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Ateneo de Davao University

Jacinto St, Davao City

A Case Study of Transportation Problem and Forecasting

In Partial Fulfillment of the Requirements for


Quantitative Business Methods (Math 331)

Submitted by:
Ricalde, Richelle
Kim, Sohee
Gevero, Andrew Christian
Cabugos, Jeson

Submitted to:
Mr. Jose Karlo Caballero
Math 331 MWF 12:25P - 1:25P J205

March 20, 2015


Case 1: Transportation Problem

I. Problem Identification

Mind Mover Auto Top Carriers currently maintains plants in Atlanta and Tulsa that
supply major distributions centers in Los Angeles and New York. Because of expanding
demand, Mind Mover’s has decided to open a third plant and has narrowed the choice to one of
two cities which are New Orleans or Houston.

Mind Mover’s would like to know if the proposed plant and its third location, as a source
of supply, for distributors in Los Angeles and New York will provide low cost in its distribution
expense.

Figure 1.1 shows the total cost for production, distribution demands, and plant capacities.

Los Angeles New york Normal Unit Production


Production Cost (Peso)
Existing Plants
Atlanta 8 5 600 6
Tulsa 4 7 900 5
Proposed Location
New Orleans 5 6 500 4(anticipated)
Houston 6 6 500 3(anticipated)
Forecast Demand 800 1200 2000

See Appendix [ ] & [ ] for the comparative solution.


II. Objectives

The main objective of this case is to show a concise comparative solution of distribution
cost from the existing plants vs. the proposed plant, using the transportation model. Through this,
Mind Mover’s will identify if the proposed location for its third plant of supply to its distributors,
will a have an advantage from the minimal cost outcome on its distribution expense, or if it will
have a disadvantage on their end to pursue because of its anticipated high cost outcome from its
distribution expense.

III. Areas of Consideration

a.) To consider and calculate the actual total cost of production of the existing plants in
Atlanta and Tulsa, arriving in its overall distribution cost. (See Appendix [ ] for solution).

b.) To consider and calculate the anticipated total cost of production of the new proposed
plant locations in New Orleans and Houston, arriving in its overall anticipated
distribution cost. (See Appendix [ ] for solution).
IV. Data and Solutions

Appendix [ ] , Existing Plant


Los Angeles New York Plant Supply Capacity
Atlanta 14 11 600

Tulsa 9 12 900

Distributors Demand 800 1200

Appendix [ ]
Los Angeles New York Plant Supply Capacity
Atlanta 600 14 11 600

Tulsa 200 9 700 12 900

Dummy 0 500 0 500

Distributors Demand 800 1200 2000

Total Cost:
600(14) + 200(9) + 700(12) = 18,000
Improvement Index:
NY1 = 11 – 12 + 9 – 14 = -6
LA3 = 0 – 9 + 12 – 0 = 3
Appendix [ ]

Los Angeles New York Plant Supply Capacity


Atlanta 14 600 11 600

Tulsa 800 9 100 12 900

Dummy 0 500 0 500

Distributors Demand 800 1200 2000

Total Cost:
600(11) + 800(9) + 100(12) = 15,000
Improvement Index:
NY1 = 15 – 9 + 12 – 11 = 6
LA3 = 0 – 9 + 12 – 0 = 3
Appendix [ ], Proposed Plant Location

Los Angeles New York Plant Supply Capacity


New Orleans 500 9 10 500

Houston 300 7 200 9 500

Dummy 0 1000 0 1000

Distributors Demand 800 1200 2000

Total Cost:
500(9) + 300(7) + 200(9) = 8,400
Improvement Index:
NY1 = 10 – 9 + 7 – 9 = –1
LA3 = 0 – 7 + 9 – 0 = 2
Appendix [ ]
Los Angeles New York Plant Supply Capacity
New Orleans 300 9 200 10 500

Houston 500 7 9 500

Dummy 0 1000 0 1000

Distributors Demand 800 1200 2000

Total Cost:
300(9) + 200(10) + 500(7) = 8,200
Improvement Index:
NY3 = 9 – 0 + 0 – 7 = 2
LA3 = 0 – 9 + 10 – 0 = 1
V. Recommendation

Base on the solutions and data gathered viewed on appendix [ ] and comparing to the data
gathered viewed on appendix [ ], the actual total cost of distribution at Los Angeles and New
York from plants in Atlanta and Tulsa, it amounted at $15,000. However, if Mind Mover’s will
pursue and continue building a plant on either of the said locations which are in New Orleans
and Houston, with data shown in appendix [ ], it anticipated a distribution cost amounting to
$8,200 only. In conclusion, it is highly suggested that Mind Mover’s should continue expanding
to either of the said proposed locations (New Orleans and Houston).
Case 2A: Forecasting

I. Problem Identification

Mickey Mouse Supply Corporation provides different types of products to its customers. The
current sellable product that they offer is the Industrial vacuum cleaners.

Sales of Industrial vacuum cleaners at Mickey Mouse Supply Co. over the past 13 months are as
follows:

Sales(P1,000) Month Sales(1,000) Month


11 January 14 August
14 February 17 September
16 March 12 October
10 April 14 November
15 May 16 December
17 June 11 January
11 July

1.) Mickey Mouse Supply Corporation would like to estimate the demand of their vacuum
cleaners for the next February, using a moving average with four periods. Refer to Appendix A1.

2.) Using a weighted moving average with three periods, the corporation would like to determine
the demand for its vacuum cleaners for February. Using 3, 2, and 1 for the weights of the most
recent, second most recent, and third most recent periods, respectively. For example, if you were
forecasting the demand for February, November would have a weight of 1, December would
have a weight of 2 and January would have a weight of 3. Refer to Appendix A2.

3.) MMSC would like to evaluate accuracy of these methods using mean absolute percent error
(MAPE). Refer to Appendix A3
4.) What other factors might Mickey Mouse consider in forecasting sales? Refer to Appendix A4

II. Objectives

The objective of this case study is to let the managers reduce the uncertainty and make better
estimates of what will happen in the future using the forecasting’s moving average method.

III. Areas of Consideration

a.) To consider the provided assumption period in calculating the weighted moving average in
order to determine the accuracy of forecasted demand. Refer to Appendices A
(wala nako madagdag Jeson… Ikaw nalang dagdag if may maisip ka pa).
IV. Data and Solutions

Appendix 1.1 – Forecast for February using 4 month moving average

𝑶𝑪𝑻 + 𝑵𝑶𝑽 + 𝑫𝑬𝑪 + 𝑱𝑨𝑵


𝟒
𝟏𝟐 + 𝟏𝟒 + 𝟏𝟔 + 𝟏𝟏
𝟒
𝟓𝟑
𝟒
= 13.25

Appendix 1.2 – Forecast for February using 3 month weighted moving average

𝐀𝐜𝐭𝐮𝐚𝐥 𝐬𝐚𝐥𝐞𝐬 𝐨𝐟: 𝑱𝑨𝑵𝑼𝑨𝑹𝒀(𝟑) + 𝑫𝑬𝑪𝑬𝑴𝑩𝑬𝑹 (𝟐) + 𝑵𝑶𝑽𝑬𝑴𝑩𝑬𝑹(𝟏)


𝟔

𝟏𝟏(𝟑) + 𝟏𝟔(𝟐) + 𝟏𝟒(𝟏)


𝟔
= 13.16666667

= 13.17
Appendix 2.1 Mean Absolute Percentage Error for 4 month moving average

Month Actual Forecast Error error


 actual

May 15 12.75 2.25 0.15


June 17 13.75 3.25 0.1911765
July 11 14.5 -3.5 0.3181818
August 14 13.25 0.75 0.0535714
September 17 14.25 2.75 0.1617647
October 12 14.75 -2.75 0.2291667
November 14 13.5 0.5 0.0357143
December 16 14.25 1.75 0.109375
January 11 14.75 -3.75 0.3409091
error 1.5898595
 actual

error
 actual 1.5898595
MAPE  100% MAPE  100% = 17.67
n 9
Appendix 2.2 – Mean Absolute Percentage Error for 3 month weighted moving average

Month Actual Forecast Error error


 actual

April 10 14.5 -4.5 0.45


May 15 12.67 2.33 0.16
June 17 13.5 3.5 0.21
July 11 15.17 -4.17 0.38
August 14 13.67 0.33 0.02
September 17 13.5 3.5 0.21
October 12 15 -3 0.25
November 14 14 0 0.00
December 16 13.83 2.17 0.14
January 11 14.67 -3.67 0.33
error 2.14
 actual

error
 actual 2.14
MAPE  100% MAPE  100% = 21.4
n 10

Appendix A4
Promotional activity if successful this should be affecting demand of product, Its timing should
affect its sales forecast risks (additional cost), The availability of data and information product’s
lifecycle.
Case 2B: Forecasting

I. Statement of the Problem

A company is consulting income by hiring the services of Kate Walsh Associates.


Consulting income at Kate Walsh Associates for the period February–July has been as follows:

Month Income (P1,000’s)


February 70.0
March 68.5
April 64.8
May 71.7
June 71.3
Julyt 72.8

Given by the above presented data, the problems for this case are associated with the
following questions:

a.)Using the Exponential Smoothing forecasting technique, what is the forecast in August’s
income assuming that the initial forecast for February is 65,000, given by two different
smoothing constants α = 0.2 and α = 0.4 as its basis? (Please refer to Appendices 1.1 and 1.2)

b.) Using the measure of Mean Squared Error, which smoothing constant provides a better
forecast? (Please refer to Appendices 2.1, and 2.2).

II. Objectives

The objective of this problem is to obtain a good forecast through selecting the
appropriate value for α (smoothing constant) using the Exponential Smoothing as a forecasting
technique.
III. Areas of Consideration

 Using the forecasting technique, Exponential Smoothing, smoothing constants α = 0.2


and α = 0.4 should be considered as keys in obtaining a good forecast.

 Also the initial forecast for February which is P65,000 should be considered to arrive at
the forecast for August’s income.

 Furthermore it is also a consideration to measure the forecast accuracy, Mean Squared


MSE 
 (error ) 2

Error formula is being used wherein n

 Lastly, the smoothing constant (α) that provides the better forecast should be considered.

IV. Data and Solutions

Appendix 1.1 – Forecast for August using α=0.2


Month Income (in 1,000 Php) Actual Forecast in Php
Income
February 70 70000 65,000
March 68.5 68500 65000+0.2(70,000-65,000) = 66,000
April 64.8 64800 66000+0.2(68,500-66,000) = 66,500
May 71.7 71700 66,500+0.2(64,800-66,500) = 66,160
June 71.3 71300 66,160+0.2(71,700-66,160) = 67,268
July 72.8 72800 67,268+0.2(71,300-67,268) =
68,074.40
August 68,074.40+0.2(72,800-68,074.40) =
69,019.52
Appendix 1.2 – Forecast for August using α=0.4
Month Income (in 1,000 Php) Actual Forecast in Php
Income
February 70 70000 65,000
March 68.5 68500 65000+0.4(70,000-65,000) = 67,000
April 64.8 64800 67000+0.4(68,500-67,000) = 67,600
May 71.7 71700 67,600+0.4(64,800-67,600) = 66,480
June 71.3 71300 66,480+0.4(71,700-66,480) = 68,568
July 72.8 72800 68,568+0.4(71,300-68,568) =
69,660.80
August 69,660.80+0.4(72,800-69,660.80) =
70,916.48

Appendix 2.1 – MSE for α=0.2

Month Actual Income in (1,000 Forecast in Php Error (Error)2


Php)
February 70 65 5 25
March 68.5 66 2.5 6.25
April 64.8 66.5 -1.7 2.89
May 71.7 66.16 5.54 30.6916
June 71.3 67.268 4.032 16.25702
July 72.8 68.0744 4.7256 22.3313
August - 69.01952 -
∑ (error)2 103.4199

MSE 
 (error ) 2

MSE 
103.4199
=17.24
=17.23665
n 6
Appendix 2.2 – MSE for α=0.4

Month Actual Income in (1,000 Forecast in Php Error


Php)
February 70 65 5 25
March 68.5 67 1.5 2.25
April 64.8 67.6 -2.8 7.84
May 71.7 66.48 5.22 27.2484
June 71.3 68.568 2.732 7.463824
July 72.8 69.6608 3.1392 9.854577
August - 70.91648 -
∑ (error)2 79.6568

MSE 
 (error ) 2
MSE 
79.6568
=13.2761 =13.28
n 6

Therefore, α=0.4 provides a better forecast.