Question 12

Question 1

Forecasting

Answer 1

An estimate/prediction of future demand

Question 2

Objective of forecasting

Answer 2

To predict future demand,
* MTS: Forecast on Availability of product.
* MTO: Forecast on Availability of capacity.

Question 3

Forecasting techniques

Answer 3

Qualitative: subjective based on judgment
- Panel
- Delphi (experts)
- Scenario

Quantitative: objective based on statistics
- Intrinsic: demand history
- Extrinsic: causal factors

Question 4

Forecasting techniques in relation to the MPC

Answer 4

Independent demand (forecasted):
- BUS: Qualitative based on personal insight, market survey, historical analogy, and Delphi method.
- PPL: Extrinsic quantitative
- MPS: Intrinsic quantitative

Dependent demand (calculated): MRP

Question 5

Simple average

Answer 5

Sum of demand divided by periods. Not responsive to trends or changes in demand

Question 6

Moving average

Answer 6

Average demand for the last 3-6 periods and use that as the forecast for next period. Weight can be assigned to each period

Moving average is best used for forecasting stable demand with little trend or seasonality

Question 7

Exponential smoothing

Answer 7

Assigns more weight to the most recent data with the smoothing constant α

α is always expressed as a decimal from 0-1 usually within 0,05-0,5. Low smoothing constant puts more weight on old forecast and high smoothing constant put more weight on the latest demand

Question 8

Economic Order Quantity (EOQ)

Answer 8

EOQ is about finding the most cost-efficient order size (Q) considering the total cost. That is the:
* Total cost at its min.
* Ordering cost = carrying cost (intersection)

Often used for C items

Assumes:
1. Demand is relatively constant and known
2. The item is purchased in lots or batches
3. Preparation costs and ordering costs are constant and known
4. Replacement occurs all at once

Question 9

Periodic Order Quantity (POQ)

Answer 9

POQ sets an economic time interval between orders - the order size will vary, and orders are placed to satisfy requirements for the calculated time interval

Better for fluctuating demand

POQ = EOQ / average weekly usage

Question 10

Differences between EOQ and POQ

Answer 10

EOQ assumes demand is stable and uniform and therefore the order size is the same.

POQ assumes demand fluctuates and instead the order size varies to satisfy the demand in the given time interval.

Question 11

The use of EOQ and POQ in purchasing

Answer 11

Used to determine:
* minimum order quantities
* total cost curve

Both are inventory management techniques used to optimize purchasing and inventory costs - tries to minimize the cost of ordering and the cost of carrying inventory

In purchasing the money saved in terms of ordering cost by buying in big batches needs to be traded off to the extra cost of having larger inventories

While EOQ focuses on minimising costs by determining the most economical order size, POQ focuses on timing orders at regular intervals to match demand cycles. Both methods aim to optimise inventory levels and reduce overall costs, but they are applied in different scenarios based on demand patterns and ordering practices