Project 1 (Cold Storage Case Study)

By Sourabh Arora

Problem 1

Cold Storage started its operations in Jan 2016. They are in the business of storing Pasteurized
Fresh Whole or Skimmed Milk, Sweet Cream, Flavored Milk Drinks. To ensure that there is no
change of texture, body appearance, separation of fats the optimal temperature to be maintained
is between 2 deg - 4 deg C.
In the first year of business, they outsourced the plant maintenance work to a professional
company with stiff penalty clauses. It was agreed that if it was statistically proven that probability
of temperature going outside the 2 degrees - 4 degrees C during the one-year contract was
above 2.5% and less than 5% then the penalty would be 10% of AMC (annual maintenance
case). In case it exceeded 5% then the penalty would be 25% of the AMC fee. The average
temperature data at date level is given in the file “Cold_Storage_Temp_Data.csv”

1. Find mean cold storage temperature for Summer, Winter and Rainy Season
There are 2 ways we can find out the answer either using excel by running a pivot and take the
average by season or else we can go to R, upload the csv file and use function
“by(Cold_storage_temp, INDICES = Season, FUN = summary)” to find out the mean by season.
So, Here the answer is “Summer - 3.15, Winter - 2.70 & Rainy Season - 3.04”

2. Find overall mean for the full year

There are again 2 ways we can find out the answer either using excel by running a pivot and take
the Total Average or else we can go to R, upload the csv file and use summary function.
So, Here the answer is “2.96”
3. Find Standard Deviation for the full year
We can calculate standard deviation by using sd function in R.

So, Here the answer is “0.508”

4. Assume Normal distribution, what is the probability of temperature having fallen below 2
degree C?

We can calculate this by using R as well as excel.

In excel, we can use function - NORM.DIST(x,Mean,Standard deviation,Cumulative)
In R, we can use function – pnorm(x, Mean, SD).
Here the answer is “2.74%”
5. Assume Normal distribution, what is the probability of temperature having gone above 4 deg
C?
We can calculate this by using R as well as excel.
In excel, we can use function – 1- NORM.DIST(x,Mean,Standard deviation,Cumulative)
In R, we can use function – 1 - pnorm(x, Mean, SD).

Here the answer is “1.88%”

6. What will be the penalty for the AMC Company?

Since the defined optimal temperature limit is between 2 degree C & 4 degree C and by
calculating the above 2 questions, we know the probability of temperature going below 2 degree
and above 4 degree which is 2.74% and 1.88% respectively. This means that total probability is
equal to 2.74%+1.88% which equals 4.62% which is less than 5%, so, the penalty will be “10%
of the AMC”
Problem 2
In Mar 2018, Cold Storage started getting complaints from their Clients that they have been
getting complaints from end consumers of the dairy products going sour and often smelling.
On getting these complaints, the supervisor pulls out data of last 35 days temperatures. As a
safety measure, the Supervisor has been vigilant to maintain the temperature below 3.9 deg
C. Assume 3.9 deg C as upper acceptable temperature range and at alpha = 0.1 do you feel
that there is need for some corrective action in the Cold Storage Plant or is it that the problem
is from procurement side from where Cold Storage is getting the Dairy Products. The data of
the last 35 days is in “Cold_Storage_Mar2018.csv”
[Use the same standard deviation that you have calculated from the first problem wherever
you think is necessary]

Quick Observations
This is a right one tailed test as
Here Null Hypothesis is – Temperature is equal to 3.9 degree Celsius.
Alternate Hypothesis is – Temperature is greater than 3.9 degree Celsius.
This is a right one tailed test as Ha(Alternate Hypothesis) > 3.9.
Since Sample size is greater than 30, we should prefer z test as we know that as the sample size
increases, distribution will be normal.

1. State the Hypothesis, do the calculation using z test

As directed, we need to use the same SD we had from previous problem.
So, Standard Deviation = 0.508
Alpha is given = 0.10
H0:Mu = 3.9
Ha:Mu > 3.9
Z = ((x bar – Mu)/sigma)/square root of sample size
We can calculate Z Critical using excel function – “NORM.S.INV(0.90) = 1.282”
X Bar Critical can be calculated by (Z * SD/sqrt of sample size)+Mu
We will calculate standard deviation using R :
So, SD = 0.159
Mean = 3.974 using mean(mydata$Temperature) in R
Now, X bar Critical = ((1.282*0.159)/Sqrt(35)+3.97) = 4.00 which is greater than 3.9 degree
Celsius.
So, Ha:Mu > 3.9 (Proved)
Hence, Alternate Hypothesis should not be rejected which means corrective action is needed.

2.State the Hypothesis, do the calculation using t-test

We will calculate mean, sd etc. using R as shown in screenshot below :
Since true mean is more than expected, it’s a false reject of null hypothesis (PValue < alpha).

3.Give your inference after doing both the tests

We have rejected null Hypothesis in z Test and t Test based on the calculations.
If we do the same using Population data, Outcome will be different, We should not ideally do t
Test as T test is suitable for smaller sample size where as we have more than 30 sample size.
Now, X bar Critical = ((1.282*0.5)/Sqrt(365)+2.96) = 2.99 which is greater than alpha.