Forecasting_Inventory_Example

Forecasting_Inventory_Example - Forecasting Inventory...

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Forecasting Inventory Example “To know the future is impossible. To predict the future is easy. To accurately predict the future is what separates the Bill Gates’s from the Barney Fifes.” - Dr. Statslove
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Example A firm is interested in determining how many units to order for each of the next six months. Their forecasts (obtained a seasonal model) are on the next slide.
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Demand Forecasts/Means Month Mean Demand January 800 February 600 March 300 April 1000 May 550 June 680
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Variation They have determined (from past data) that the standard deviation for each period is roughly 10% of the mean (forecast) demand. This yields the data on the next slide.
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Demand with Variation Month Mean Demand St. Dev. January 800 80 February 600 60 March 300 30 April 1000 100 May 550 55 June 680 68
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Distribution? From past data, demands are approximately normally distributed. Ex. For January, demand will be normally distributed with a mean = 800 and standard deviation = 80.
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Lead Time Lead time is two weeks. For simplicity, they operate 28 days each month. (Thus, lead time is ½ month.)
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Problem We need to answer the following questions.
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