An Integrated Demand-Supply Problem

Assume that based on past sales information, the following is available regarding the demand from three products, A, B and C from the previous 15 months.

Product | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar |

A | 850 | 884 | 2089 | 1650 | 1194 | 197 | 807 | 853 | 467 | 1384 | 552 | 697 | 700 | 800 | 2100 |

B | 3000 | 2800 | 2920 | 2100 | 2850 | 2800 | 2950 | 2800 | 2900 | 2900 | 2950 | 3200 | 2900 | 3000 | 3100 |

C | 1500 | 500 | 2100 | 600 | 1575 | 525 | 2205 | 630 | 1700 | 550 | 2300 | 660 | 2000 | 700 | 1900 |

First, to determine the annual demand, you can use a suitable basis for this calculation. For example, you could use the last year’s demand as a basis and adjust it by a factor to estimate the current year’s demand. Since you know the demand until March of the current year, you will be estimating demand for the next 12 months i.e. from April until the following March. You could use any other suitable basis for the estimated annual demands.

Second, assume that all three products are purchased from a supplier, and there is a $200 transaction cost for each order. This cost is the same for all three products. Holding cost for inventory of the item is dependent on the value of the product and it is estimated to 5% of the unit cost for Product A, 2% of the unit cost for Product B and 1% of the unit cost for Product C. The full-price paid to the supplier is $53/unit for Product A, $30/unit fir Product B and $2/unit for Product C. In other words, Product C is a much cheaper product than Product A. Assume that you would plan for a steady demand for the products throughout the year but there would be monthly variations as shown in the forecasting assignment. The average lead time of supply, counted as the time between when an order is placed to the supplier to the time when the company receives the order, is 6 days. Assume that the lead time is the same for all three...

Assume that based on past sales information, the following is available regarding the demand from three products, A, B and C from the previous 15 months.

Product | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar |

A | 850 | 884 | 2089 | 1650 | 1194 | 197 | 807 | 853 | 467 | 1384 | 552 | 697 | 700 | 800 | 2100 |

B | 3000 | 2800 | 2920 | 2100 | 2850 | 2800 | 2950 | 2800 | 2900 | 2900 | 2950 | 3200 | 2900 | 3000 | 3100 |

C | 1500 | 500 | 2100 | 600 | 1575 | 525 | 2205 | 630 | 1700 | 550 | 2300 | 660 | 2000 | 700 | 1900 |

First, to determine the annual demand, you can use a suitable basis for this calculation. For example, you could use the last year’s demand as a basis and adjust it by a factor to estimate the current year’s demand. Since you know the demand until March of the current year, you will be estimating demand for the next 12 months i.e. from April until the following March. You could use any other suitable basis for the estimated annual demands.

Second, assume that all three products are purchased from a supplier, and there is a $200 transaction cost for each order. This cost is the same for all three products. Holding cost for inventory of the item is dependent on the value of the product and it is estimated to 5% of the unit cost for Product A, 2% of the unit cost for Product B and 1% of the unit cost for Product C. The full-price paid to the supplier is $53/unit for Product A, $30/unit fir Product B and $2/unit for Product C. In other words, Product C is a much cheaper product than Product A. Assume that you would plan for a steady demand for the products throughout the year but there would be monthly variations as shown in the forecasting assignment. The average lead time of supply, counted as the time between when an order is placed to the supplier to the time when the company receives the order, is 6 days. Assume that the lead time is the same for all three...