This study focuses on different aspects of business modelling for decision making. It covers inventory management, non-linear/extremum tasks, and decision tree analysis. Learn about EOQ, ABC classification system, profit equations, and more.
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Business Modelling for Decision Making
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Contents INTRODUCTION................................................................................................................................3 MAIN BODY......................................................................................................................................3 Part A – INVENTORY.........................................................................................................................3 (a). Computation of EOQ (economic-order quantity) with respect to A545 Plasma TV, applying specific formula:...........................................................................................................................3 (b). On the basis of above computed EOQ level assessing how much quantities/deliveries should be made of A545 Plasma TVs per year:............................................................................3 (c). Find the total annual variable cost for TV King Ltd:...............................................................4 (d).................................................................................................................................................4 (e).................................................................................................................................................4 Part B – NON-LINEAR/EXTREMUM..................................................................................................7 a) Finding out an equation with respect to profit level of London furniture makers:................7 b) Setting up demand, costs and profit table...............................................................................8 c) Using values from above stated table and drawing a demand, costs and profitability graph8 (d). Based on above displayed graph, differentiating profit level equation to assess actual value of ‘q’ where profit level maximises:...................................................................................9 e) Assessing value of ‘X’ coefficients dependent on q (Liverpool):..............................................9 f.Strong and weak points in the London and Liverpool models:................................................9 Part C – DECISION TREE.................................................................................................................10 SECTION 1...................................................................................................................................10 i...................................................................................................................................................10 ii. Decision Tree:.........................................................................................................................12 SECTION 2...................................................................................................................................12 CONCLUSION..................................................................................................................................13 REFERENCES...................................................................................................................................14
INTRODUCTION Business modelling is vital aspect in business which allow managing personnel to effectively explore complicated choices/alternatives, employing a comprehensive range of assumptions for representing alternative potential operational business environments. Business modelling isconceptual framework that promotes the company's sustainability and describes how it works, makes cash including how it aims to accomplish its objectives. Business modelling contains all ofbusiness processes and practices thatbusiness embraces and implements (Cosenz and Noto, 2018). The study contains three different parts which are mainly focused on different business modelling aspects. The first part covers inventory related aspects of business modelling like EOQ, inventory system. Second part comprises non-linear/extremum tasks while the third part covers creation of decision tree and analysis of decision tree based on a case study. MAIN BODY Part A – INVENTORY (a). Computation of EOQ (economic-order quantity) with respect to A545 Plasma TV, applying specific formula: EOQ = √ [(2*d*s)/h] “d”denotes to 900 (A545plasma TVs), “c”implies to cost of placing an order i.e. £120 “h”refers to cost of holding stock i.e. £20 EOQ = √ [(2 x 900 x £120) / £20]= 104 Units (b). On the basis of above computed EOQ level assessing how much quantities/deliveries should be made of A545 Plasma TVs per year: Number of deliveries of TVs= Annual/yearly Demands ÷ Ordered Quantity = 900 ÷ 104= 8.65
= or around 9 deliveries each year Computation of frequency of deliveries: Delivery Frequency =Number of Days company Open ÷ No of Deliveries = 52 x (7 – 1) ÷ 9 = 34.67 or Around Every 35 days = delivery frequency (c). Find the total annual variable cost for TV King Ltd: c = cost of placing an order = £120 d = demand = 900 h = cost of holding stock = £20 Qopt= 104 TVC = (£120 x 900)/104 + (£20 x 104)/2 = 1,038.46 + 1,040 = £2,078.46 (d). Taiwan model EOQ = √ [(2 x 900 x £108) / £25]=88 Units TVC:(£108 x 900)/88 + (£25 x 88)/2 = 1104.55 + 1100 =£2,204.55 Here, based on the above calculations this has been analysed that corporation TV King should stick with company’s Japanese model due to the it’s key benefits like lower rates, considerable reliability, effective size and standardised quality. (e) ABC Classification system:This has becomeintegral aspectof an organization and the evaluation of ABC is generally employed for unfinished goods, manufactured goods, spares, components, final products and assembled objects. This system technique separatesitems into 3 groups, A, B and C; heremost significant element is A whilethe least significant is C. The ABC method is commonly used inmethod of supply chains planning and supply tracking and stock and therefore is applied assystem of cycle counts. For businesses looking to minimizeworking
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capital and carrying expenses, this is most essential. This is achieved by reviewing the inventory which is in surplus inventory as well as those which are outdated by making room for readily salesmade.Insteadofkeepingitlockedupinunsafestock,thisallowstoprevent keepingworking capital accessible for use. This allows them to retain control overvalue ofassets kept at singletime if a business is better equipped to monitor the inventory and retain controllingoverhigh-value products. It also adds order toprocess of reordering as well as ensuring that such items are really in inventory to fulfil the requirements. Items falling within class C are sluggish items which do not need to be re-ordered atsame regularity as theitemsA or itemsB (HR and Aithal, 2020). If onebrings the products into such three categories, recognizing the ones that require to be kept and those which couldbe replaced is useful forwholesalers as well as distributors. This approach helps corporations retain leverage of expensive goods that have vast sums of capital investing in them. This offers a means of keeping control overallinventory for the madness. This not only eliminates excessive payroll costs, but also ensures that optimal inventory levels are preserved at all stages. The ABC approach ensures that the inventory turnover rate is sustained atrelatively greater level by systematic inventory management. With this method, storage costs are significantly reduced. There is arrangement to have adequate stocks inC group to be managed without sacrificing onmore relevant products. Following is categories of items classified under this system: Item A = Extremely important Item B = Moderately important Item C = Relatively unimportant Item A: Under ABC system of inventory management and controlling, items grouped under class A are those items which report maximum values with regard to yearly consumptions. This is considerable that overall top seventy to eighty percentage of overall annual consumption figure of corporation generated through just around ten to twenty percentage of aggregate inventory items. Therefore, this is significant to properly prioritize such items. Item B: This includes all items which have mid-range consumption values. These generally equivalent to
around 30 percentage of aggregate stock within corporation that accounts around fifteen to twenty percentage of overall aggregate yearly consumption values. Item C: All items classified under this class bear minimum consumption values as well as account for around lower than five percentage of total annual consumptions value which implies around fifty percentage of aggregate stock items. Note: Here, Yearly consumption value = (Annual demand units) × (item cost per unit) Buffer/SafetyStock:Safetyinventory,commonlyalludedtobufferstock, issurplus/additionalinventory which a corporation maintains to ensure that anything does not runningout of inventory One can thought of this asinventory just in scenario. Just in scenario they runningout ofitems on the shelf, this is additional products held. Many businesses have been buying small quantities of stock on a daily basis after the introduction of just-in-time stock systems The premise of just-in-time stock is that businesses should get out of alltheirstorage centres and onlyorder adequate stock forday or fortnight. Often the inventory is distributed only as much asfew times each day. Just-in-time inventory mechanism will not be used by many businesses because vendors are not near enough orinventory is hard to deliver. A protection inventory system is used by these businesses. In this stock method firms purchase more stocks than they intend to sell. The additional inventory is referred to as their stocks of protection. This means that duringbusy seasons/peak timebusiness won't running out ofstock. Buffer inventory isgood idea for the satisfaction of clients, although it is risky for the cash flow of business. Clients are still pleased because famous goods never running out of inventory (Cosenz and Bivona, 2020). Pipeline inventory:Pipeline inventory corresponds to stock items which have remained to hit their ultimate destination inshipping chain of the business. Such items are regarded to be component ofinventory ofshipping company through their transit before they have been paid for by the recipient. When arecipient payment for the objects, furthermore,pipeline inventory stays oninventory list of arecipient, even though suchrecipient has still not actually received them. Before being a final commodity for purchasing by a customer, inventory passes through
several distinct locations. Products could arrive from several different nations-for example, one portion ofproduct may come throughChina as well as another portion ofsame product may come through US. Therefore, product which is on their way through one position to others as this is referred to as pipeline inventory as it's heading back tonext stop inpipeline. It might be onway fromlarge distributor towarehouse where the finished product would be converted, or it might be onway fromwarehouse tolocal distributor. Inventory system: The inventory system iscomprehensive approach to inventory acquisition, storage and distribution of both raw resources (parts) and final products. In commercial senseinventory system assuresthe appropriate stock, atright levels, inright place, atright moment, atright price and atright costs. As aspect of entire supply chain,inventory system involves factors like monitoring and managing orders, managing stock storage, tracking the quantity of merchandise for delivery, and order processing from manufacturers as well as consumers. There isseries of guidelines and measures that decide and monitorvolume of stocks when inventory needs to be refilled, and also the amount of inventoriesthat should actually be bought. The inventory system applies to procedures involving the procurement, storage and profitability of products from manufacturer to customer across the supply chain. Which appears straightforward but in attempt to maintain an organized and efficient stock, there are several important daily processes. A satisfactory equilibrium between all the shifting parts of the storage device cannot be achieved. Combating statistics like this requires a well-considered strategy and framework structure for the inventory system. Depending on the, company the items they produce, the policies they want to uphold, and the scope of their operation, it will take many procedures and mechanisms to keep operations running (Kalloniatis, McLennan-Smith and Roberts, 2020). Part B – NON-LINEAR/EXTREMUM a) Finding out an equation with respect to profit level of London furniture makers: Demand =200-15q Revenue =200q - 15q2(demand * q2)
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Total cost =120- 8q+12q2 Profit =200q-15q2– 120+ 8q-12q2 -27q2+208q-120 b) Setting up demand, costs and profit table c) Using values from above stated table and drawing a demand, costs and profitability graph The above stated graph/chart depicts thatLondon-based furniture maker’scost curve basically moving towards up and reflecting upward rising trend in product costs. At other side, company’s demand curve moving towards down straight reflecting that as the cost rises
demand for product goes down. Whereas line denoting Profit level goes upward to an extent then slightly goes downwards which indicates that as the cost rises to 280profit will decline along with product demand. (d). Based on above displayed graph, differentiating profit level equation to assess actual value of ‘q’ where profit level maximises: -27q2+208q-120 0 = -54q+208 54q = 208 q = 3.9 e) Assessing value of ‘X’ coefficients dependent on q (Liverpool): Demand = 200 – 5q TC= -150 – 25q + 11q2 Profit= -5q2- 11q2+225q – 150 Profit=-16q2+ 225q – 150 (q = 0, 1, 2, 3, 4, 5, 6, 7) TR – TC =(200q-5q2)-(150-25q+ 11q2) =200q-5q2-150 + 25q - Xq2 TR – TC =(200q-5q2)-(150-25q+Xq2) =200q-5q2-150 + 25q - Xq2 = -5q2-Xq2+225q – 150 DERIV: 0 =-10q-2Xq+225 0 =(-10* 5.9) - (2*X*5.9) +225 0 =166 - 11.8X 11.8X = 166 X = 14.1 f.Strong and weak points in the London and Liverpool models: As per the above performed sensitivity analysis based on the case study of London-based furniture maker, it has been evaluated that this model for business is quite efficient. Although there are some key strong merits and demerits. A positive aspect find out within such model is
that in business even product demand is overall less but this model enable business to generate profits. As well as rising costs herein do not directly impact overall profit-level to an extent. On other hand, demerits of that model is – as demand level increases this model offer decline in profits and after a certain point even losses. Moreover, one other demerit of such model asserted is that with decline in overall costs, business will report decline in overall profit or loss. Part C – DECISION TREE SECTION 1 i. A-Star Machine: 200 units0.3 Between 201 and 3000.55 Between 301 and 4000.15 B-Star Machine: 180 units0.45 Between 181 and 2000.55 C-Star Machine: 180 units0.45 Between 181 and 2000.55 Decision Tree:
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Machines A Star Machine B Star Machine C Star Machine 0.3200 units .33 .33 .33 0.55201 to 300 units units 0.15301to 400 units 0.45 0.55 180units 181to200 units units 0.5 0.5 240units 241 to 270units Path 1 = Expected Return: 0.33 x .5 x 4 = 0.66 Path 2 = Expected Return: 0.33 x .55 x 4 = 0.726 Path 3 = Expected Return: 0.33 x .15 x 4 = 0.198 Path 4 = Expected Return: 0.33 x .45 x 12 = 1.782 Path 5 = Expected Return: 0.33 x .55 x 12 = 2.178 Path 6 = Expected Return: 0.33 x .5 x 8 = 1.32 Path 7 = Expected Return: 0.33 x .5 x 7 = 1.155
ii. Decision Tree: Machines A Star Machine B Star Machine C Star Machine 0.3200 units .33 .33 .33 0.55201 to 300 units units 0.15301to 400 units 0.45 0.55 180units 181to200 units units 0.5 0.5 240units 241 to 270units £4 £4 £6.4 £12 £12 £8 £7 £2.4 .7 .3 Path 1 = Expected Return: 0.33 * .5 * 4 = 0.66 Path 2 = Expected Return: 0.33 * .55 * 4 = 0.726 Path 3 = Expected Return: 0.33 * .15 * 6.4 = 0.3168 Path 4 = Expected Return: 0.33 * .15 * 2.4 = 0.1188 Path 5 = Expected Return: 0.33 * .45 * 12 = 1.782 Path 6 = Expected Return: 0.33 * .55 * 12 = 2.178 Path 7 = Expected Return: 0.33 * .5 * 8 = 1.32 Path 8 = Expected Return: 0.33 * .5 * 7 = 1.155 SECTION 2 As per above formulated decision tree as well as the sensitivity analysis based on give case study, it has been evaluated that in scenario specified in point (i) and its decision tree depicts most higher expected profit through path 5 which is 2.178 each unit and minimum lowest profit through path 3 which is 0.198. In different scenario as stated in point (ii), decision tree is formed by considering additional conditions depicts that there will be total eight paths instead of 7 paths. All the outcomes would be same as of assessed in point (i) scenario except path 3 and 4 wherein profit would be 0.3168 and 0.1188 respectively.
CONCLUSION Form above study report this has been asserted that Business model istemplate for just howvaluecanbegeneratedbyacorporation.Undoubtedly,thisdistilsacompany's opportunity down to its core. It addresses basic concerns about the challenge they are looking to fix, how they are attempting to fix it, and the potential for growth withingiven sector. If onebeginning a new company, expanding intonew market, or evolvinggo-to-market approach, developingbusiness model is critical. One can utilizebusiness model with one location to catch fundamental perceptions and choices about the potential, settingcourse for performance.
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REFERENCES Books and Journals: Cosenz, F. and Noto, G., 2018. A dynamic business modellingapproach to design and experiment new business venture strategies.Long Range Planning,51(1), pp.127-140. HR,G.andAithal,P.S.,2020.IntegratedInventoryManagementControl Framework.International Journal of Management, Technology, and Social Sciences (IJMTS),5(1), pp.147-157. Cosenz, F. and Bivona, E., 2020. Fostering growth patterns of SMEs through business model innovation.Atailoreddynamicbusinessmodellingapproach.JournalofBusiness Research. Kalloniatis,A.C., McLennan-Smith, T.A. andRoberts, D.O., 2020. Modellingdistributed decision-makinginCommandandControlusingstochasticnetwork synchronisation.European Journal of Operational Research,284(2), pp.588-603.