Operations Management

Which forecasting technique would you consider the most accurate? Why?

Most people view the world as consisting of a large number of alternatives. Futures research evolved as a way of examining the alternative futures and identifying the most probable. Forecasting is designed to help decision making and planning in the present.
To handle the increasing variety and complexity of managerial forecasting problems, many forecasting techniques have been developed in recent years. Each has its special use, and care must be taken to select the correct technique for a particular application. The manager as well as the forecaster has a role to play in technique selection; and the better they understand the range of forecasting possibilities, the more likely it is that a company’s forecasting efforts will bear fruit.Forecasting and Hitting Targets
The selection of a method depends on many factors—the context of the forecast, the relevance and availability of historical data, the degree of accuracy desirable, the time period to be forecast, the cost/ benefit (or value) of the forecast to the company, and the time available for making the analysis.
Forecasting is a statement pertaining to the future value of a variable of interest. Its crucial for good forecasting to be reliable, cost effective, simple and concise. Its very important for a forecast to be correct and that their be as few errors as possible.
Of the four choices (simple moving average, weighted moving average, exponential smoothing, and single regression analysis), the weighted moving average is the most accurate, since specific weights can be placed in accordance with their importance. The other methods make assumptions, such as an average, straight line, or exponential curve. The weighted average may be modified to any form. If a long time span is taken, however, the weighted average can be cumbersome to use. In addition, as time periods pass, the user most likely would like to change the weights. This would add to the difficulty of using the techniques for a large number of applications such as forecasting demand for inventory items.

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What are the main problems with using adaptive exponential smoothing in forecasting?

Adaptive smoothing is computationally difficult; it requires solving a set of equations in sequence. The user must select two constants for the equations; one is adjusted by the equations, but the other is not. It is not clear as to what the value should be. Lastly, there is some challenge to the value of adaptive smoothing when compared to other methods.

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5 Common Questions on Supply Chain Management

New Supply Chain Agenda: The 5 Steps That Drive Real Value1. What are the advantages and disadvantages to a firm having a small number of suppliers?

The advantage of a smaller number of suppliers is that a closer relationship can be built with your suppliers. This can lead to long-term relationships, trust, information sharing, and exploiting the individual strengths of the organizations. However, by having fewer suppliers, the risk of something occurring to your source of
an item is increased because of a lack of redundancy.

2. What would be the different steps or elements in a supply chain for a service? Give an example.

Generally, the supply chain is shorter since there is very little, if any, raw material or component parts.

3. How has technology accelerated the trend toward disintermediation?

Better communications allows the gap to close between suppliers and customers regardless of their location in the world.

4. What are the main differences between having a vendor’s employees working in your manufacturing operation and you haring your own employees to do the same work?

The vendor’s employees have direct access to the vendor’s database and can provide the needed information in a shorter period of time.

5. Identify all of the steps in the supply chain for a hamburger that you buy at McDonald’s. How might this supply chain differ for a McDonald’s located in a developing country?

The steps would be growing of the food and manufacture of paper product (wrappers, etc.) to processing of the food, to distribution to the stores, to the customer. The availability of certain foods in developing countries could alter this system.

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Marginal efficiency of capital

The marginal efficiency of capital is the MRP of an extra unit of capital less its cost.

MEC = MRP of Capital – Cost of Capital

The marginal efficiency of capital may fall for the following reasons:

(i) If the selling price of the finished good declined this would lead to lower revenue for the firm. This would reduce the MRP of each extra unit of capital employed and would lead to a fall in the MEC of capital.

(ii) If the MPP (Marginal Physical Product) of each extra unit of capital decreased. A fall in the MPP of capital could be due to the firm using old or worn-out machinery. This fall in output would lead to a lower MRP as MRP depends on the MPP.

(iii) If the cost of capital increased (assuming MRP remains the same), this would lead to a fall in the Marginal Efficiency of Capital. A higher cost of capital could be caused by inflation in the price of machinery and capital
goods or a shortage of these capital goods.

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Understanding Components Of Cash Conversion Cycle

Strategic Cash Flow Management (Express Exec)When evaluating cash flow, those factors directly affecting profit, revenue and expenses, are easy to understand and their affect on cash is straight forward; decreases in costs or increases in profit margin results in less cash going out or more cash coming in, and increased profits.

However, the working capital components of the Cash Conversion Cycle are a little more complex. In simple terms, an increase in the amount of time accounts receivables are outstanding uses up cash, a decrease provides cash; an increase in the amount of inventory uses cash, a decrease provides cash; an increase in the amount of time it takes you to pay your payables provides cash, a decrease uses cash.


For example, a decision to buy more inventory will use up cash, or a decision to allow people to pay for goods or services over 60 days instead of 30 days will mean you have to wait longer for payment, and will have less cash on hand.

Below is a numerical example of the cycle:

Accounts Receivable outstanding in days                 +90
Inventory in days                                                    +60
Accounts Payable outstanding in days                     -72
Cash Conversion Cycle                                         +78

In the scenario, you have cash tied up for 78 days. It should be noted that you can have a negative conversion cycle. If this occurs it means that you are selling your inventory and collecting your receivables before you have to pay your payables. An ideal situation if you able to accomplish this. Before you say it is impossible, remember that companies such as Wal-Mart are today selling a large part of their inventory before they have to pay for it. While it is not easy it can be accomplished.

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