INVENTORY MODEL

LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 INVENTORY MODEL
• WHAT: Inventory models are mathematical frameworks that help engineering
managers optimize the ordering, storing, and handling of physical goods. In essence,
these models assist managers in determining the ideal amount of inventory to hold at
any given time.
• WHY: The primary purpose of using inventory models is to strike a balance between
two opposing forces:
• Minimizing inventory costs: Holding too much inventory can be expensive due to
storage costs, the risk of obsolescence, and potential damage.
• Ensuring sufficient stock to meet demand: On the other hand, running out of stock
can lead to lost sales, customer dissatisfaction, and production slowdowns.
Inventory models help managers find the sweet spot that minimizes overall costs
while ensuring they have enough stock to meet customer needs.

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 INVENTORY MODEL
• WHO: The responsibility for implementing the inventory model lies with the
engineering management team. Collaboration with procurement specialists, project
managers, and faculty members overseeing research and development is essential for
a comprehensive and successful execution.
• WHEN: Inventory models are employed throughout the planning and control of
inventory. They are particularly useful during:
• Demand forecasting: Inventory models can be used to predict future demand for
products, which is crucial for determining how much inventory to order.
• Safety stock management: These models help managers establish safety stock
levels, which is the extra amount of inventory kept on hand to buffer against
unexpected fluctuations in demand or supply.
• Reorder point determination: Inventory models can be used to calculate the
reorder point, which is the point at which a new order for inventory needs to be
placed.
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 INVENTORY MODEL
• WHERE: Inventory models are applicable in any industry that manages physical
goods, from manufacturing and retail to healthcare and construction.
• HOW: Inventory models take into account various factors such as:
• Demand forecasting: As mentioned earlier, forecasting future demand is essential
for determining inventory levels.
• Lead time: This is the time it takes for a new order to be received once it is
placed. Lead time needs to be factored in when determining reorder points to
avoid stockouts.
• Safety stock: As discussed, safety stock is the buffer of extra inventory to mitigate
against demand or supply variations.
• Ordering costs: These are the costs associated with placing an order, such as
administrative costs and transportation fees. Inventory models help managers
balance ordering costs against holding costs.

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 EXAMPLE OF INVENTORY MODEL
An engineering manager for a company building educational robots is facing
challenges with a specific type of sensor used in their robots. These sensors are
expensive and have long lead times, so the manager needs to optimize inventory to
avoid stockouts that could stall production. Throughout the product lifecycle, they
can leverage different models. During the design phase, an ABC analysis can
categorize the sensors based on cost and importance. Later, as production increases,
a reorder point system with safety stock can be implemented. This system identifies
the point at which a new sensor order is needed and adds a buffer of extra stock
(safety stock) to account for potential variations in demand or lead times. This two-
pronged approach ensures the manager keeps enough sensors on hand to avoid
production delays, while still minimizing the overall cost of holding excessive
inventory.

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QUEUING THEORY
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 QUEUING THEORY
• WHAT: Queuing theory is the study of how lines form, function, and why they
malfunction. It analyzes waiting components like arrival processes, number of customers,
and more
• WHY: Queues are essential for managing limited resources efficiently. Queuing theory
helps optimize queues, reducing wait times and improving service
• WHEN: Queuing theory is used in various real-world situations across different
industries to optimize performance, efficiency, and quality by analyzing waiting lines
or queues of customers, tasks, or events.
• WHERE: Queuing theory finds applications in various fields like business logistics,
banking, telecommunications, project management, and emergency services
• WHO: This theory is crucial for businesses in various sectors such as retail,
telecommunications, transportation, finance, banking, computing, logistics, and project
management
• HOW: Queuing theory involves analyzing parameters like arrival rates, service times,
number of servers, queue capacity, and queuing discipline to optimize systems efficiently. 7
 EXAMPLE OF QUEUING THEORY
An example of queuing theory in action can be seen in a fast-food
restaurant. Consider a scenario where customers arrive at the restaurant,
form a line, place their orders at the counter, wait for their food to be
prepared, and then receive their orders before leaving. In this setting,
queuing theory can help optimize the number of servers (counter staff
and kitchen staff), determine the best queuing discipline (first-come-
first-served, priority-based, etc.), and manage the flow of customers
efficiently to minimize wait times and maximize customer satisfaction.

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NETWORK MODELS
– PERT/CPM
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 NETWORK MODELS – PERT/CPM
• WHAT: PERT and CPM are techniques for project scheduling that utilize network
diagrams. These diagrams visually represent the project activities, their dependencies, and
the estimated time required to complete each activity.
• WHY: The primary purpose of using PERT and CPM is to achieve efficient project
scheduling. By creating a network diagram, project managers can:
• Identify the critical path, which is the sequence of activities that determines the
minimum project duration.
• Allocate resources effectively.
• Mitigate risks by pinpointing potential delays.
• WHEN: PERT and CPM can be applied throughout the project lifecycle, from the initial
planning stages to project execution and control.
• WHERE: These techniques are applicable to a wide range of projects, particularly those
with well-defined activities and clear dependencies between them. Construction, software
development, and research projects are all common examples.
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 NETWORK MODELS – PERT/CPM
• WHO: Network models like PERT (Program Evaluation and Review Technique)
and CPM (Critical Path Method) are commonly used by various industries for
project management to plan, schedule, and control complex projects effectively.
These models help in identifying critical activities, determining the shortest time to
complete a project, and managing resources efficiently.

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 NETWORK MODELS – PERT/CPM
• HOW: Both PERT and CPM involve creating a network diagram with the
following steps:
1. Define Activities: Break down the project into smaller, manageable tasks.
2. Establish Dependencies: Determine the precedence relationships between
activities (i.e., which activities must be completed before others can begin).
3. Estimate Activity Times: Assign estimated durations for each activity. PERT
uses three time estimates (optimistic, most likely, pessimistic) to account for
uncertainty, while CPM uses a single deterministic time estimate.
4. Draw the Network Diagram: Create a visual representation of the project
activities and their dependencies using nodes and arrows.
5. Critical Path Analysis: Identify the critical path, which is the longest path
through the network diagram. Delays in any activities on the critical path will
directly impact the overall project timeline.

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EXAMPLE OF NETWORK MODELS – PERT/CPM
In the construction of a new office building, these models can be
utilized to sequence activities, estimate task durations, identify critical
paths, and optimize project timelines. By creating a network diagram
that visualizes the interdependencies of tasks such as excavation,
foundation pouring, framing, and interior finishing, project managers
can effectively allocate resources, manage risks, and ensure timely
project completion. Through the use of PERT/CPM, project
stakeholders can gain valuable insights into the project's progress, make
informed decisions, and adapt to changes in real-time to achieve
successful outcomes.

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FORECASTING
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 FORECASTING
• WHAT: Forecasting is a technique that utilizes statistical methods and historical
data to predict future outcomes. It's essentially an informed guess about what might
happen based on what has happened before.
• WHY: The primary purpose of forecasting is to gain insights into the future,
enabling better decision-making in the present. By having a predicted idea of what
might happen, businesses and organizations can:
• Proactively plan and strategize for the future.
• Mitigate risks associated with unexpected changes.
• Optimize resource allocation and utilization.
• Identify potential opportunities and capitalize on them.
•WHO: Businesses of all sizes, Marketers, Economists, Investors

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 FORECASTING
• WHEN: Forecasting is employed in various situations where predicting future
trends or values is crucial. Here are some common examples:
• Sales forecasting: Businesses use forecasts to predict future sales volume and
revenue, which helps with budgeting, inventory management, and resource
allocation.
• Market forecasting: Marketers leverage forecasts to predict market trends,
consumer behavior, and competitor activity, informing marketing strategies and
product development.
• Economic forecasting: Economists use forecasts to predict economic growth,
inflation rates, and unemployment levels, aiding in formulating economic
policies.
• Financial forecasting: Investors utilize forecasts to predict future stock prices,
interest rates, and currency exchange rates, guiding investment decisions.

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 FORECASTING
• WHERE: Forecasting is applicable across various industries and functional areas
within a business. Some specific examples include:
• Retail: Forecasting product demand to optimize inventory levels and prevent
stockouts.
• Manufacturing: Predicting production needs to ensure efficient use of
resources and timely delivery of products.
• Healthcare: Forecasting patient admissions and resource requirements to
manage hospital capacity effectively.

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 FORECASTING
• HOW: There are various forecasting methods, but they all share some common
elements:
1. Data Collection: Gather historical data relevant to what you're trying to
forecast (e.g., sales figures, market trends, economic indicators).
2. Model Selection: Choose a forecasting model that aligns with the data and the
type of prediction you need. Common models include moving averages,
exponential smoothing, and regression analysis.
3. Model Fitting: Apply the chosen model to the historical data to establish a
mathematical relationship that captures the underlying trends.
4. Forecasting: Use the fitted model to generate predictions for future values.
5. Evaluation: Monitor the accuracy of the forecasts over time and refine the
model as needed.

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 EXAMPLE OF FORECASTING
An example of a quantitative forecasting model is the Time Series
Model. In a retail setting, suppose a store wants to prepare for the
holiday season. By utilizing a time series model, the store can analyze
sales data from previous years to forecast demand for various products
accurately. This analysis enables the store to manage inventory
efficiently by ensuring they neither run out of popular items nor
overstock items that do not sell well. The time series model leverages
historical sales data to predict future trends, allowing businesses to
make informed decisions regarding inventory management and product
demand forecasting.

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REGRESSION ANALYSIS
LORQUE, REZEBELLE
SILVESTRE, PAUL DARRELE
 REGRESSION ANALYSIS
• WHAT: Regression analysis is a statistical technique for modeling the relationship
between a dependent variable (what you're trying to predict) and one or more
independent variables (factors that influence the dependent variable). It helps us
understand how changes in the independent variables affect the dependent variable.
• WHY: The primary reasons to use regression analysis include:
• Prediction: Once a regression model is established, it can be used to predict the
value of the dependent variable based on the values of the independent variables.
• Explanation: By analyzing the coefficients of the model, we can gain insights into
the strength and direction of the relationships between the variables.
• Control: In some cases, regression analysis can help us isolate the effect of one
variable on another while controlling for external factors.
•WHO: Data Analysts, Scientists, Economists, Marketers, Researchers

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 REGRESSION ANALYSIS
• WHEN: Regression analysis is applied in various scenarios where we want to
quantify the relationship between variables and use that knowledge for prediction
or explanation. Here are some examples:
• Marketing: A marketing team might use regression analysis to understand
how advertising spending influences sales figures.
• Finance: An investment advisor might use it to model the relationship between
stock prices and various economic indicators.
• Science: A scientist might use it to study how fertilizer application affects crop
yield.
• WHERE: Regression analysis finds application in numerous fields:
• Business: Understanding the factors that influence sales, customer churn, or
product pricing.
• Healthcare: Predicting patient risk factors or analyzing the effectiveness of
medical treatments.
• Social Sciences: Examining the relationships between social phenomena like
poverty, education, and crime rates. 22
 REGRESSION ANALYSIS
• HOW: The core steps involved in regression analysis are:
1. Data Collection: Gather data on the dependent variable and the independent
variables you believe might influence it.
2. Model Selection: Choose a regression model that aligns with the data and the
research question. Common models include linear regression, logistic
regression, and polynomial regression.
3. Model Fitting: Use statistical methods to estimate the coefficients of the
model that best fit the data. These coefficients represent the magnitude and
direction of the influence of each independent variable on the dependent
variable.
4. Evaluation: Assess the accuracy and goodness-of-fit of the model. This
involves checking for statistical significance and ensuring the model's
predictions are reasonably aligned with the actual data.
5. Interpretation: Analyze the coefficients to understand how changes in the
independent variables affect the dependent variable.

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 EXAMPLE OF REGRESSION ANALYSIS
An example of regression analysis can be seen in finance, where it is
used to determine the relationship between variables and make
predictions. For instance, in asset valuation, regression analysis helps
investment managers understand the relationships between factors like
commodity prices and asset prices. Linear regression, a common form
of this technique, establishes a linear relationship between variables
based on a line of best fit.

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REFERENCES
https://hbr.org/2015/11/a-refresher-on-regression-analysis
https://surveysparrow.com/blog/regression-analysis/
https://www.statisticshowto.com/probability-and-statistics/regression-analysis/
https://www.indeed.com/career-advice/career-development/example-of-forecast
https://joinhomebase.com/blog/forecasting-models/
https://corporatefinanceinstitute.com/resources/financial-modeling/forecasting-methods/
http://www.netmba.com/operations/project/pert/
https://queue-it.com/blog/queuing-theory/
https://www.qminder.com/blog/queue-management/queuing-theory-guide/
https://corporatefinanceinstitute.com/resources/accounting/queuing-theory/
https://www.whitman.edu/documents/academics/majors/mathematics/berryrm.pdf

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