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Pamantasan ng Lungsod ng Maynila

College of Engineering and Technology


Department of Chemical Engineering

QUANTITATIVE
EVALUATION
MODELS

Fulugan, Ceazar Justine L.


BS ChE IV

January 11, 2017

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Pamantasan ng Lungsod ng Maynila
College of Engineering and Technology
Department of Chemical Engineering

TABLE OF CONTENTS

Quantitative Evaluation Models

Inventory Models 2

Queuing Theory 4

Network Models 6

Forecasting 8

Regression Analysis 10

Simulation 11

Linear Programming 13

Sampling Theory 16

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INVENTORY MODELS

Concept:

Mathematical equation or formula that helps a firm in determining the economic


order quantity, and the frequency of ordering, to keep goods or services flowing to the
customer without interruption or delay.

Inventory also referred as stocks are basically the goods and raw materials that any
business would hold and are ready or will be ready for sale. Inventory model is a
mathematical model that helps business in determining the optimum level of inventories
that should be maintained in a production process, managing frequency of ordering,
deciding on quantity of goods or raw materials to be stored, tracking flow of supply of
raw materials and goods to provide uninterrupted service to customers without any delay
in delivery.

Example Case Study #1: Application of Inventory Model in Determining Stock Control in
an Organization

Problem Statement:

Inadequate control of inventories can result in both under and over stocking of
items. Under stocking results in missed deliveries, lost sales, dissatisfied customers.
Overstocking unnecessarily ties up funds that might be more productive elsewhere. Even
though overstocking may appear to be lesser of the two, the price tag for excessive
overstocking can be staggering when inventory holding costs are high and matters can
easily get out of hand.
The focus of this study is to help the supermarket maintain inventory levels at
lowest cost possible while meeting customers demand. It will also help them to guard
against out of stock syndrome through a proper inventory management .More so, it will
help them in avoiding lower ordering costs as well as overstocking and the last but not
the least is that it will help them in avoiding shortage of stocks.

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Equations Used:

The EOQ model is a relatively basic model that enables organizations to determine the
optimal order quantity and order point. These are assumptions and conditions that have
to be met to be able to implement the EOQ model.

Where:
D = Annual demand of unit.
K = Ordering or setup cost.
H = Holding cost/unit/year.
qo = Optimal order quantity.
no = Optimal order cycle.
to = Optimal order time.
Solution and Conclusion:
Since transportation is rather expensive, the combination of orders at different
time interval was carefully calculated and constantly updated. From the EOQ graphs
that were developed throughout the paper, it can be seen that reorder point sometimes
coincide or occur close together. A fairly simple schedule will be tested by J. O.

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College of Engineering and Technology
Department of Chemical Engineering

Adimohas investment to know if modifications are required. The reorder points and
EOQs changed and were readjusted and modeled to maintain equilibrium or costs
minimization.
Example Case Study #2: INVENTORY MANAGEMENT THROUGH EOQ MODEL (A CASE
STUDY OF SHPRESA LTD, ALBANIA)
The success of many businesses is related to their ability to provide customers the
required goods and services in the right place, at the right time. Different businesses
adopt different inventory techniques depending on their activity, but an interesting case
study of appropriate techniques of holding inventory is the inventory management for
perishable products. The company "Shpresa" ltd, Albania is facing an ineffective predictive
method, which caused the excess stock in the warehouse, loss of sales, and also loss of
earnings. In our analysis, we consider a product that is marketed by this company, the
flower of "orchid". For this product we have applied inventory management model of
EOQ (Economic Order Quantity) and ROP (Reorder Point). The data used in the analysis
do belong only to its requests for retail product. This is due to the impossibility of collecting
the necessary information for the whole application (including wholesale) and for all
products. Furthermore, we have calculated cost estimates to compare the two
techniques, the one used by this business and the recommended model. We recommend
to this business to implement inventory control model in place to increase stocks and
reduce reorder.

QUEUING THEORY
Concept:
The queuing theory is one that describes how to determine the number of service
units that will minimize both customer waiting time and cost of service.
The queuing theory is applicable to companies where waiting lines are a common
situation. Examples are cars waiting for service at a car service center, ships and barges
waiting at the harbor for loading and unloading by dock-workers, programs to be run in
a computer system that processes jobs, etc.

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Example Case Study #1: Simulation Technique for Queuing Theory: A Case Study
This study shows that that the analysis and observation of customers in queue and
also reveals with the historical backgrounds it gives an overview of different solution
methods and tools. The information of this queuing model gives the information that the
numbers of their servers are not adequate for the customers service. This shows that, they
need 6 servers instead of the 2 at present in the State Bank of India, India. It suggests a
need to increase the number of servers in order to serve the better service to customer s
and the time of customer in queue is reduce, their satisfaction may be increased.
Equations Used:

Where:
: The mean customers arrival rate
: The mean service rate
: / : utilization factor

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College of Engineering and Technology
Department of Chemical Engineering

: /c : utilization factor ,c is number of servers

Example Case Study #2: A Case Study of Queuing System at ATM Machine
This paper discusses a case study of a queuing system [1] at ATM machine which
originally operates on single server (single ATM machine). In our daily life we generally
find a long queue at the atm machine. As a result of this a customer has to spend
considerable amount of time in queue. In such a situation if instead of using a single ATM
machine if we use double ATM machine than it will decrease the waiting time in
queue.Against this background, the queuing process is employed with interarrival time
and service time having exponential distribution. The data for this study was collected
from primary source and is limited to ATM service point of state bank of India located at
Ramesh chowk, Aurangabad ,bihar ,India. The assistance of three colleague was sought
in collecting the data. The Interarrival time and service time data was collected during
busy working hours (i.e. 10.30am to 4:00pm)for a period of 60 days. MATLAB R2014a has
been used for simulation of queuing models.

NETWORK MODELS
Concept:
The network model is a database model conceived as a flexible way of
representing objects and their relationships. Its distinguishing feature is that the schema,
viewed as a graph in which object types are nodes and relationship types are arcs, is not
restricted to being a hierarchy or lattice.

Example Case Study #1: Project Planning and Scheduling using PERT and CPM
Techniques With Linear Programming

Completing a project on time and within budget is not an easy task. Project
planning and scheduling plays a central role in predicting both the time and cost aspects
of a project. This study is aimed at finding trade-off between the cost and minimum
expected time that will be required to complete the building project. The data on the cost

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College of Engineering and Technology
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and duration of activities involved were obtained Angel Estates and Construction Ltd., a
construction company based in Ashanti region, Ghana. Both critical path method (CP M)
and project evaluation and review technique (PERT) were used for the analysis. The
activities underwent crashing of both the time and cost using linear programming, this
paved way for the determination of critical path. Further analysis revealed that th e
shortest possible time for the completion of the analyzed building project is 40 days
instead of the expected duration of 79 days. This means that through proper scheduling
of activities, the expected completion time was reduced by 39 days.

Example Case Study #2: Real-time modeling of water distribution systems: A Case Study

Problem:

Water utilities worldwide face increasing challenges to preserve the hydraulic and
water quality integrity of their water distribution networks. These challenges stem from
burgeoning populations and migration to urban cities that continue to increase the load
on aging, inefficient, and already strained infrastructures. This has created a pressing need
for integrating supervisory control and acquisition systems with network sim ulation
models for proactive management of these networks. Such an integrated platform is the
basis for the real-time smart water network decision support system (SWNDSS) described
here.
Solution:
The proposed system has the power to transform a water utilitys routine network
modeling functions from planning and design to full-spectrum engagement that drives
more efficient operationsincluding managing water quality and energy, developing
daily operating plans, addressing planned and emergency outages, and diagnosing and
resolving field issues. Aspects of the SWNDSS ar described in a case study from the Las
Vegas Valley Water District in Las Vegas, Nev.

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FORECASTING
It is the process of making predictions of the future based on past and present data
and most commonly by analysis of trends. A commonplace example might be estimation
of some variable of interest at some specified future date. Prediction is a similar, but more
general term.
Quantitative forecasting models are used to forecast future data as a function of
past data. They are appropriate to use when past numerical data is available and when it
is reasonable to assume that some of the patterns in the data are expected to continu e
into the future. These methods are usually applied to shortor intermediate -range
decisions. Examples of quantitative forecasting methods are last period demand, simple
and weighted N-Period moving averages, simple exponential smoothing, poisson process
model based forecasting and multiplicative seasonal indexes

Example Case Study #1: Application of Proper Forecasting Technique in Juice Production:
A Case Study
Every organisation that produces product evaluates their performance at certain
intervals to keep the pace with the market. Forecasts are evaluated to improve models to
achieve better policy and planning outcomes. The purpose of this study is to observe
whether the forecast errors are within the reasonable limit of expectations or whether
these errors are irrationally large and require an improvement in the statistical models and
process of producing these forecasts. Statistical time series modelling techniques like
Moving Average, Simple Exponential Smoothing and Least Square methods are used for
the study and their performance evaluated in terms of Mean Average Deviation (MAD),
Mean Squared Error (MSE).

Equation Used:

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Pamantasan ng Lungsod ng Maynila
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Department of Chemical Engineering

Example Case Study #2: Development of an Adaptive Forecasting System: A Case Study
of a PC Manufacturer in South Korea
We present a case study of the development of an adaptive forecasting system for
a leading personal computer (PC) manufacturer in South Korea. It is widely accepted that
demand forecasting for products with short product life cycles (PLCs) is difficult, and the
PLC of a PC is generally very short. The firm has various types of products, and the volatile
demand patterns differ by product. Moreover, we found that different departments have
different requirements when it comes to the accuracy, point-of-time and range of the
forecasts. We divide the demand forecasting process into three stages depending on the
requirements and purposes. The systematic forecasting process is then introduced to
improve the accuracy of demand forecasting and to meet the department-specific
requirements. Moreover, a newly devised short-term forecasting method is presented,
which utilizes the long-term forecasting results of the preceding stages. We evaluate our
systematic forecasting methods based on actual sales data from the PC manufacturer,
where our forecasting methods have been implemented.

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REGRESSION ANALYSIS
Concept:
The regression model is a forecasting method that examines the association
between two or more variables. It uses data from previous periods to predict future
events.
Regression analysis may be simple or multiple depending on the number of
independent variables present. When one independent variable is involved, it is called
simple regression; when two or more independent variables are involved, it is called
multiple regression.
Equation:
Regression equation can be used to predict the values of y, if the value of x is
given, and both y and x are the two sets of measures of a sample size of n. The formulae
for regression equation would be

Example Case Study #1: ANALYSIS OF THE ECONOMIC PERFORMANCE OF A


ORGANIZATION USING MULTIPLE REGRESSION
Economic performance is one of the major goals of any company. This involes
important decisions to optimize the allocation of cash resources, ie labor, raw materials,
energy, capital equipment, etcetera. The objectives of the organization can be measured
as effectiveness (the extent to which objectives have been met) or as effici ency (the extent
to which objectives have been achieved in the available resources).

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In this regard, it is particularly important to identify factors that influence getting


the desired income and the degree of their influence on the economic performance of
the organization. This papers aim is to realize an analysis of these factors and their degree
of correlation on economic performance using multiple regression.

SIMULATION
Concept:
It involves developing a model of some real phenomenon and then performing
experiments on the model evolved. It is descriptive in nature and not an optimizing
model.
Process:
Definition of the problem
Construction of an appropriate model
Experimentation with the model
Evaluation of the results of simulation

Monte Carlo simulation is a computerized mathematical technique that allows


people to account for risk in quantitative analysis and decision making. The technique is
used by professionals in such widely disparate fields as finance, project management,
energy, manufacturing, engineering, research and development, insurance, oil & gas,
transportation, and the environment. Monte Carlo simulation furnishes the decision-
maker with a range of possible outcomes and the probabilities they will occur for any
choice of action

Procedure for Monte Carlo Simulation:


Step 1: Establish a probability distribution for the variables to be analyzed.
Step 2: Find the cumulative probability distribution for each variable.
Step 3: Set Random Number intervals for variables and generate random numbers.

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Pamantasan ng Lungsod ng Maynila
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Step 4: Simulate the experiment by selecting random numbers from random numbers
tables until the required number of simulations are generated.
Step 5: Examine the results and validate the model.

Example : An ice-cream parlor's record of previous months sale of a particular variety of


ice cream as follows

Simulation of Demand Problem

Simulate the demand for first 10 days of the month


Solution: Find the probability distribution of demand by expressing the frequencies in
terms of proportion. Divide each value by 30. The demand per day has the following
distribution as shown in table.

Probability Distribution of Demand

Find the cumulative probability and assign a set of random number intervals to various
demand levels. The probability figures are in two digits; hence we use two digit random
numbers taken from a random number table. The random numbers are selected from the
table from any row or column, but in a consecutive manner and random intervals are set
using the cumulative probability distribution as shown in Table
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Cumulative Probability Di stribution

To simulate the demand for ten days, select ten random numbers from random number
tables. The random numbers selected are, 17, 46, 85, 09, 50, 58, 04, 77, 69 and 74 The
first random number selected, 7 lies between the random number interval 17-49
corresponding to a demand of 5 ice-creams per day. Hence, the demand for day one is 5.
Similarly, the demand for the remaining days is simulated as shown in Table.
Demand Simulation

LINEAR PROGRAMMING

Concept:
Linear Programming (LP) is a mathematical modelling technique useful for
allocation of limited resources such as material, machines etc to several competing
activities such as projects, services etc. A typical linear programming problem consists of
a linear objective function which is to be maximized or minimized subject to a finite
number of linear constraints. (By a linear function we mean a function of the form
a1x1+a2x2.. where x1, x2.. are all variables.)

The founders of LP are George B. Dantzig, who published the simplex method in
1947, John von Neumann, who developed the theory of the duality in the same year,

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and Leonid Kantorovich, a Russian mathematician who used similar techniques in


economics before Dantzig and won the Nobel prize in 1975 in economics. The linear
programming problem was first shown to be solvable in polynomial time by Leonid
Khachiyan in 1979, but a larger major theoretical and practical breakthrough in the field
came in 1984 when Narendra Karmarkar introduced a new interior point method for
solving linear programming problems.

Steps

Define decision variables


Formulate the objective function
Formulate the constraints
Mention the non-negativity criteria

Components & Assumptions

Objective
Decision Variable
Constraint
Parameters
Non-negativity
Proportionality
Addivity
Divisibility
Certainty

Example Case Study: Profit Optimization Using Linear Programming Model

This paper aims for profit optimization of an Ethiopian chemical company located
in Adama (Ethiopia) using linear programming model. Particularly, our present study
brings out clearly the necessity of using quantitative techniques for utilization in Ethiopian

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company; a factory situated within Adama about 90 kms. from Addis Ababa (Capital of
Ethiopia). The first step comprises data generation. A questionnaire is prepared and
circulated amongst company staff both executive and technical to determine the
production, sales and profit during a few months of 2014. The profits varied considerably
owing to subjective approach. It was established that the decisions are undertaken by
experienced people without use of quantitative people and quantitative method. Whole
approach applied here is seemingly subjective. A theoretical perspective undertaken for
the present study is review of various different applications of linear programming. The
characteristics of base assumptions of linear programming and its advantages and
disadvantages towards establishing its need for optimization are briefly outlined in terms
of its application to the factory. Survey data is analyzed to determine the style of decision
making and the problem is defined. An objective function is created in terms of decision
variables of production, sales and profit over a period of time using the quantitatively
available data of these parameters. A linear programming model for company is
developed for profit optimization. The model equations with adequate restraints taking
into account manufacturing limitations are solved using MS-Excel solver. Finally, some
conclusive observations have been drawn and recommendations have been suggested.

Example Case Study #2: Linear Programming based Effective Maintenance and
Manpower Planning Strategy

In this study, maintenance related data of a cocoa processing industry in Akure,


Ondo State of Nigeria were collected, classified and analysed statistically. Linear
Programming (LP) model was formulated based on the outcomes of the analysed data.
The data analysed includes maintenance budget, maintenance cycle, production capacity
and waiting time of production facilities in case of failure. Data were analysed based on
manpower cost, machine depreciation cost and the spare part cost, which were assumed
to be proportion to the number/magnitude of the breakdowns. The generated LP model
was solved using software named the Quantitative System for Business- QSB (Version
3.0). The results of the model showed that four maintenance crews were needed to

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effectively carryout maintenance jobs in the industry. The sensitivity analysis showed that
the results have a wide range of feasibility.

Example Case Study #3: THE DIET PROBLEM: A WWW-BASED INTERACTIVE CASE STUDY
IN LINEAR PROGRAMMING

The Diet Problem is an interactive WWW-based case study that introduces users
(particularly students and practitioners) to the mathematics of optimization. Users select
foods for their menus, edit a set of nutritional constraints, and solve the linear program
by simply clicking some buttons and making simple entries. A detailed analysis of the diet,
complete with graphs and tables, is returned to the user.

The Diet Problem utilize a simple, yet interesting, linear program to introduce the
concepts of model planning, data gathering, optimal solutions, and dual variables. The
power of the World Wide Web makes the case study accessible to a wide variety of users
in many different countries.

SAMPLING THEORY

Sampling is a process used in statistical analysis in which a predetermined number


of observations are taken from a larger population. The methodology used to sample
from a larger population depends on the type of analysis being performed, but may
include simple random sampling or systematic sampling.

Theoretical sampling is a process of data collection for generating theory whereby


the analyst jointly collects codes and analyses data and decides what data to collect next
and where to find them, in order to develop a theory as it emerges. The initial stage of
data collection depends largely on a general subject or problem area, which is base d on
the analysts general perspective of the subject area. The initial decisions are not based
on a preconceived theoretical framework. The researcher begins by identifying some key
concepts and features which he/she will research about. This gives a foun dation for the
research. A researcher must be theoretically sensitive so that a theory can be

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conceptualized and formulated as it emerges from the data being collected. Caution must
be taken so as to not limit oneself to specific aspects of a theory; this will make a researcher
blind towards other concepts and aspects of the theory. The main question in this method
of sampling is this: what groups should the researcher turn to next in the data collection
process, and why?

Sample size

Whether you are using a probability sampling or non-probability sampling


technique to help you create your sample, you will need to decide how large your sample
should be (i.e., your sample size). Your sample size becomes an ethical issue for two
reasons: over-sized samples and under-sized samples.

Example Case Study: SAMPLING IN QUALITATIVE RESEARCH. PURPOSEFUL AND


THEORETICAL SAMPLING; MERGING OR CLEAR BOUNDARIES?

Sampling is a very complex issue in qualitative research as there are many


variations of qualitative sampling described in the literature and much confusion and
overlapping of types of sampling, particularly in the case of purposeful and theoretical
sampling. The terms purposeful and theoretical are viewed synonymously and used
interchangeably in the literature. Many of the most frequent misinterpretations relate to
the disparate meanings and usage of the terminology. It is important that the terminology
is examined so that underlying assumptions be made more explicit. Lack of shared
meanings and terminology in the nursing discourse creates confusion for the neophyte
researcher and increases the production of studies with weak methodologies. This paper
analyses critically purposeful and theoretical sampling and offers clarification on the use
of theoretical sampling for nursing research. The aim is not to make prescriptive
statements on sampling; rather, to enhance understanding of the differences between
purposeful and theoretical sampling for nursing research.

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