Objective of the Game
The report has been written to present the outcome and decisions made under the simulation game over the period of 12 weeks i.e., from Week 25 to Week 36. The game involved decision making in relation to ordering of raw materials which are required for production of two grade of products namely Standard and XL. Further, there are three products which are required to be ordered in the simulation game namely main body, aerial and accessories. The level of the game is 3 and the production capacity for days is 6000 per week, nights is 4000 per week, Saturday 1000 per week, evenings 340 per shift and the max shits which are allowed is 5. The max overdraft which is permitted is 0.5 million GBP and there are two accounts namely current account and deposit account in the game. Further, in the game the cost per unit for labour is different under different shift. For instance, in the morning shift the cost is GBP 14 per unit, GBP 18 for night shift, GBP 20 for Saturday shift and GBP 20 per unit for evening shift. Besides above there is semi fixed cost associated with each shift. The day shift has fixed cost of GBP 27000, night shift has fixed cost of GBP 25000, Saturday shift has fixed cost of GBP 16000 and Evening Shift has fixed cost GBP 3400.
Objective of the game is to match the demand and production schedule so that there is no stock out penalty and the total cash in the game is maximised. Further, the objective also encompasses to maximise the profit of the team and ensure that the company does not go bankrupt over the period of the game. The customer satisfaction is also one of the concerns in the game. Thus, there are dual objective of performing well in both financial position and customer position.
Master Production Schedule is a plan for production process which states about products that will be manufactured as well as their values and start dates .To maintain an accurate schedule can be very much difficult ,since the scheduler has to balance the conflicting goals of producing enough for actual orders of customers ,at the same time producing enough extra inventory to cover actual demand of customer .The scheduling chore is further complex when there are shortages of raw material ,ordering lead times are lengthy for raw material , involvement of bottlenecks in process of production ,failure of equipment and also reduction in staffing solutions. (Karl, 2021)
When the Master Production Schedule is properly handled, it can minimize both shortage of finished goods availability and also orders expediting through the production process, at same time minimizing overtime, usage of machine hours and rising freight charges. (optiproerp.com, 2022)If MPS system is properly handled than one can see the following outcomes:
- Documentary guide for the management of the manufacturing function
- It also acts as a link between whole business planning and also detailed production operation of business.(accountingtools.com, 2021)
- It also allows for timely delivery of goods to the final consumers
- Efficiency of whole manufacturing process is improved
- It is also helpful to managers as it provides guide how the remaining production capacity will be used.
The contents of MPS: forecast of demand, allocated, Reserved, Unplanned, Net Demand, Firm Planned Orders and Planned Orders.
Master Production Schedule has been prepared based on expected demand for both products in the game namely Standard and XL. The forecasting can be done using two methods namely simple average method and exponential smoothing method. The pros and cons of each method has been discussed as under:
Master Production Schedule
It is computed by addition of the price of an instrument over a number of time period involved and then dividing the sum by number of time period involved. It is generally the involved average price of the given time period with provide equal weightage to the price of each period.
Advantages of Simple Moving Average Method are:
- It is very much easy and simple and calculate
- It also provides a smoothed line
- It is very much less prone to whipsawing moves up and down in response to a slight, temporary rise swings back and forth
- It ultimately offers a very stable level which indicates a good support and resistance.
Dis Advantages of Simple Moving Average Method are
- It is very much slow to reply to any change in price that generally occur at market reversal points.
- This method is supported by traders or analyst who operates on a much longer time frame like on daily or weekly charts.(bohatala.com, 2020)
Advantages of Exponential Moving Average Method are:
- Historical figure is considered to forecast demand like current observation is considered and accordingly weightage is provided.
- This method allows for us to properly plan the inventory more accurately on a more relevant basis of current data involved.
- Any data spikes are not detrimental to the expected one as compared to the previous analysed method
- Recent one has been given highest weight and considered to be most accurate in forecasting demand, which is totally opposed to moving average method were the assigned weights are fixed for each respective period involved.(Avercast, LLC., 2022)
Dis Advantages of Exponential Moving Average Method are:
It is considered better at times when inventory is to planned only for a specified month as it provides limitation to ascertain demand on basis of seasonality.
On basis of above-mentioned pros and cons of both method it can be concluded that exponential smoothing average method will be better to properly plan the inventory more accurately on a more relevant basis of current data involved. Any data spikes are not detrimental to the expected one as compared to the previous analysed method.
Computation of MAD is done by subtracting the actual sales from forecasted sales. The error term involvement is than actually converted to absolute error and absolute errors average is computed for the entire time series. The MAD forecast method is dependent on the scale and error term also has same unit as data.
- MAD method is not considered to be viable in order to compare between time series which have different units’ involvement. Like volume of sale units in kg and value of sale in USD figure cannot be compared with each other.
- The above-mentioned drawback measures average out the error across entire time series which do not give exact results
MAPE method which is known as Mean Absolute Percentage Error method is the most commonly used method to ascertain forecast accuracy. The same comes under percentage errors which are independent to scale and the same can be used to make comparison of series on different scales involvement.
This type of methos sometimes become undefined if the actual value figure is zero for any observation in the data involved.(Kumar, 2020)
Based on analysis enclosed in the excel, the exponential smoothing has been determined to be more effective method of forecasting as compared to simple moving average method. Further the value of Alpha at which the Mean Absolute Deviation and Mean Absolute Percentage Error is minimum stands at 0.56. Thus, exponential method may be used to forecast the demand and accordingly production schedule for week 25 to 36 has been planned keeping stock of 10% in buffer. Also, the planning of material requisition has been carried out based on the production. The product stock of raw material has been maintained at 1.5X the production demand for the particular period in order to prevent any stock out of materials. The detailed computation of the same has been enclosed in the excel.
Further, as the data exhibits seasonality factor, one may use seasonality element for predicting the demand. The demand forecasting based on seasonality factor accounts for fluctuations and the seasonality factor has been crucial in the decision making. However, in the game the data present does no depict any repeated data for seasons and hence one cannot use the trend method to predict the forecast using seasonality. Accordingly, the exponential smoothing average method has been considered as the most reliable method for forecasting and making decision in relation to production schedule and ordering of raw materials for maintaining the demand of the company.
The game has been quite challenging and involved crucial decisions regarding the proposed course of action at every step of the game. The game had critical decisions regarding the production schedule and raw material procurement and based on exponential smoothing forecasting decision necessary decision in the game has been made. The decision involved production of both standard and XL and as the past data for XL has not been provided the order has been made considering the demand for the previous period. Based on such critical decisions, the position of the team in the game after week 36 has been quite satisfactory both on financial position front and customer satisfaction front. The decision taken based on exponential smoothing forecast has been quite satisfactory and the real time experience of forecasting dis play out to be a challenging opportunity for the team. The team has ended with positive cash balance and a very good profits in the books after a period of 36 weeks which is indicative of strong management and forecasting. Considering the objective to maximise the profit of the team and ensure that the company does not go bankrupt over the period of the game. The customer satisfaction is also one of the concerns in the game. Thus, there are dual objective of performing well in both financial position and customer position.
Considering the scenario, the game has given us a good opportunity to test the application of the knowledge acquired from the course in the practical life. The decision involved production of both standard and XL and as the past data for XL has not been provided the order has been made considering the demand for the previous period. Based on such critical decisions, the position of the team in the game after week 36 has been quite satisfactory both on financial position front and customer satisfaction front.
References
accountingtools.com, 2021. Master production schedule definition. [Online]
Available at: https://www.accountingtools.com/articles/2019/1/5/master-production-schedule
[Accessed 5 April 2022].
Avercast, LLC., 2022. Exponential Smoothing. [Online]
Available at: https://www.avercast.com/post/exponential-smoothing
[Accessed 5 April 2022].
bohatala.com, 2020. Advantages and Disadvantages of Moving Average. [Online]
Available at: https://bohatala.com/advantages-and-disadvantages-of-moving-average/?msclkid=5eef60e5b4ed11ec90fd3c664e22611f
[Accessed 5 April 2022].
Karl, 2021. What is a Master Production Schedule? With Examples. [Online]
Available at: https://manufacturing-software-blog.mrpeasy.com/what-is-master-production-schedule/
[Accessed 5 April 2022].
Kumar, R., 2020. MAD over MAPE?. [Online]
Available at: https://towardsdatascience.com/mad-over-mape-a86a8d831447
[Accessed 5 April 2022].
optiproerp.com, 2022. Inventory Management 101 – The Master Production Schedule (MPS) Explained. [Online]
Available at: https://www.optiproerp.com/blog/inventory-management-101-master-production-schedule-mps-explained/
[Accessed 5 April 2022].
tradegecko.com, 2021. What is inventory management?. [Online]
Available at: https://www.tradegecko.com/inventory-management
[Accessed 5 April 2022].
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