Recommendation for how many units of each style Wally should make during the initial phase of production. Assume that all of ten styles in the sample problem are made in HK, and that Wally’s initial production commitment must be at least 10,000 units.
In order to minimize the company’s risk of over stock due to relatively inaccurate demand forecast in the first-phase production, it is a wise idea to order at the minimum i.e. 10,000 units. According to Exhibit 10, the total number of all 10 styles added up to 20,000 units. Therefore the goal is to reduce this by half as well as taking mean and standard deviation of each style into account. Obviously, to produce half of the forecast, it has to produce at lower than the “mean” (Average Forecast) of each style. By taking standard deviation into account, this can be calculated using the formula
“Mean – K*Standard deviation” . Note that the standard deviation in this formula is “2*standard deviation” in the Exhibit 10 as Wally found that the standard deviation of demand for a style was about twice the standard deviation of the Buying Committee’s forecasts for that style. “K” is the constant which makes the sum of all styles produced equals to 10,000 units. Using excel to derive the value of K, it is 1.0608 which gives the appropriate ordered numbers of unit for each style as follow;
|Style |Avg Forecast (Mean) |2*Std Deviation |Mean - K*(2*Std Deviation) | |Gail | 1,017 | 388 | 605 | |Isis | 1,042 | 646 | 357 | |Entice | 1,358 | 496 | 832 | |Assault | 2,525 | 680 | 1,804 | |Teri | 1,100 | 762 | 292 | |Electra | 2,150 | 807 | 1,294 | |Stephanie | 1,113 | 1,048 | 1 | |Seduced | 4,017 | 1,113 | 2,836 | |Anita | 3,296 | 2,094 | 1,075 | |Dephne | 2,383 | 1,394 | 904 | |TOTALS | 20,000 | | 10,000 |
Operational changes that...