In this section, we will take a look at another more complex example. As before, we will define the problem statement and then define steps to solve the problem.
In this example, we want to forecast the procurement of commodities based on historical data. The commodity that we are going to use is natural gas. In the case of natural gas, we do not have any control over its pricing because it is a hugely globalized commodity. However, we can still set up the internal procurement strategy when the pricing of the natural gas hits a certain range. The profitability ratio target will constrain the maximum pricing we can pay for the raw material to be profitable for the owners of the firm. We will track the profitability ratio, which is the ratio of cost of natural gas to sales.
Let's understand this pricing constraint with an example. In this example, we assume that for each dollar spent where the unit cost...
