Case Study

ABC corporation located near Toronto manufacturers a specific souvenir item $($product X$)$ for tourists and sells it to different shops located at tourist destinations in Ontario. Off late, they are having issues with erroneous forecasting. The management needs to decide on the forecast of the item for $2024.$ The demand for the product for every month since January $2018$ to December $2023$ are given. Examine the data and choose an appropriate method of forecasting the demand for $2024$ from the following:

$$ Trend adjusted exponential smoothing $($alpha $=0\mathrm{.}3$; beta$=\mathrm{.}4)$

$$ Seasonal forecasting using seasonal relatives $($Assume that annual demand in

$2024$ will be $10\%$ more than that of $2023)$

Note: Trend adjusted exponential smoothing is a $$one$-$step$-$ahead$$ forecast.

a$)$ Using the appropriate method from the above, forecast the demand of the product for all months of the year $2024.$ Explain which method you chose and why.

b$)1\%$ error in forecasting costs ABC corporation $$500.$ How much do you think your forecast is expected to cost them in $2024($this might be approximate and not exact$)?$

c$)$ Each unit of the product X for ABC corporation needs $1$ unit of a specific raw material from a supplier. Over the years since $2018,$ they have followed an ordering policy of equal amount of order every quarter $($assume that they predicted yearly demand accurately$).$ Given the following information about setup and holding costs, find how much they could have saved by ordering the EOQ every year from $2018$ till $2023$:

a$.$ Setupcosts$($S$)=$$$200$perorderin$2018$andincreasedby$5\%$on$1$st January every year

b$.$ Holding costs $($H$)=$ $$5$ per item in $2018$ and increased by $10\%$ on $1$st January every year.

d$)$ In $2023,$ ABC Corporation introduced two new products $$ Y and Z$.$ Assuming expected demand for Y and Z were $2000$ and $3000$ and the unit profit margins for products X$,$ Y$,$ Z are $$12,$ $$14$ and $$15$ respectively, what was the optimal number of each product $($X$,$ Y and Z$)$ that ABC corporation produced? They did not want to produce more than the demand and the budget for producing all the products was $$19000.$ Production cost for each unit of X$,$ Y and Z were $$2,$ $$3$ and $$1$ respectively.