AGSB Quanti Final Paper 2013

ATENEO DE MANILA UNIVERSITY
GRADUATE SCHOOL OF BUSINESS

#20 Rockwell Drive, Rockwell Center, Makati City, 1200 Philippines
TUV CORPORATION, INC.:

THE USE OF QUANTITATIVE TOOLS TO FORECAST AND
MEET DEMANDS, MAXIMIZE PROFIT AND FORECAST
SALES REVENUE
Submitted to:
Professor Ralph Ante
Quantitative Methods for Managers (R14)
Submitted by:
Encarnacion, Kyla
Fermin, Verando
Hatanaka, Hans
Navidad, Freedom Ianfe
Palmos, Russell Joyce
Sy, Neilwin
September 28, 2013
Page 2
THE USE OF QUANTITATIVE TOOLS TO FORECAST AND MEET DEMANDS, MAXIMIZE PROFIT AND
FORECAST SALES REVENUE
ABSTRACT
This paper shall initially discuss the existing inventory/stocking policies and
historical sales data of some of the products of TUV Corporation, Inc. (the Company).
The authors of this paper will seek to forecast demands, with respect to products
that are subject of this study, to enable it to determine whether it could meet product
demands as they come and eventually stay true to its mission of providing quality
service to its clients; the best combination of products to maximize profit; and the sales
revenue for the ensuing year.
The authors of this paper shall attempt to demonstrate the application of
quantitative tools in meeting the objectives of this study.
Encarnacion, Kyla | Fermin, Verando | Hatanaka, Hans | Navidad, Freedom Ianfe | Palmos, Russell Joyce | Sy, Neilwin
Page 3
LIMITATIONS OF THE STUDY

While the Company maintains an inventory of around four hundred (400)
products, due to time and data gathering constraints, this paper discusses and studies
only twenty-five (25) of such products, chosen for the seventy-five percent (75%) of the
total revenue of the Company. Moreover, the computations and solutions herein are
based on the Companys one-year historical data, starting from September of 2012 to
August of 2013, considering that the Companys fiscal year ends on the month of
August.
Page 4
INTRODUCTION: THE COMPANY

The Company was established in 2001, and since then it has been a
supplier/provider of air-conditioning parts and materials for residential, commercial and
industrial applications
MISSION, VISION & PASSION

TUV is proud of its strong client-focused and solid business partner relationships.
Our aim is to serve our clients, embracing their technical needs and challenges to
provide products that exceed quality standards. Attention to detail and quality of
work, paired with years of industry experience, make us the perfect choice to partner
with to provide superior products.
KEY PRODUCTS
COPPER TUBES, ELBOWS & COUPLINGS

INSULATION TUBES
RUBBER
Page 5
CAPACITORS
FAN MOTORS
ORDERING AND STOCKING POLICIES

The Company imports its products using Full Container Loads (FCLs) of twenty (20) to
forty (40) feet. The delivery lead time is pegged at two (2) months.
The Company maintains one (1)-month each of safety, emergency and special projects
stocks.
The effects of the Companys ordering and stocking policies are best illustrated in the
figure below:
3500
3000
2673
CP-3004
2057
FM-0501
FM-0138
365 805
135
446
CP-2524
ROP
186500 1113
512
0
CP-3034
Existing ROP
343 930
3072
524
500
Stock
1200
1000
1420
1500
1455
2000
3140
2500
FM-0354
Page 6
HISTORICAL SALES DATA

Based on the last fiscal year, the Company was able to generate the following
sales, which sales represent the historical sales data on demands:
COPPER TUBES, ELBOWS AND COUPLINGS
Stock Code CE-12SR CE-34SR CE-38LR CE-38SR CE-58LR CE-58SR

01-Sep-12
1155
656
526
400
438
457
01-Oct-12
798
835
526
652
438
1673
01-Nov-12
1112
888
526
639
438
1260
01-Dec-12
835
938
526
361
438
1151
01-Jan-13
694
1481
526
923
438
1450
01-Feb-13
1007
834
96
723
73
902
01-Mar-13
901
368
52
1402
86
1061
01-Apr-13
1185
1380
211
1431
389
1853
01-May-13
1165
1072
294
1241
386
1111
01-Jun-13
630
945
189
453
156
1228
01-Jul-13
585
981
236
1813
161
2875
01-Aug-13
545
861
259
378
342
1018
RUBBER INSULATION TUBES

Stock Code RI-1212 RI-1238 RI-1412 RI-1438 RI-3412 RI-3434 RI-3812 RI-3834 RI-3838 RI-5812 RI-5834 RI-5838
01-Sep-12
909
248
1104
833
568
246
1138
448
292
980
886
354
01-Oct-12
1442
372
1593
1061
915
386
1540
590
368
1067
722
461
01-Nov-12
1050
355
1490
941
324
353
1410
342
370
1146
422
421
01-Dec-12
1177
908
1634
1345
796
166
1056
354
795
1074
437
311
01-Jan-13
1227
636
2039
1151
839
515
1746
673
781
1434
741
430
01-Feb-13
729
276
1091
793
425
322
1067
387
490
896
670
290
01-Mar-13
977
644
1292
1142
861
239
1106
1340
770
1160
1239
436
01-Apr-13
2090
1187
2374
3003
1217
465
2363
518
1493
2120
767
644
01-May-13
2214
721
2832
1928
710
472
2138
482
853
2008
842
554
01-Jun-13
3466
712
3418
2108
1027
799
2401
154
1133
2585
724
622
01-Jul-13
1838
769
2626
2084
993
737
2434
322
1003
1698
714
779
01-Aug-13
1929
423
1701
1761
1251
741
2092
566
927
2021
951
370
Page 7
FAN MOTORS
Stock Code FM-0138 FM-0354 FM-0501
01-Sep-12
66
47
142
01-Oct-12
116
73
91
01-Nov-12
72
62
194
01-Dec-12
26
45
98
01-Jan-13
121
70
128
01-Feb-13
48
60
138
01-Mar-13
69
31
115
01-Apr-13
152
86
370
01-May-13
165
66
294
01-Jun-13
71
85
181
01-Jul-13
124
78
181
01-Aug-13
83
102
125
CAPACITORS
Stock Code CP-1524 CP-2524 CP-3004 CP-3034
01-Sep-12
282
215
407
306
01-Oct-12
125
151
143
147
01-Nov-12
167
157
85
152
01-Dec-12
92
174
104
213
01-Jan-13
218
100
123
195
01-Feb-13
166
169
72
164
01-Mar-13
144
219
258
152
01-Apr-13
516
706
260
420
01-May-13
916
384
542
591
01-Jun-13
206
46
183
364
01-Jul-13
225
612
211
299
01-Aug-13
257
139
285
137
Page 8
THE CHALLENGES
Given the historical sales data above, the authors would like to:
1.
Forecast demands for the next ensuing year;
2.
Determine the stocking policy that could best meet the forecasted
demands;
3.
Determine the best combination of products to achieve maximum profit;

and
4.
Forecast sales revenue for the next ensuing fiscal year.
To meet these challenges, appropriate quantitative tools such as Monte Carlo

Simulation, Inventory Management, Case Modelling and Linear Programming shall be
used.
Meeting these challenges is not only essential for the economic survival of the
Company, but also for the Company to stay true to its Mission, Vision and Passion of
providing quality services to its clients and embracing their technical needs.
FORECASTING AND MEETING SALES DEMANDS

Based on the historical sales data provided above and using the Montecarlo
Simulation tool, sales demand on the next ensuing year is forecasted as follows:
Page 9
COPPER TUBES, ELBOWS AND COUPLINGS
RUBBER INSULATORS
CAPACITORS
Page 10
FAN MOTORS
Given the forecasted demands and the delivery lead time of two (2) months,
theres a need to simulate stocking and ordering policies that could meet the forecasted
demands.
Page 11
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Page 15
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Page 17
Based on the simulated results and monthly costs computed above, we need to
determine the costs of lost sales in the event that theres a demand, but the Company
wouldnt be able to serve the same as the product-in-demand is not in its inventory.
By adding the stocks and the end of the month and the new deliveries we get the
total number of stocks after each delivery. These stocks after delivery are equal to the
stocks after sales. A negative stocks after sales means loss in sales. Costs of lost sales
is computed by multiplying the loss in sales with the contribution margin.
Now, comparing the existing Total Annual Cost (TAC) versus the TAC for the
forecasted demands, and considering the Costs of Lost Sales, would give us the
following results:
Page 18
CONCLUSION:
While savings in the amount of Three Hundred Fifty-Nine Thousand Seven
Hundred Seventy-Five Pesos and Seventy-Seven Centavos (Php359,775.77) will be
incurred from the Simulated Inventory (following the results of Montecarlo Simulation),
the Company is advised to maintain its current inventory practices because of the costs
of lost sales
that it will have to incur if it modifies said practices pursuant to the
forecasted demands. Moreover, lost sales is reflective of a Company deviating from its
actual Mission, Vision and Passion which is to provide quality service to its customers
and address their technological needs.
Page 19
MAXIMIZING PROFIT
Given the data below, what combination of products should TUV sell in order to
achieve maximum profit. Minimum demand data is calculated from breakeven point
while maximum demand is the maximum stock on hand. It is also assumed that TUVs
maximum capital is limited to 12 Million pesos per year.
Product
Selling Price
Unit Cost
Profit
Min Demand
/ Month
RI-1412
RI-3812
RI-1212
RI-5812
RI-1438
RI-3412
RI-3838
RI-5834
RI-1238
RI-3834
RI-5838
RI-3434
CE-58SR
CE-34SR
CE-12SR
CE-38SR
CE-58LR
CE-38LR
CP-3034
CP-2524
CP-1524
CP-3004
FM-0501
FM-0138
FM-0354
39.29
46.43
52.68
58.04
22.32
65.18
28.57
102.68
32.14
89.29
36.61
111.61
26.79
40.18
19.64
14.29
49.11
26.79
205.36
178.57
151.79
187.50
1116.07
1651.79
2053.57
27.5
32.5
36.875
40.625
15.625
45.625
20
71.875
22.5
62.5
25.625
78.125
18.75
28.125
13.75
10
34.375
18.75
143.75
125
106.25
131.25
781.25
1156.25
1437.5
11.79
13.93
15.80
17.41
6.70
19.55
8.57
30.80
9.64
26.79
10.98
33.48
8.04
12.05
5.89
4.29
14.73
8.04
61.61
53.57
45.54
56.25
334.82
495.54
616.07
773
592
471
380
1058
178
366
115
308
92
199
66
827
402
1337
1106
134
268
24
25
37
22
3
1
1
Max
Demand /
Month
2642
2391
2156
1920
2054
1006
908
1025
861
716
635
641
1927
1405
2285
1374
574
625
429
393
482
353
277
138
119
Page 20
STEP 1:
OBJECTIVE
Maximize Profit
STEP 2:
DECISION TO BE MADE
Combination of products that yield maximum profit
STEP 3:
CONSTRAINING FACTOR AFFECTING DECISION
Minimum demand per product

Maximum product availability
Capital of 12Million pesos per year
STEP 4: DECISION VARIABLES

Let:
X1 = RI-1412
X2 = RI-3812
X3 = RI-1212
X4 = RI-5812
X5 = RI-1438
X6 = RI-3412
X7 = RI-3838
X8 = RI-5834
X9 = RI-1238
X10 = RI-3834
X11 = RI-5838
X12 = RI-3434
X13 = CE-58SR
X14 = CE-34SR
X15 = CE-12SR
X16 = CE-38SR
X17 = CE-58LR
X18 = CE-38LR
X19 = CP-3034
X20 = CP-2524
X21 = CP-1524
X22 = CP-3004
X23 = FM-0501
X24 = FM-0138
X25 = FM-0354
STEP 5: CONSTRAINTS USING DECISION VARIABLES

1.
773 < X1 < 2642
592 < X2 < 2391
471 < X3 < 2156
380 < X4 < 1920
1058 < X5 < 2054
178 < X6 < 1006
366 < X7 < 908
115 < X8 <1025
308 < X9 < 861
92 < X10 < 716
199 < X11 < 635
66 < X12 < 641
827 < X13 < 1927
402 < X14 < 1405

1337 < X15 < 2285
1106 < X16 < 1374
134 < X17 < 574
268 < X18 < 625
24 < X19 < 429
25 < X20 < 393
37 < X21 < 482
22 < X22 < 353
3 < X23 < 277
1 < X24 < 138
1 < X25 < 119
Page 21
2.
27.5X1 + 32.5X2 + 36.9X3 .. 1437.5X25 < 1.2M
3.
X1 + X2 + X3 .. X25 > 0 (Non-Negativity)
STEP 6: OBJECTIVE FUNCTION

Max Profit = 11.79X1 + 13.93X2 + 616.07X25
CONCLUSION:
Using solver, TUV should sell the quantities given on the table below to maximize
profit given an investment capital of 12Million pesos.
Solver Solution on Product Mix Variables
X1 = 854
X2 = 677
X3 = 568
X4 = 498
X5 = 1098
X6 = 299
X7 = 417
X8 = 311
X9 = 373
X10 = 250
X11 = 281
X12 = 273
X13 = 883
X14 = 475
X15 = 1378
X16 = 1132
X17 = 241
X18 = 324
X19 = 429
X20 = 338
X21 = 361
X22 = 353
X23 = 277
X24 = 138
X25 = 119

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ATENEO DE MANILA UNIVERSITY

GRADUATE SCHOOL OF BUSINESS

TUV CORPORATION, INC.:

September 28, 2013

LIMITATIONS OF THE STUDY

INTRODUCTION: THE COMPANY

MISSION, VISION & PASSION

COPPER TUBES, ELBOWS & COUPLINGS

ORDERING AND STOCKING POLICIES

HISTORICAL SALES DATA

COPPER TUBES, ELBOWS AND COUPLINGS

Stock Code CE-12SR CE-34SR CE-38LR CE-38SR CE-58LR CE-58SR

RUBBER INSULATION TUBES

Forecast demands for the next ensuing year;

Determine the best combination of products to achieve maximum profit;

Forecast sales revenue for the next ensuing fiscal year.

To meet these challenges, appropriate quantitative tools such as Monte Carlo

FORECASTING AND MEETING SALES DEMANDS

COPPER TUBES, ELBOWS AND COUPLINGS

that it will have to incur if it modifies said practices pursuant to the

Combination of products that yield maximum profit

CONSTRAINING FACTOR AFFECTING DECISION

Minimum demand per product

STEP 4: DECISION VARIABLES

STEP 5: CONSTRAINTS USING DECISION VARIABLES

402 < X14 < 1405

STEP 6: OBJECTIVE FUNCTION

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