BUSI 2013 Operations

Suggested Approach This is a fairly complex problem. The following approach is suggested: Use the historical price data set as input to a time series forecast model in order to generate forecasted prices for the average price of sunflower seeds, oil, and mash in the next production period. Use standard measures of error to decide between a three-period moving average model or an exponential smoothing model (with α = 0.2). Use the type of model for all three time series forecasts. That is, if you decide to use the moving average model, use a three-period moving average model to fit the relevant data for all three series. Don’t use the moving average for one time series and the exponential smoothing model for another time series. Formulate a linear program to minimize the cost of raw sunflower seeds. Use the average price of seeds forecasted from the previous step in order to determine supplier prices. Perform a cost-volume-price analysis (review the handout entitled Cost-Volume-Profit Analysisfor details) using the average cost per short ton average selling price per short ton. You can generate an effective cost per short ton by dividing the total cost of supply (from the linear program) by the total volume (that you assumed in the linear program). You can generate an effective selling price per short ton from the expected percentage yields and the forecasted average price of sunflower oil and mash. Because of the way that the contract is written, you can assume that the purchase of raw sunflower seeds is a variable cost (you only purchase what you require).