Decision Analysis Task 3 – Shuzworld (Revision)

NAME
Decision Analysis Task 3 – Shuzworld (Revision)
SCHOOL
Mentor: NAME
16 March 2013

PROPOSED MANUFACTURING ALTERNATIVE
I am required to undertake a cost-benefit analysis and establish the most economical alternative for Shuzworld’s latest sneaker collection. Shuzworld requires examination of the available options namely revamping the performance of its current equipment, buying brand new ones, or paying a third party to manufacture the sneakers for Shuzworld. The cost-volume model is the prime decision analysis tool in establishing the most cost effective alternative. The results from the analysis as follows:


As the results indicate, the measure of the most economical alternative depends on the volume manufactured. The analysis employs volume in batches of one thousand units per batch.
It indicates that paying a third party to manufacture the sneakers is the most economical alternative for small volumes of between one and twenty five batches. The results also indicate a crossover where the expense incurred sourcing for a third party manufacturer is higher than that incurred in revamping machinery for larger volumes of between twenty five to three hundred batches. This implies that for volumes of between twenty five to three hundred batches, revamping the current machinery or equipment presents the most economical alternative. Another crossover is evident where the expenditure of revamping the current machinery exceeds one of buying brand new ones for volumes exceeding three hundred batches. This implies that producing more than three hundred batches requires new equipment for Shuzworld to attain the highest level of cost efficiency. The company will select the most viable option depending on its projected volume range. Below is a representation of the various breakeven points for the three alternatives.


Using the cost-volume model was effective because as a decision analysis tool, it effectively shows the various crossover points of the three alternatives. The company can derive the most economical alternative from analyzing the points as compared against its preferred volume range of the latest sneaker collection.
SALES PROJECTION
I have been mandated to generate a sales prediction for movement in the following quarter using two types of projection methods. The forecast shall use decision analysis for the Four Corners Shuzworld store. To generate the forecast, the projection methods include the exponential smoothing with trend and the least squares. The following are the results.
EXPONENTIAL SMOOTHING WITH TREND METHOD



LEAST SQUARES METHOD


The following chart is comparative representation of the two types of analysis
Exponential smoothing Least squares
The following quarter’s projection 121620 121861
Bias (average error) 4499 -.01
MAD (Mean absolute deviation) 5143 4184
MSE (mean squared error) 51038600 23356180
Standard error 8101 5480
MAPE (mean Absolute percent error) 4.67% 3.945%
These comparisons are intended to inform the choice of the method that generates the least percentile errors. This is because the analysis method presents the closest match to the data used in generating the results. As shown the least squares generates the least errors and is therefore the most appropriate forecasting method because it is well suited to the available data. Using the least squares method as the method of choice is appropriate in predicting sales for the following quarter. The method projected the total sales at one hundred and twenty one thousand and eigh...