Cairo University Production and Operations Management Faculty of Engineering 4th year Spring, 2011 Mechanical Design &

; Production Midterm exam Time: 90 min Please provide your answers in the space provided at each question. Answers elsewhere will be disregarded. 1. State true (T) or false (F) for each of the following statements. Please give an answer only when you are sure about it. Correct answers will be given a credit of 1 and wrong answers will reduce your credit by 0.5. ( F ) The Fixed-Order-Period lot-sizing rule always results in higher total cost compared to the fixed EOQ.

( T ) A flow shop is a manufacturing system with a product-oriented layout. ( T ) The EOQ model assumes instantaneous replenishment of inventory. ( F ) In make-to-stock production systems, production orders are issued based on confirmed customers orders. ( F ) In the Delphi method, the forecast is made by averaging the independent estimates by a group of executives who meet together to generate a single estimate. ( T ) One of the benefits of using aggregated forecasts is to reduce errors associated with individual forecasts. ( T ) In ABC classification, class B items represent 20 to 30% of the inventory items. ( F ) In the EPQ model, increasing the production rate will reduce the maximum inventory level. ( T ) One difference between the EOQ model and the lot sizing problem definition is that the length of the replenishment cycle in the EOQ model is a continuous variable. ( F ) Silver-Meal heuristic is based on the idea of finding the lot size that minimizes the cost per unit.

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2. Demand for a new breakfast cereal at a medium sized grocery store is given in the following table: Month 1 2 3 4 5 6 Demand 479 569 623 591 585 702

a. Using a simple (single) exponential smoothing model (with = 0.15), determine the forecast for consumption in months 10 and 15. Assume F1 = 353.22. b. Do the same using the exponential smoothing with a trend model with = 0.20 and = 0.05. Assume S0 = 487.4 and G0 = 31.18. c. Compare the two methods using MAD Solution: a) Using = 0.15 and F1 = 353.22, we construct the following table: Month (t) 1 2 3 4 5 6 7 Demand (Dt) 479 569 623 591 585 702 Ft 353.22 372.09 401.62 434.83 458.26 477.27 510.98 |Dt - Ft| 125.78 196.91 221.38 156.17 126.74 224.73

Since the forecasts for future periods are estimated to be at the same level of the last periods forecast, then the forecast for both moths 10 and 15 is 510.98 b) Using = 0.20, = 0.05, 0 = 487.4 and b0 = 31.18, we get: Month (t) 0 1 2 3 4 5 6 7 Demand (Dt) --479 569 623 591 585 702 St 487.4 510.664 546.959 587.015 613.019 632.403 670.836 Gt 31.18 30.784 31.060 31.510 31.234 30.642 31.031 Ft |Dt - Ft|

518.580 541.448 578.018 618.524 644.254 663.045 701.867

39.58 27.552 44.982 27.524 59.254 38.955

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The forecasts for periods greater than 6 follow the linear relationship: F6+t = S6 + G6 t Accordingly, we get: F10 = S6 + 4 G6 = 794.96 F15 = S6 + 9 G6 = 950.115 c) The MAD for (a) = 175.285 The MAD for (b) = 39.64 Clearly the exponential smoothing with trend has a lower MAD value which is mainly attributed to the existence of trend in the demand values.

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3. The Helal company produces a patented product with seasonal demand. The following quantities are forecast for the six bimonthly periods of the coming year: Period 1 2 3 4 5 6 Forecast demand (units of work) 60 70 80 90 80 70

It costs LE15 to produce a unit by regular time, and the regular-time capacity is 70 units. Overtime production costs LE20, and there is capacity to produce only 20 units per period on overtime. Unit inventory cost is LE3 per bimonthly period, and unit shortage cost is LE10 per bimonthly period. The company has no initial inventory and does not plan to end the sales period with any inventory. Use the chase and uniform strategies to plan how the company should employ its resources to fulfill the forecast demand, and compare the total costs of both strategies. Solution: Using chase strategy, we get the following table: Regular Overtime Inventory time production production 1 60 60 60 0 0 2 70 70 70 0 0 3 80 80 70 10 0 4 90 90 70 20 0 5 80 80 70 10 0 6 70 70 70 0 0 Total 450 450 410 40 0 The associated total cost for this plan = 15410 + 2040 = LE6,950 Period Demand Planned production Shortage

0 0 0 0 0 0 0

Using level strategy with a level of production = total demand/number of planning periods = 450/6 = 75 units, we get the following table: Period Demand Planned production 75 75 75 75 75 75 450 Regular time production 70 70 70 70 70 70 420 Overtime production 5 5 5 5 5 5 30 Inventory Shortage

1 2 3 4 5 6 Total

60 70 80 90 80 70 450

15 20 15 0 0 0 50

0 0 0 0 5 0 5

The associated total cost for this plan = 15420 + 2030 + 350 + 105 = LE7,100 4 of 6

It is clear that the chase strategy is better.

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4. Consider the following demand information for a specific inventory item. Month Demand 1 20 2 50 3 40 4 70 5 60 6 30 7 80 8 40 9 20 10 60 11 40 12 90

If the inventory carrying cost is LE 6.0 per unit per year and the purchase order cost is LE50 per order, determine the total inventory and ordering costs over the 12 months if the EOQ and FOQ (of 150) lot-sizing rules are used. Which lot-sizing rule of these two gives the lower cost? (a) Using the EOQ lot-sizing rule: A = 50 LE/order h = 6/12 = 0.5 LE/unit/month D = (20+50+40+70+60+30+80+40+20+60+40+90)/12 = 50 units/month

Q*

2 AD 2 50 50 100 order quantity is the closest value to 100 h 0.5

1 20 110 90 40 0 2 50 3 40 4 70 130 60 0 5 60 6 30 110 80 0 7 80 8 40 120 80 60 0 9 20 10 60 11 40 130 90 0 12 90

Month Demand Order quantity Ending inventory

Total inventory cost = 0.5 (90+40+60+80+80+60+90) = LE 250 Total ordering cost = 50 5 = LE 250 Total cost = LE 500 (b) Using FOQ of 150 periods lot-sizing rule: Month Demand Order quantity Ending inventory 1 20 150 130 80 40 2 50 3 40 4 70 150 120 60 30 5 60 6 30 7 80 150 100 60 40 8 40 9 20 10 60 150 130 90 0 11 40 12 90

Total inventory cost = 0.5 (130+80+40+120+60+30+100+40+130+90) = LE 410 Total ordering cost = 50 4 = LE 200 Total cost = LE 675 The FOQ of 150 lot-sizing rule gives higher total cost which makes it worse than the EOQ.

Dr. Tamer F. Abdelmaguid

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