Question

A selected Forecast Model showed the lowest MAD at the beginning of the year with $60.5. If the following three quarters reflected the following MAD:

Q2: $60.2 Q3: $75.4 Q4: $78.9
Would you stay using this model for the next year? Explain your answer.

Answer 1

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Answer-

The MAD is the mean of outright contrasts among real and anticipated qualities. Higher theMAD esteem, more regrettable the conjecture. Distraught qualities over past seventy five percent demonstrate that MAD is risingconsistently; consequently we should change the conjecture model. We wouldn't proceed with the samemodel for the following year as mistake would increment further. This pointer indicates how the systemis to do the model determination. Here, we can pick between two strategies: The firstprocedure includes the framework completing an essentialness test and afterward choosing the appropriatemodel.

The second procedure involves the system determining the mean absolute deviation (MAD) using various parameter combinations for the models to be tested and then selecting the model which displays the lowest MAD. This procedure takes considerably longer than the first procedure. I will be stay using this model next year because the data reflecting showing seasonal basis as first two quarter has low MAD and next two quarter has higher MAD

2. The EOQ of the product you are purchasing is 20,350units. The supplier runs 40,000units per lot. He wants you to buy all of them since you are the only buyer of this product. What will you do and explain?

The EOQ is 20,350 units but supplier is asking to buy a lot of 40,000 units. If we buy whole lot, we may save ordering cost, but our holding cost would increase. Since we're the only buyer, we could insist supplier to sell at a lower price so that net amount saved by buying the whole lot plus amount saved in ordering is more than our increase of holding cost. We will purchase the full lot if they give a trade discount which will null our caring cost and make saving in our expenses. We will agree with buyer only if they give us trade discount due to this our purchasing cost will decrease and as we are only one buyer we can also ask for more trade discount.

3. A six sigma project was done and it was found that the temperature was affecting the production rate. The initial project measured the production rate trend to identify the potential reasons of concern. If you has to decide which parameter you need to control,(Temperature or the production rate), explain which one and why?

Since temperature is the cause of concern, it's the parameter that should be controlled. A patient can't be kept healthy unless he's cured of the disease he's suffering from. Even if we increase the production rate by other means without controlling for temperature, our actual level would remain worse than what we should have had. We need to control production run the reason is because production run was most important for the organization if we give less priority in production run it will affect our cost and due to this organization has to suffer lot. On the other hand temperature is also need to be control, but we can chose it to after production run as it does not lead to a financial loss to the company.