BUSINESS STATISTICS-II

ASSIGNMENT

AGARWAL AUTOMOBILES
FUEL STATIONS FORECASTING AND INVENTORY MANAGEMENT

TEAM 7

Team members:
1. Prasanna Kumar V (1813065)
2. Priyanka Mishra (1813068)
3. Pugazhmani R (1813069)
4. Raja B (1813073)
5. Rajalakshmi N (1813074)
CASE SUMMARY
Agarwal automobiles was an authorized fuel station for BPCL, major oil
and gas company. It is located in Maharashtra, India. The fuel station was facing intense
competition both in terms of both consumer satisfaction and future demands. Therefore, to
maintain a high customer service level, Alok kept high inventory levels. Most of the operating
decisions of the business were based on simple operating principles combined with managerial
intuitions. There was a need for an analysis and development of advanced planning models.

Agarwal automobiles sold three main products at the fuel station: Diesel, Petrol
and High speed petrol (HSP). Renovations were made in the fuel station which increased the
inventory capacity and physical space of the business which in turn increased the number of
customers that could be served at one time, boosting sales. Alok’s concerns are about the inventory
level that should be kept in order to fulfil the demand of the customers and to maximize the profits
at the same time.

The fuel station followed daily review purchase policy, which required them an
estimate of the next day demand and a calculation of the available inventory before placing the
order. The company’s goal was to minimize the chances of running out of stocks for the three
products, while fulfilling its cost minimization objective. Inventory carrying cost were not directly
accounted for in the above process, although the company confirmed that the cost capital could be
estimated at 10% per year. After discussion and sharing of business information, Aditya was
provided access to the monthly sales data for the previous seven years, which could offer insights
into the fuel stations general business growth and future potential. He was also advised to refer to
the figures for the daily demand for previous years. With all this information, Aditya’s task was to
develop an inventory rationalizing model that the fuel station could adopt to manage its inventory
planning for the future. In time series decomposition the trend was decreasing and it found to be
match with the actual sales. We performed Mean absolute deviation (MAD) for all these forecasted
value and it is found that
OBJECTIVE OF THE CASE

1.To find out the best model for forecasting the future demand.

2.Use exponential order Quantity model to find out the optimal quantity to be ordered.

3. To find out when to order, how much to order of all the three quantities.

RESULTS OF THE CASE

1. HSP

Four types of methods have been incorporated to determine the forecasted values of HSP
namely moving average, weighted average, exponential smoothening and time series
decomposition. The moving average is done for 3 months, weighted average is done for 3 months
too taking weights as 0.7, 0.2 and 0.1. In case of exponential smoothening the α- value is taken as
0.3. It is found that weighted moving average gives the most matching data for HSP forecasted
value in terms of MAD value we obtained from other 4 methods.

Moving average 2295.18254

Weighted moving average 1961.082
HSP
Exponential smoothing 2290.528
Decomposition 2207.083

This table depicts that in case of HSP, MAD value is lower for weighted moving
average. The graph plotted between weighted moving average and monthly sales data gives the
best forecasting method for HSP.
 40000
35000
30000
25000
20000 HSP

15000 Weighted moving average

10000
5000
0
1 4 7 1013161922252831343740434649525558616467707376798285

The graph depicts the forecasted value and the actual sales value for HSP. The forecasted
value is very similar to the actual sales value. This data can be used for predicting the future
quantity of the HSP to be ordered using the EOQ model.

2.PETROL

Four types of methods have been incorporated to determine the forecasted values of petrol
namely moving average, weighted average, exponential smoothening and time series
decomposition. The moving average is done for 3 months, weighted average is done for 3 months
too taking weights as 0.7, 0.2 and 0.1. In case of exponential smoothening the α- value is taken as
0.3. It is found that weighted moving average gives the most matching data for petrol forecasted
value in terms of MAD value we obtained from other 4 methods.

Moving average 7499.32

Weighted moving average 5576.87
Petrol
Exponential smoothing 5625.691
Decomposition 11405.68

This table depicts that in case of petrol, MAD value is lower for weighted moving average.
The graph plotted between weighted moving average and monthly sales data gives the best
forecasting method for HSP.
 160000

140000

120000

100000

80000 Petrol

60000 Weighted Moving Average

40000

20000

0
1 4 7 1013161922252831343740434649525558616467707376798285

The graph depicts the forecasted value and the actual sales value for petrol. The forecasted value
is very similar to the actual sales value. This data can be used for predicting the future quantity of
the petrol to be ordered using the EOQ model.

3.Diesel

Four types of methods have been incorporated to determine the forecasted values of petrol
namely moving average, weighted average, exponential smoothening and time series
decomposition. The moving average is done for 3 months, weighted average is done for 3 months
too taking weights as 0.7, 0.2 and 0.1. In case of exponential smoothening the α- value is taken as
0.3. It is found that weighted moving average gives the most matching data for diesel forecasted
value in terms of MAD value we obtained from other 4 methods.

Moving average 38509.64257

Weighted moving average 23172.68
Diesel
Exponential smoothing 32619.37307
Decomposition 32775.23

This table depicts that in case of diesel, MAD value is lower for weighted moving average. The
graph plotted between weighted moving average and monthly sales data gives the best forecasting
method for diesel.
 250000

200000

150000
Diesel

100000 Weighted Moving Average

50000

0
1 4 7 1013161922252831343740434649525558616467707376798285

The graph depicts the forecasted value and the actual sales value for diesel. The forecasted value
is very similar to the actual sales value. This data can be used for predicting the future quantity of
the diesel to be ordered using the EOQ model.

There has been a trend that is observed in the graphs plotted. The graphs of diesel and petrol has
been showing rising trend and the graph of HSP is showing decreasing trend. When we compare
sales data of HSP and petrol, it is found that the sales of petrol is rising and the sales of HSP is
rising, it maybe because of the difference in the pricing of HSP and petrol. Since Petrol is showing
positive trend and HSP is showing negative trend.
SEASONALITY

Month HSP %change Diesel %change Petrol %change

Jan 1.007051166 0.705116615 1.023360229 2.336022874 0.999178822 -0.082117819
Feb 0.94981526 -5.01847401 0.945679566 -5.43204342 0.954701249 -4.529875128
Mar 1.046299051 4.629905141 0.976928083 -2.30719173 1.032870164 3.28701643
Apr 0.930718523 -6.92814766 1.132537932 13.25379321 0.943190152 -5.680984809
May 1.075895535 7.589553518 0.875557775 -12.4442225 1.07003513 7.003512968
Jun 1.00783714 0.78371404 1.138525925 13.85259252 1.006539968 0.653996827
Jul 0.983669277 -1.63307225 1.014611512 1.46115117 0.995946473 -0.405352691
Aug 1.02060612 2.060611969 0.892847269 -10.7152731 1.002507029 0.250702863
Sep 0.920874927 -7.91250734 0.775270368 -22.4729632 0.945886903 -5.411309673
Oct 1.011677444 1.167744434 1.238075604 23.80756043 0.99989785 -0.010215026
Nov 1.057525106 5.752510615 0.99339896 -0.66010404 1.039176451 3.917645073
Dec 0.978980165 -2.10198345 0.95693337 -4.30666299 0.967105112 -3.289488769

The above table shows the seasonal changes in the months of January to December in case of HSP,
Petrol and Diesel. The change in HSP is high (7.589%) in the months of May. In case of petrol it
is the same May month that sales of petrol is higher. In case of Diesel, the sales is higher during
the month of June (13.852%). The sales value rises during the month of May and June as they are
the months for vacation and people will be travelling a lot.

INVENTORY MODEL

Z = 2.33 (For 99% of Probability Factor)

Replenishment Lead Time = 1 Day

Number of Products = 3

Planning Horizon = 30

Safety Stock = Z* Demand during Lead Time.

EOQ model for optimal order quantity:

2𝐷𝑆
𝑄=√
𝐻
S = Ordering cost per day = 150

H = Inventory carrying cost = 0.10

For petrol,

D = 107740
The value of EOQ model

Q = 17978.32028. This is the optimal quantity of petrol to be ordered for the month of June 2016.

For Diesel,
D = 142671.8
The value of EOQ model

Q = 20688.53306. This is the optimal quantity of diesel to be ordered for the month of June 2016.

For HSP,

D = 7784.8

The value of EOQ model

Q = 4832.639. This is the optimal quantity of HSP to be ordered for the month of June 2016.

OPTIMAL FREQUENCY OF ORDER (Petrol, Diesel, HSP)

𝐷𝑃 ℎ𝐶𝑝 + 𝐷𝑑 ℎ𝐶𝑑 + 𝐷𝑠 ℎ𝐶𝑠

𝑛∗ = √
2𝑆 ∗
where

Dp = Average monthly demand of Petrol

Dd = Average monthly demand of Diesel

Ds = Average monthly demand of HSP

Cp = Price of petrol, which is 70.

Cp = Price of diesel, which is 60.

Cp = Price of HSP, which is 73.

The optimal number of orders that has to be placed in one month is 74.07766 which is
approximately 75 times.

(𝐷𝑝 + 𝐷𝑑 + 𝐷𝑠 )
𝑄∗ =
𝑛∗

The value is found to be 3445.392385 liters.

The total capacity of tanker is 12,000 liters. The ordered quantity calculated was 3445.392385
liters which is significantly lesser than 12,000 liters. Therefore, the frequency of placing orders
must be reduced.

The minimum frequency that the order can be placed is,

142671.8 + 104770 + 7784.8

𝑛∗ =
12000

= 21.2688833

~ 22 times.
CONCLUSION

The suggestion that Mr. Aditya can propose to Agarwal Automobiles is to

order for a total of 3445.392385 liters of all combining petrol, diesel and HSP. The frequency of
order can be 22 times in a month and the individual quantity of 17978.32028 liters, 20688.53306
liters and 4832.639 liters in terms of petrol, diesel and HSP respectively.