Research Paper - Final

Ramon Magsaysay Memorial Colleges- Marbel Inc.
Alunan Avenue, Koronadal City
_______________________________________________________________________________________
Dwinar Computer Center is one of the leading small enterprises who
officially joined the computer industry having its vision to bring and maintain its
frontier of bringing the people the best and latest trends in Information
Technology with competitive prices.
Dwinar Computer Center commenced operations on March 28, 1998, at
Pina St., General Santos City. In a short span of time, it brought a good customer
relation, guaranteed after sale services and evolved as one of the major player in
PC retail and wholesale with competitive prices. In order to accommodate the
fast growing market, it was relocated to a bigger and better site at Door 3
Soledad Estate, National Highway, and City of General Santos.
In response to the demanding progress of its operation, another branch
was established on December 8, 2003, at Aquino St., Koronadal City under the
registered name Marbel Computer Center. Then, it was added by a new branch,
the Davao Branch1, which began its full operation on August 28, 2006, located at
Door 6, 8 and 9, Cirineo Bldg., Palma Gil St., Davao City. Afterwards, General
Santos City Branch expanded its territory at J. Catolico St., Ronquillo Bldg.,
General Santos City on May 8, 2010.
With its main goal of continues development, another major branch of
the family tree was formed, the Cagayan De Oro City Branch, which is sited at
1
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178 Yakapin St., Cagayan De Oro City on February 18, 2009 and was
transferred to its new location Marel 1 Bldg. Tiano Gomez St. Cagayan de Oro
City last July 15, 2011.
Bringing the same philosophy in dealing with customers, it left a mark
of good relations—key which brought about the development of the
establishment. Through this, Dwinar Computer Center Butuan City Branch was
built and started its operation on September 11, 2010. In succeeding year, an
additional Branch was put up, the Davao Branch2-Dover Lanes Bldg. Padre
Gomez St. cor Bonifacio, Davao City which last March 8, 2012. Another
breakthrough to Dwinar Computer Center, as the newly raised branch was
opens, the Valencia City branch, located at Door # 15,DBL Bldg. A. Catarata-L.T,
Alquino ST., Valencia City.
Beyond doubt, the Dwinar Computer Center is making all the ways and
means to reach every individual to cater all their IT needs with a guaranteed
service offered. All of its branches are equipped not just with the latest trends of
IT products but also with its workforce who specialize with the best in its chosen
field. In the years to come, Dwinar Computer Center will continue to reach out to
any other places not only in Mindanao but in the whole Philippines bringing the
philosophy of making business with people through good customer relations at
very competitive prices.
2
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CHAPTER II
PROBLEM:
1. FORECASTING
It is vital for a company to have a good planning for the future demand to
maintain the success of the business. However, a lack of good forecast opens
the opportunity of negative impact to the operation and growth of the business.
Unfortunately, MCC is one of the businesses who fail to realize the
importance of having a good forecast for the future demand that results a bulk
inventory that contributes obsolescence of stock which means profit loss. In
addition, they also experience out of stock which entice their customer to look for
other company to feed their needs.
To address this problem, the manager wishes to forecast future demand
to level the inventory against the demand and to avoid obsolescence which
reduces the profitability of the business since the company is dealing with
information technology related products.
3
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2. INVENTORY CONTROL
The objective of inventory management is to minimize the inventory cost.
Having too much inventory can cause a huge amount of holding cost and having
too little can trigger reordering which means additional ordering cost.
Since MCC is experiencing out of stock or overstocking, the company wants
to determine the following:
2.1 How to minimize inventory cost?
2.2 When to reorder stocks?
2.3 What is the impact of having a safety stock?
3. PROBABILITY OF PRODUCT RETURNS
Establishing a good relationship and having a very competitive price in the
market lead the company on top of customer’s list to be considered. However, in
order to maintain customer’s satisfaction and trust, it is vital to have an after
sales support. But, as long as products are being sold, there will always be some
returns.
MCC is experiencing a number of returns (see figure 3) which have often
been seen as a nuisance, and an area of potential customer dissatisfaction and
realizing that the returns process incurs significant cost.
4
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DATA:
Since the MCC have huge kinds of computer spare parts, we just pick one of the
most important components of the computer which is the processor. Below are
the data gathered provided by the company from April 2018 to March 2019 actual
sales per month.
Figure 1. AMD Processor A6-6400
Month Actual Demand

April 9
May 15
June 35
July 56
Aug 19
Sept 26
Oct 42
Nov 19
Dec 45
Jan 77
Feb 23
March 10
5
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Actual sales for the month of January 2019.
Figure 2. AMD Processor A6 - 6400
Date QTY
2/1/2019 2
3/1/2019 2
5/1/2019 6
5/1/2019 3
9/1/2019 3
10/1/2019 3
11/1/2019 1
01/14/2019 1
01/17/2019 7
01/18/2019 10
01/22/2019 1
01/24/2019 3
01/25/2019 22
01/30/2019 4
01/31/2019 9
6
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Figure 3. Product Returns for the month October 2018
Transmission Detail
2018-10-20
Branch: Koronadal MCC
Date Item ID Item Name Unit Qty

10/1/2018 102146 WL 320GB (WL0320A) PC 3
GIGABYTE GA-A320M-
10/1/2018 10258 83h AM4 PC 1
KINGSTON 4GB1600
10/1/2018 3009 DDR3 PC 1
10/1/2018 4807 TOSHIBA 500GB PC 1
SEAGATE 500GB
10/1/2018 4611 Pipeline PC 3
10/1/2018 5606 XTYLE 750W PC 3
10/1/2018 6606 MULTI COINSLOT PC 2
10/1/2018 102146 WL 320GB (WL0320A) PC 1
10/1/2018 4807 TOSHIBA 500GB PC 1
SEAGATE 500GB
10/1/2018 4611 Pipeline PC 1
10/10/2018 1008 AMD A8 7850K FM2+ PC 1
10/10/2018 102146 WL 320GB (WL0320A) PC 2
10/10/2018 1198 AMD A4 7850K FM2+ PC 2
SPECTEK 4GB 1600
10/10/2018 3010 DDR3 PC 1
10/10/2018 434350 AITC 4GB DDR3 1600 Unit 1
10/10/2018 4513 HEADSET SMALL PC 1
10/10/2010 4607 TOSHIBA 500GB PC 1
SEAGATE 500GB
10/10/2018 4611 Pipeline PC 1
10/10/2018 5606 XTYLE 750W PC 1
A4TECH KR8-85 USB
10/10/2018 6313 KEYBOARD PC 1
A4TECH KR8-85 PS2
10/10/2018 6314 KEYBOARD PC 1
10/10/2018 8807 DUAL TIMER PC 1
10/10/2018 6900 MULTI MEDIA MINI PC 1
7
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SPEAKER
PHILIPS 18.5"
10/11/2018 4000 193V5LSB23 PC 1
10/11/2018 4004 AOC 18.6 (E970SWN) PC 1
SEAGATE 500GB
10/11/2018 4611 Pipeline PC 1
10/18/2018 4201 EPSON L380 PC 2
10/18/2018 4202 EPSON L120 PC 1
10/20/2018 102146 WL 320GB (WL0320A) PC 2
KINGSTON 4GB1600
10/20/2018 3009 DDR3 PC 7
10/20/2018 4607 TOSHIBA 500GB PC 1
10/20/2018 4612 WD 500GB BLACK PC 2
10/20/2018 5811 CV5 700W PC 2
10/20/2018 8344 A4TECH HS-7P PC 1
120MM 12V FAN
10/20/2018 6601 WITHOUT LED PC 6
Form
Co Name: Date:2018/10/20
8
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Chapter III
SOLUTION AND RECOMMENDATION
Using the data gathered, below are the solutions and recommendations
made by the researchers with quantitative analysis.
1. FORECASTING
Forecasts are a basic input in the decision processes of operations
management because they provide information on future demand. Having a
forecast of demand is essential for determining how much capacity or supply will
be needed to meet demand.
Accuracy and control of forecasts is a vital aspect of forecasting, so
forecasters want to minimize forecast errors. Accurate forecasts are necessary
for the success of daily activities of every business organization. Forecast error is
the difference between the value that occurs and the value that was predicted for
a given time period.
Forecast error = Actual value – Forecast value
Forecast accuracy is a significant factor when deciding among forecasting
alternatives. Accuracy is based on the historical error performance of a forecast.
9
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Three commonly used measures for summarizing historical errors are the
mean absolute deviation (MAD), the mean squared error (MSE), and the mean
absolute percent error (MAPE). MAD is the average absolute error, MSE is the
average of squared errors, and MAPE is the average absolute percent error
(William J. Stevenson). The formulas used to compute MAD, MSE, and MAPE
are as follows:
MAD 
 forecast error
n
MSE 
 (error) 2
error
 actual
MAPE  100%
n
Averaging techniques smooth fluctuations in a time series because the
individual highs and lows in the data offset each other when they are combined
into an average. A forecast based on an average thus tends to exhibit less
variability than the original data. Three techniques for averaging are:
a. Moving average. A moving average forecast uses a number of the most
recent actual data values in generating a forecast. The moving average
forecast can be computed using the following equation:
10
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Yt  Yt 1  ...  Yt  n1
Ft 1 
n
Where:
Ft  1 = forecast for time period t + 1
Yt = actual value in time period t
n = number of periods to average
b. Weighted moving average. A weighted average is similar to a moving
average, except that it typically assigns more weight to the most recent
values in a time series.
w1Yt  w2Yt 1  ...  wnYt  n1

Ft 1 
w1  w2  ...  wn
Where:
wi = weight for the ith observation
11
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c. Exponential smoothing. Exponential smoothing is a sophisticated
weighted averaging method that is still relatively easy to use and
understand.
New forecast =Last period’s forecast + (Last period’s actual

demand – Last period’s forecast)
Where:
 is a weight (or smoothing constant) with a value between 0

and 1 inclusive
In this solution we use measure the forecast accuracy using mean
absolute deviation (MAD) and mean squared error (MSE), and 3 months moving
average and weighted moving average to get the standard error to compare
which alternative should be use.
Figure 4.1 Forecast using 3 months weighted average in MS excel showing formula.
12
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Figure 4.2 Forecast using 3 months weighted average method with standard error.
3 Months 3 Months
Error=A -
Month Actual Moving Weighted Absolute Squared
F
Ave. Moving Ave.
April 9 - -
May 15 -
June 35 -
July 56 20 24 32 32 1024
Aug 19 35 42 -23 23 536.6944444
Sept 26 37 34 -8 8 64
Oct 42 34 29 13 13 177.7777778
Nov 19 29 33 -14 14 191.3611111
Dec 45 29 28 17 17 294.6944444
Jan 77 35 36 41 41 1694.694444
Feb 23 47 57 -34 34 1133.444444
March 10 48 45 -35 35 1201.777778
April - 37 26 -
SUM -9.666667 217 6318.444444
AVE. -1.07 24.11 702.05
MAD MSE
STANDARD ERROR 10.0
13
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Figure 5.1 Forecast using 3 months moving average in MS Excel showing

the computation.
14
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Figure 5.2 Forecast using 3 months moving average showing its standard error
3 Months 3 Months Weighted

Month Actual Error=A -F Absolute Squared
Moving Ave. Moving Ave.
April 9 - -
May 15 -
June 35 -
July 56 20 24 36 36 1320.111111
Aug 19 35 42 -16 16 266.7777778
Sept 26 37 34 -11 11 113.7777778
Oct 42 34 29 8 8 69.44444444
Nov 19 29 33 -10 10 100
Dec 45 29 28 16 16 256
Jan 77 35 36 42 42 1736.111111
Feb 23 47 57 -24 24 576
March 10 48 45 -38 38 1469.444444
April - 37 26 -
SUM 3 201.66667 5907.666667
AVE. 0.33 22.41 656.41
MAD MSE
STANDARD ERROR 9.7
With the above solution, researchers recommend that the company will
use Moving Average method because its standard error which is 9.7 is less than
10 SE of Weighted Moving Average. Forecasting the future demand may save
the company from the possible obsolescence while having enough inventories for
the market’s demand.
15
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2. INVENTORY CONTROL MODEL
A. Inventory control is a major element of an efficient operation for any
business that buys and resells goods. Typical goals of inventory management
include maintaining low inventory holding costs while also meeting all customer
demand for goods. (Neil Kokemuller). Economic order quantity (EOQ) model
identifies the optimal order quantity by minimizing the sum of certain annual costs
that vary with order size and order frequency (William J. Stevenson). To compute
the EOQ use the following formula below:
2 DC o D
EOQ  Q *  Annual ordering cost  Co
Ch Q
Q Q
Average inventory level  Annual holding cost  C
2 2 h
Where:
Q = number of pieces to order
EOQ = Q * = optimal number of pieces to order
D = annual demand in units for the inventory item
C = ordering cost of each order
o
C = holding or carrying cost per unit per year
h
16
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Using the data provided (see figure 1) by the company we computer the EOQ:
with the help of MS excel.
Figure 6.1 Economic Order Quantity - AMD Processor A6-6400 computation

using MS Excel.
17
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Figure 6.2 Economic Order Quantity - AMD Processor A6-6400
Demand 376 units

pesos per
Ordering Cost 500 order
Holding Cost 3.0 pesos/unit
Unit price 1735 pesos/unit
Optimal Order Qty. 204

Maximum
Inventory 204
Average Inventory 102
Number of Setups 2
Holding Cost 307

Ordering Cost 920
Unit Cost 652,360

Total Cost 653,586
With this solution, the company may able to determine how much quantity
to order to level the inventory against the market’s demand and to minimize
inventory cost.
18
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B. Is it very essential for the company to determine when to reorder to
respond in market demand and gain customer’s satisfaction. After defining how
volume of order, the next question is when to order. Reorder point (ROP) is when
the quantity on hand of an item drops to this amount, the item is reordered. The
time between ordering a good or service and receiving it is called lead time
(William J. Stevenson).
Figure 7.1 Reorder Point: Determining When to Order
Lead Time 4 days

Daily ave.
demand 5 per day
ROP 21 units
With the given data in figure 2, we compute the ROP using the formula below:
Demand per Lead time for a new

ROP  
day order in days
 dL
Where
d = Demand rate (units per day or week)
L = Lead time in days or weeks
ROP = d X L
= 5 units per day X 4 days
ROP = 20 units
Note: Since the demand is not constant, we compute the daily average
demand base on the given data (figure 2).
MCC should reorder whenever the inventory reaches to 20 units.
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C. Safety stock (SS). Extra inventory carried to reduce the probability of a
stockout due to demand and/or lead time variability.The reorder point then
increases by the amount of the safety stock (William J. Stevenson):
ROP  d  L + SS
Where:
SS  safety stock
MCC provides a number of safety stock which is 8 to 10 units
approximately .Using the previous computation in ROD:
ROP = d X L + SS
= (5 units per day X 4 days) + 10 units
= 20 units + 10 units
= 30 units
Expected demand during lead time is 20 units, and the desired amount of
safety stock is 10 units, the ROP would be 30 units.
Stockout protection is needed only during lead time. If there is a sudden
surge at any point during the cycle it will trigger another order. Once that order
was received, the danger of an imminent stockout is negligible.
Having a safety stock can help the company against a sudden
occurrences of stockout and customer disappointments.
20
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An effective inventory control can enhance the performance of the
company. Realizing that approximately, 50 percent of the total investment is in
the inventory. Determining how much to order and when to reorder can save the
company from a sort of ordering cost and holding cost.
21
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3. PROBABILITY OF PRODUCT RETURNS
Probability is a numerical statement about the likelihood that an event will occur.
Two basic rules regarding the mathematics of probability:
1. The probability, P, of any event or state of nature occurring is greater than
or equal to 0 and less than or equal to 1. That is: 0  P (event)  1.
2. The sum of the simple probabilities for all possible outcomes of an activity
must equal 1.
Base on the data in figure 3, product returns of Marbel Computer Center from
the month of October 2018 are 18, 16, 3, 3, and 23 unit and PC per day.
For the month of October (27 days hence Sunday is not included), the owner
has observed the following frequencies of damages.
Quantity Number of Days Probability
18 9 0.33 (=9/27)
16 1 0.04 (=1/27)
3 7 0.26 (=7/27)
3 2 0.07 (=2/27)
23 8 0.3 (=8/27)
Total = 27 days Total 1.00 (=27/27)
22
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As shown in the above computation, the probability of product return is
alarming. Since product returns is unavoidable, it is very important to establish a
well-defined method to prevent product returns. Based on our research, we
recommend the following techniques:
 Avoiding damages start from ordering of products from the supplier.
Choosing a supplier with a considerable terms and conditions in regards
to the warranty addressed this problem. Example, if returns arise, supplier
will automatically offset the cost of returned products to the company’s
accounts payable
 Guiding and teaching the costumers the basic way of proper handling may
help to reduce returns due to improper usage.
 A clear and transparent warranty policy should be properly realized for the
benefit of the customers and the company.
In these way product returns may eliminate.
- The end -
23

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Ramon Magsaysay Memorial Colleges- Marbel Inc.

Alunan Avenue, Koronadal City

Dwinar Computer Center is one of the leading small enterprises who

Technology with competitive prices.

Dwinar Computer Center commenced operations on March 28, 1998, at

PC retail and wholesale with competitive prices. In order to accommodate the

Soledad Estate, National Highway, and City of General Santos.

In response to the demanding progress of its operation, another branch

General Santos City on May 8, 2010.

With its main goal of continues development, another major branch of

City last July 15, 2011.

Bringing the same philosophy in dealing with customers, it left a mark

of good relations—key which brought about the development of the

breakthrough to Dwinar Computer Center, as the newly raised branch was

Alquino ST., Valencia City.

philosophy of making business with people through good customer relations at

very competitive prices.

Unfortunately, MCC is one of the businesses who fail to realize the

inventory that contributes obsolescence of stock which means profit loss. In

other company to feed their needs.

To address this problem, the manager wishes to forecast future demand

information technology related products.

The objective of inventory management is to minimize the inventory cost.

Since MCC is experiencing out of stock or overstocking, the company wants

to determine the following:

2.1 How to minimize inventory cost?

2.2 When to reorder stocks?

2.3 What is the impact of having a safety stock?

3. PROBABILITY OF PRODUCT RETURNS

Establishing a good relationship and having a very competitive price in the

market lead the company on top of customer’s list to be considered. However, in

order to maintain customer’s satisfaction and trust, it is vital to have an after

MCC is experiencing a number of returns (see figure 3) which have often

been seen as a nuisance, and an area of potential customer dissatisfaction and

realizing that the returns process incurs significant cost.

sales per month.

Figure 1. AMD Processor A6-6400

Month Actual Demand

Actual sales for the month of January 2019.

Figure 2. AMD Processor A6 - 6400

Figure 3. Product Returns for the month October 2018

Date Item ID Item Name Unit Qty

SOLUTION AND RECOMMENDATION

made by the researchers with quantitative analysis.

Forecasts are a basic input in the decision processes of operations

management because they provide information on future demand. Having a

be needed to meet demand.

Accuracy and control of forecasts is a vital aspect of forecasting, so

forecasters want to minimize forecast errors. Accurate forecasts are necessary

a given time period.

Forecast error = Actual value – Forecast value

Forecast accuracy is a significant factor when deciding among forecasting

alternatives. Accuracy is based on the historical error performance of a forecast.

Averaging techniques smooth fluctuations in a time series because the

into an average. A forecast based on an average thus tends to exhibit less

a. Moving average. A moving average forecast uses a number of the most

recent actual data values in generating a forecast. The moving average

forecast can be computed using the following equation:

b. Weighted moving average. A weighted average is similar to a moving

values in a time series.

w1Yt  w2Yt 1  ...  wnYt  n1

c. Exponential smoothing. Exponential smoothing is a sophisticated

weighted averaging method that is still relatively easy to use and