Lambton's Department Store sells white percale sheets. The demand for the last6 years, along with the forecasts for the current year calculated using a three-year moving average and exponential smoothing with? = 0.3is provided below.The Mean Forecast Error (MFE), Mean Absolute Deviation (MAD) and Mean Absolute Percentage Error (MAPE) are shown in the associated table.

(a)Which forecast would you recommend for the coming year? Justify.

Your preferred forecast is now used for inventory management purposes. The store is open 365 days (52 weeks) per year. Every four weeks the inventory is counted and a new order is placed (that is a T (P) ordering system is used).It takes two weeks for the sheets to be delivered. The standard deviation of demand for the sheets (year and week) and the number currently in stock is given below. Lambton's wishes to operate with a 5 percent probability of a stock-out during the lead time.Each set of sheets costs Lambton's $100 and the annual cost of holding inventory is 20 percent. Orders cost $50 each to place. There are no outstanding orders or back-orders.

(b)How many sheets should you order with a four-weekly review period? Justify, showing the reorder level M broken down into demand during the lead time and time period, and safety stock.

(c)Should Lambton's continue with a four-weekly review period for the sheets? If not, what review period do you recommend for the sheets? Justify.

(d)How would Lambton's sheet ordering policy differ if they adopted a Quantity-based (Q) ordering system?Which system would you recommend and why?

Assignment 3 Case 5 Exponential Lambton's Department Store: Moving Average Smoothing 4,000 Percale Sheet Demand Forecast a = 3-year Week Demand MA 0.3 3,500 3,663 3,663.0 3,226 3,663.0 Demand 3.000 W N 2,668 3,531.9 2,801 3185.7 3,272.7 2,500 2,823 2898.3 3,131.2 6 2,845 2764.0 3,038.7 2,000 2,980.6 2 3 4 5 6 2823.0 1 Year Demand a= 0.3 3-year MA Std Dev (year) 373.0 Stdev(week) 51.7 Current stock 219 Exponential Smoothing 3 year Moving Average a = 0.3 Forecast Absolute Absolute Forecast Absolute Absolute Week Demand Forecast Error Error % error Forecast Error Error % error 3663 3,663.0 0.0 0.0 0.0 3226 3,663.0 -437.0 437.0 13.5 2668 3,531.9 -863.9 863.9 32.4 2801 3185.7 -384.7 384.7 13.7 3,272.7 471.7 471.7 16.8 2823 2898.3 -75.3 75.3 2.7 3,131.2 -308.2 308.2 10.9 2845 2764.0 81.0 81.0 2.8 3,038.7 -193.7 193.7 6.8 MFE = -126.3 -379.1 MAD = 180.3 379.1 MAPE = 6.4 13.4