a. One of the measures taken was to improve the RCCP. Explain what RCCP is and why it had to be improved in this company.

b. Valcon has not only improved the RCCP, but also the scheduling (the text explains to some degree how this has been done). As you know, scheduling is a part of Production activity control.

Imagine you would be the consultant. Give two advices (that are not found in the text) how Production activity control can be applied in a company like this.

Appendix. Valcon: production planning improvement for a manufacturer

The client of Valcon is a leading farm equipment manufacturer, with a significant presence in the Europe and American markets. Due to low cost production and also because of increased awareness about scientific farming in India, the client set up a manufacturing facility in India during the last decade. Almost up to 70% of the volume is for the export market.

The challenge

The business model of the client was “make to order”. With the delivery lead time of at least three months from the date of receipt, and a large number of SKUs (close to 500) in one production setup, the client was struggling to meet the customer commitments. The main challenge was the poor production planning methodology prevalent in the company. The client approached Valcon for improving production planning and also developing a system which gives more clarity on customer deliveries and raw material procurement from the suppliers.

The solution                                                                                                                                                                 Valcon identified some complexities in the business nature of the client like large number of SKUs and product families, with each SKU having a different production routing and process. There were no dedicated machines allocated based on the product family. Rough cut capacity planning (RCCP), production scheduling and material planning were identified for improving the planning process. In order to improve rough cut capacity planning, the average demand was established for each SKU. Cycle times were measured and the machines required to meet average demand were computed.

Machines were dedicated based on product families and their respective demands. To ensure optimum utilization of bottleneck resource production, the scheduling process with respect to the bottleneck process was adopted. Valcon identified the bottleneck in the production routing and the production lead time required to meet the customer order. Capacities were booked in the bottleneck process and all operations at the preceding manufacturing stations were planned for smoother flow. As a result of good RCCP and scheduling, the clarity on material requirement improved. This helped in timely placement of production order based on lead time for supply by the respective supplier.

The result                                                                                                                                                                                 The outcome of RCCP process provided better clarity to the client in terms of determining average number of machines required for each product family, clarity on processes which have to be outsourced due to lack of capacity and also a roadmap for future investment to alleviate the bottleneck and hence enhance the capacity. Production scheduling allowed the client to have better clarity about operations, throughput time and also ability to forecast activities relating to machine maintenance.

Solution (5):

Based on the given information, let us first calculate the % demand in each of the quarter. The formula that we are going to use for that is Total Demand in a given quarter / Total Demand in a year. Based on this the values are:

 Quarter/Year 1 2 3 4 2015 34.7% 25.2% 17.5% 22.6% 2016 36.4% 25.6% 16.8% 23.4% 2017 33.9% 24.8% 16.5% 22.6% Average 35.0% 25.2% 16.9% 22.9%

Now, as the total demand for year 2018 is given as 1,040. Using this the demand for:

Quarter 1 = Total Demand*Average for quarter 1 = 1,040*35% = 364.

Quarter 2 = Total Demand*Average for quarter 2 = 1,040*25.2% = 262.