PGP (2016)- Sales and Operations Planning (SOP)

Practice Problems
1. Sunrise Baking Company markets doughnuts through a chain of food stores. It
has been experiencing over- and underproduction because of forecasting errors.
The following data are its demand in dozens of doughnuts for the past four
weeks. Doughnuts are made for the following day; for example, Sundays
doughnut production is for Mondays sales, Mondays production is for Tuesdays
sales, and so forth. The bakery is closed Saturday, so Fridays production must
satisfy demand for both Saturday and Sunday
Day
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday

4 weeks ago
2200
2000
2300
1800
1900

3 weeks ago
2400
2100
2400
1900
1800

2 weeks ago
2300
2200
2300
1800
2100

Last week
2400
2200
2500
2000
2000

2800

2700

3000

2900

Make a forecast for this week on the following basis:

a. Daily, using a simple four-week moving average.
b. Daily, using a weighted average of 0.40, 0.30, 0.20, and 0.10 for the past four
weeks.
c. Which of the above two forecasts is better?
d. Sunrise is also planning its purchases of ingredients for bread production. If bread
demand had been forecast for last week at 22,000 loaves and only 21,000 loaves
were actually demanded, what would Sunrises forecast be for this week using
exponential smoothing with = 0.10?
e. Suppose, with the forecast made in c, this weeks demand actually turns out to
be 22,500. What
would the new forecast be for the next week?

2. Consider a three-period production planning problem in which there can be both

regular time and overtime production in each period. In every period, the regular
time capacity is two units and overtime capacity is two units. Demands in period
1, 2 and 3 are two, seven and three units respectively. Regular time production
cost is $4 per unit and overtime production cost is $7 per unit. Inventory holding
cost are $1 per unit per period and backlogging cost is $2 per unit per period.
There is no initial inventory and the final net inventory is to be zero. All
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shortages are backlogged. Construct the transportation table for the problem.
Also formulate this as an LP problem.

3. Construct the optimization model to determine the optimal production schedule.

The initial inventory is 5 units. No shortages are to be planned. The inventory
carrying cost is $1 per unit per period.
Regular time production
capacity
Overtime production
capacity
Subcontracting source
capacity
Regular time unit cost ($)
Overtime unit cost ($)
Subcontracting unit cost
($)
Demand requirements

Period 1
100

Period 2
100

Period 3
60

Period 4
100

20

20

10

10

40

40

40

40

15
17
20

16
19
21

18
21
22

20
24
23

90

110

100

115

How would this model change if shortages are backlogged at $3 per unit per
period?
Consider the case where backlogs are allowed. However, when a shortage
occurs, a fixed cost of $15 per unit is incurred; there is no recurring per period
cost of backlog; however, the shortage has to be made up with future
production. Model this case.
4. Consider a product A that consists of 2, 3, 4 units of B, C, and D respectively.
Two units each of F and G make one unit of C. B requires two units each of D and
E. In addition to the final Product A, the Component B is sold as a spare in the
market. The MPS for Product A and Component B is as follows:
MPS for 6 months
Period
Product A
Componen
tB

1
100
40

2
80
30

3
220
70

4
140
--

5
70
60

6
160
50

Develop BoM in various formats for this product.

Lead time, Inventory status and lot-sizing rule data is as follows:
Item

Lead Time

Inventory Status

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Lot-sizing- rule

A
B
C
D
E
F
G

2
2
1
2
1
2
1

200
900
750
2500
300
1000
600

Develop MRP tables.

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Lot for lot

Lot for lot
Lot for lot
2 periods
3 periods
500
1000