Inventory and Ordering Decisions
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Institutional Affiliation
Date
Inventory and Ordering Decisions
For ABC Company, understanding the needs of the customers is critical in the event of making operational management decisions. For the company, massive warehouses and the costs associated with massive warehouses are now a thing of the past. The warehouses are no longer needed, and this move is aimed at cutting the cost of production and the general cost of supply chain management. There is a need to explore the concepts that involve inventory and some of the best practices in operational management that companies use to keep track of their operations. The methods that are employed by the other successful motor firms target maintaining the costs of operations low and build a highly flexible system. The companies’ understanding of the expenses involved with inventories creates an opening for the companies to categorize the stocks and decide on the correct amounts of counting cycles. The reduction of wastes in the ABC Company can be made through operational thinking along the lines of inventory management decisions. The wastes to be reduced would include fuel costs and packaging costs, which have significant environmental impacts.
Making Decisions
Making decisions in a business setting is a very critical process and makes considerations of many factors. The company’s managers do not just come up with decisions blindly; instead, the choices are based o certain perceptions, which as short paths to judging such situations in business. One crucial way of making critical decisions is determining the kind of behavior the ABC company has. The practices in the operations of the business can either be of negative impact or otherwise of positive impact. In the case where the ABC company managers only want to experience positive effects and not the other way round, there is a need for the company to conduct critical analysis. The analysis may adopt the SWOT technique in the operations department to establish better grounds with which concrete decisions can be made. All the operations management departments, especially the supply chain management department has a significant role in providing the current customer needs, which will potentially influence the quantity and quality of commodities the company will manufacture. Decisions for both orders on inventory will address the when the what, how, and where questions regarding the orders made by customers. The subsequent decision is aimed at reducing the costs of production of the electric motor products.
Aggregate Planning
Understanding the integration of marketing strategies, manufacturing, sales, and purchasing strategies are crucial in meeting the needs of the company’s customers. The requirements can be achieved within a short period, given the fact that the procedures are well synergized (Türkay & Arslan, 2016). The customer needs can also be met over long periods, depending on the demand at hand by the potential customers. The master production schedule is combined with the anticipation of the need for motor products from the ABC firm in line with a specified lead time that dictates the production of the product in question. It is a strategy that is converted into a paper document and which will give the operations manager a guideline regarding the output of the motors. The whole of ABC company needs these tools as a communication device to enhance the best operations in the productions when required.
Sales Forecasting
In the success of the ABC company, sales forecasting is a critical piece in carrying out production operations by the company. The basics approach to forecasting is qualitative and quantitative approaches to production. The best way to utilize this tool is by using both of the two types of forecasting. Prediction provides emphasis on delivering a substantial document that will allow the ABC company to give communication about where it concerns its strategies (Van Calster et al., 2020). Forecasting aims at determining the amounts of workload and then further schedules the resources for the production of the commodities of the company. It is crucial to realize that forecasts are only but best guesses that the ABC company makes concerning future sales of the company’s motors. Estimates are rarely 100% accurate, and therefore it is imperative to keep on monitoring the company’s forecasts with actual sales. For unforeseen interruptions, the estimates should accordingly be adjusted. The factors that may lead to disruption of the forecasts include technology changes, the shift in the process of manufacturing the commodity, actions of legislation, and other factors.
Scheduling
Scheduling and forecast are tied closely to each other. The schedule is categorized into two, finite and infinite scheduling. The two are separately having rules that dictate the prioritization of how the workflow of the company’s production process will be accomplished. Schedule as a tool that encompasses the needs for raw materials and human resources to do the work set by the plan. Companies in many times experience hard times when it comes to delivering the products intended for the target customers in a good time. In the quest of curtailing these bottlenecks, the theory of constraints is applied by the ABC company. It, therefore, works extra hard to reduce such problems in the production and delivery of the products in time and of good quality. Sustainability for ABC company is another big issue to be checked. Scheduling of the output by the ABC company is capable of impacting on the costs to the environment by the organization in question.
Analysis of Issues
The analysis of the issues in the ABC Company can be done using the SWOT analysis approach. Using this type of analysis approach can facilitate the company’s direction towards proper decision-making ideas. The situation of the company is broken down into four distinct parts. The four quadrants include S (Strengths), W (Weakness), O (Opportunities), and T (Threats) in the ABC Company. The first step in the analysis is to list down all the possible strengths the company has against its competitors in terms of having a higher competitive edge concerning other companies that operate in the same line of business. The strengths, in this case, may include both the external and internal strengths of the business in question. In terms of competition, the ABC company will be able to make critical decisions that will counter the problems that are related to competition in the market. If the competition is stiff, then the decision made will, therefore, be directed towards the customers through the provision of products in good quality and in good time with minimal delays. The weaknesses of the company are also very crucial in decision-making processes. The companies could improve and become strength given that the decisions will be directed towards enhancing such inadequacies. The questions to be asked in this are to do with why the company is losing sales of the electric motor products, what behaviors potentially hurt the company in terms of operations management practices. The other question the ABC managers need to ask themselves in which responses can’t be seen in the company from within and which hurt the company in general. The managers will, therefore, use such information in trying to find new measures to sustaining the company’s well-being and boosting sales. Another component to be analyzed is the opportunities that the company stands a chance of grasping. The company’s managers should ask themselves questions regarding how to tap the strengths of the company in seizing new opportunities in the market. The company may be having advantages with which it has not utilized yet; therefore, the company must pinpoint them and use such strengths in tapping opportunities. The last component in the analysis of the issues in the ABC Company is threats. Threats are the challenges that stand in the way of the company’s endeavors to growing and finding newer markets for its products. The ABC managers need to find out the common mistakes that the competitor companies in the line of electric motors make and make use of the information to better the practices in the operations management. The primary strengths need to be identified and stopped through making decisions that are sufficing the need to improvement io the operations of the company.
Question 1
APR= (D1+ D2 + D3+ D4+ D5+ D6)/M
APR= (1535)/6
APR= 255 Units Per Month
Question 2
W= (HPU x APR)/HPM
W= (3.5 X 255)/168
W= 5 workers
Question 3
EOQ = ((2AQ x OC)/UHC)-2
EOQ = ((2 X 5400 X 6)/ 2)-2
EOQ= 180 units
Question 4
RP= (DQ x LT) + EI
= (25 x 5) + 50
= 175 units
Question 5
Naïve Forecasting Technique
It is a Forecasting Technique that utilizes estimations. The actual for the last period is employed as estimates for this periods forecast. The technique is only used for comparison. It is used in comparing the figures estimated in the other methods. An advantage for this technique is that it is easy to handle or instead use as it makes use of forecasts that are generated in the short periods before if the more extended period’s forecasts are not available for use. The naïve technique in forecasting is also disadvantageous to some extent. In the execution of the method, there is a need that requires prior probability, and there is a rate of error in the classification of decisions using this technique. The naïve approach dictates that the preceding period be used to determine the next forecast.
At =Ft+1
Forecast for the subsequent period = The real value for the period that is current
The forecast for the next period is estimated to be the same as the period for the actual demand (A) of the products.
Simple Mean Technique
In this method, the actual figures of the previous periods are added together and the total divided by the length of the period in question. All of the historical sales are all combined and their mean obtained. The technique is only suitable for short term forecasting using periods that are near the period to be forecasted on. The advantage is that it is easy to use and compute.
Ft+1 = ƩAt/n
Simple Mean Average
The method uses all the mean averages obtained from previous periods in the history of the sales in the business. The means are added and then divided by the number of ways used. The advantage is that it is easy to compute. The disadvantage is that it cannot be used for all problems in the operational management issues.
Ft+1= (At + At+1 + At+n)/n
Simple Moving Average
It is a method that calculates the general trend in the set of data for the sale of the products. The technique uses historical sales data for the company. Such a method is only useful in forecasting periods that are short and is not valuable for long term trends in demand for the product in question. Uses a two-period or three periods moving or even more. Two moving average uses averages for two previous periods in succession, and the same applies to the three-period moving average.
Moving Average (MA) = (n1+ n2 + n3 + …)/ n
Weighted Mean Average
When using this type of forecasting technique, each of the value forecasted is equally weighted. More observation needs to be done on the time that is much closer to the current period being forecasted. All the weights in the Moving Average must add up to a unit (1).
Weighted Moving Average (WMV)= Ft+1
= wt1 (Dt) + wt2 (Dt-1) + wt3 (Dt-2)
Exponential Smoothing
Exponential smoothing is an approach of smoothing a series of time data using an exponential function of the windows. Exponentially reducing weights are assigned the exponential functions with time. The disadvantage is the Exponential average introduces a lag that is relative to the data input. It can be used for long term periods calculations.
St= αXt + (1 – α)St-1 where t > 0
Linear Trend Line
The method focuses on making a line of best fit in the demand curve. A line is drawn using the previous demand data, and from the line of best fit, a forecast can be made. The method works better for most of the supply issues and operations management issues. The sale of the products in the previous years represents the demands for those particular years. Coming up with a line of best fit will need graphical computation and illustration for those periods in history. The next best guess can be obtained directly from the line of best fit, and this will be able to detect the subsequent figures to produce. The method is suitable for short term periods.
In conclusion, inventory and order decisions are very crucial in the ABC Company in that the production of the motor products are only influenced by the demand of the commodities in the market by their customers. Such decisions have made the companies make minimal use of godowns and warehouses since the company is avoiding the cost associated with storage of the product until the customers demand them. The company is, therefore in a position to alter its operational practices to meet the current demand of the electric motors in the market. Any company that desires to build a good reputation and grow exponentially needs to take a keen interest in the manner in which decisions are made. Favorable decisions are crucial in making sure that the company is growing to greater heights in terms of delivery system and financial muscle.
References
Türkay, M., Saraçoğlu, Ö., & Arslan, M. C. (2016). Sustainability in supply chain management: Aggregate planning from a sustainability perspective. PloS one, 11(1).
Van Calster, T., Bossche, F. V. D., Baesens, B., & Lemahieu, W. (2020). Profit-oriented sales forecasting: a comparison of forecasting techniques from a business perspective. arXiv preprint arXiv:2002.00949.