Question

Given the mismatch between the supply and distribution of Noto37 and the orders for it from drugstore chains and other customers, Chinese Pharmaceuticals was not always able to fulfill market demand with the stock available. Jason was considering maintaining a 20% buffer of Noto37 inventory above its forecasted sales in the Hong Kong warehouse so as to have enough on hand to distribute to customers. Are there any alternative inventory ordering riles Jason should follow to improve the inventory ordering and management system, given his desired buffer level of Noto37? What would you recommend? Why?

Exponential Smoothing was MFE= 15.17 and the MAD= 776.85

Three period moving average had a Mean Average Deviation of 133 and a Mean Absolute Deviation of 390.71

Answer 1

Given:

• Exponential Smoothing
  • Mean Forecast Error [MFE] = 15.17
  • Mean Absolute Deviation [MAD] = 776.85
• 3 Period Moving Average
  • Mean Average Deviation = 133
  • Mean Absolute Deviation = 390.71

Forecasting Method Used	MFE	MAD	Suitable Model based on less deviation condition	Reason	Recommendation to compensate for the demand condition
Exponential Smoothing	15.17	776.85	Suitable	The forecasting error is considerably minimized.	It is better to adopt an exponential smoothing method to forecast, but in order to have a suitable number of inventories, it is advisable to have an additional 15.17 – 16 stocks of Noto37 which is the possibility of error that can occur during forecasting.
3 Period Moving Average	133	390.71	Not Suitable	The forecasting error is considerably High.	-