Demand

Tahoe Salt Example from CM4e, Chapter 7

Quarterly Demand
Period Demand
Year-Qtr t Dt Quarterly Demand at Tahoe Salt
2001-2 1 8,000 45,000
2001-3 2 13,000 40,000

Demand
2001-4 3 23,000 35,000
2002-1 4 34,000 30,000
2002-2 5 10,000
25,000
2002-3 6 18,000
20,000
2002-4 7 23,000
2003-1 8 38,000 15,000
2003-2 9 12,000 10,000
2003-3 10 13,000 5,000
2003-4 11 32,000 0
2004-1 12 41,000 2001-2 2001-3 2001-4 2002-1 Year,
2002-2Quarter
2002-3 2002-4 2003-1 2003-2 2003-3 2003-4 2
 Demand

d at Tahoe Salt

3 2002-4 2003-1 2003-2 2003-3 2003-4 2004-1

er
 Deseason

Static Forecasting - Level, Trend and Seasonality

Deseasonalized Demand for Tahoe Salt

Period Demand Deseasonalized
t Dt Demand Deseasonalized Demand for Tahoe Sa
Periodicity p 45,000
4 40,000

Demand
1 8,000
35,000
2 13,000
30,000
3 23,000 19,750
4 34,000 20,625 25,000
5 10,000 21,250 20,000
6 18,000 21,750 15,000
7 23,000 22,500
10,000
8 38,000 22,125
5,000
9 12,000 22,625
10 13,000 24,125 0
11 32,000 0 2 4 6 8 10
Period, t
12 41,000

Equation for Deseasonalizing Demand

where:
D = Demand
p = periodicity
t = period
Deseason
 Deseason

lized Demand for Tahoe Salt

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.958065
R Square 0.917889
Adjusted R 0.904204
Standard E 414.5033
Observatio 8
4 6 8 10 12 14
Period, t
ANOVA
df SS MS F
Regression 1 11523810 11523810 67.07182
Residual 6 1030878 171813
Total 7 12554688

Coefficients
Standard Error t Stat P-value
Intercept 18438.99 440.8087 41.82991 1.25E-08
X Variable 523.8095 63.95925 8.189738 0.000179
 Deseason

Significance F
0.000179

Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
17360.37 19517.61 17360.37 19517.61
367.3069 680.3122 367.3069 680.3122
 DeseasonReg

Static Forecasting - Level, Trend and Seasonality - Regression Analysis

REGRESSION SUMMARY OUTPUT

Regression Statistics
Multiple R 0.958065237
R Square 0.917888998
Adjusted R Sq 0.90420383
Standard Error 414.5033124
Observations 8

ANOVA
df SS MS F Significance F
Regression 1 11523809.524 11523810 67.07182 0.0001786086
Residual 6 1030877.9762 171813
Total 7 12554687.5

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 18,439 440.80870788 41.82991 1.25E-08 17360.367255 19517.609 17360.3673 19517.60894
X Variable 1 524 63.959249681 8.189738 0.000179 367.30676332 680.31228 367.306763 680.3122843

Initial Level, L
Trend, T
 TrendSeason

Historical Data

Deseasonalized
Demand Demand 45,000
Period
t Dt (Eqn 7.4)
D t
Seasonal Factor Estimate
(Eqn 7.5) S (Eqn 7.6)
Si
t 40,000
Level = 18439
Trend = 524 35,000
1 8,000 18,963 0.42 0.47 30,000
2 13,000 19,487 0.67 0.68
3 23,000 20,011 1.15 1.17 25,000
4 34,000 20,535 1.66 1.66
20,000
5 10,000 21,059 0.47
6 18,000 21,583 0.83 15,000
7 23,000 22,107 1.04
8 38,000 22,631 1.68 10,000
9 12,000 23,155 0.52 5,000
10 13,000 23,679 0.55
11 32,000 24,203 1.32 0
12 41,000 24,727 1.66 1 2 3 4 5 6

Forecasted Data

Period Forecasted Demand

Year, Qtr t F t+1
2004-2 13 11,910
2004-3 14 17,614
2004-4 15 30,787
2005-1 16 44,642
 MovAvg

Adaptive Forecasting - Moving Average

Tahoe Salt Forecasts Using Four-Period Moving Average

Period Demand Level Forecast

t Dt Lt Ft
1 8,000
2 13,000
3 23,000
4 34,000 19,500
5 10,000 20,000 19,500
6 18,000 21,250 20,000
7 23,000 21,250 21,250
8 38,000 22,250 21,250
9 12,000 22,750 22,250
10 13,000 21,500 22,750
11 32,000 23,750 21,500
12 41,000 24,500 23,750
13 24,500
14 24,500
15 24,500
16 24,500

45,000
40,000
35,000
30,000 Demand
Dt
25,000
20,000 Forecast
Ft
15,000
10,000
5,000
0
0 2 4 6 8 10 12 14
20,000 Forecast
Ft
15,000
10,000
5,000 MovAvg
0
0 2 4 6 8 10 12 14
 ExpSmooth

Adaptive Forecasting - Exponential Smoothing

Tahoe Salt Forecasts Using Simple Exponential Smoothing

Demand Forecast
Period t Dt Level Lt Ft
0 22,083
1 8,000 20,675 22,083
2 13,000 19,908 20,675
3 23,000 20,217 19,908
4 34,000 21,595 20,217
5 10,000 20,436 21,595
6 18,000 20,192 20,436
7 23,000 20,473 20,192
8 38,000 22,226 20,473
9 12,000 21,203 22,226
10 13,000 20,383 21,203
11 32,000 21,544 20,383
12 41,000 23,490 21,544
23,490
23,490
23,490
23,490

alpha 0.1

45,000
40,000
35,000
30,000
25,000 Demand

20,000 Forecast
15,000
10,000
5,000
0
1 2 3 4 5 6 7 8 9 10 11 12
20,000 Forecast
15,000
10,000
5,000 ExpSmooth
0
1 2 3 4 5 6 7 8 9 10 11 12
 TrendExpSmooth

Forecasts Using Trend-Corrected Exponential Smoothing (Holt's Model)

Demand Trend Forecast
Period t Dt Level Lt Tt Ft
0 18,439 524
1 8,000 17,867 305 18,963
2 13,000 17,654 201 18,171
3 23,000 18,370 304 17,856
4 34,000 20,207 611 18,674
5 10,000 19,736 394 20,818
6 18,000 19,917 352 20,130
7 23,000 20,542 406 20,269
8 38,000 22,654 747 20,948
9 12,000 22,261 519 23,401
10 13,000 21,802 324 22,780
11 32,000 23,113 521 22,126
12 41,000 25,371 869 23,635
26,240
27,108
27,977
28,846
alpha 0.1
Beta 0.2

45,000
40,000
35,000
30,000
25,000 Demand
20,000 Forecast
15,000
10,000
5,000
0
1 2 3 4 5 6 7 8 9 10 11 12
 TrendExpSmoothReg

REGRESSION SUMMARY OUTPUT

Regression Statistics
Multiple R 0.4813272
R Square 0.23167587
Adjusted R 0.15484346
Standard E 10666.8834
Observatio 12

ANOVA
df SS MS F Significance F
Regression 1 343092657.343 343092657.3 3.01534 0.113127
Residual 10 1137824009.32 113782400.9
Total 11 1480916666.67

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Intercept 12,015 6565.01289356 1.830179424 0.097147 -2612.611 26642.91 -2612.611 26642.91
X Variable 1,549 892.009599389 1.73647352 0.113127 -438.5705 3536.473 -438.5705 3536.473

b, estimate of demand
and level at t=0

a, estimate of trend at
t=0
 TrendSeasonExpSmoothDeseason

Forecasts Using Trend and Seasonality Corrected Exponential Smoothing)

Deseasonalizing Demand
Deseasonalized Deseasonalized
Period Demand Demand Demand Seasonal Factor Estimate
t Dt (Eqn 7.2) D t
(Eqn 7.3) D t (Eqn 7.5) t S
(Eqn 7.6)
Si
Level = 18439
Trend = 524
1 8,000 18,963 0.42 0.47
2 13,000 19,487 0.67 0.68
3 23,000 19,750 20,011 1.15 1.17
4 34,000 20,625 20,535 1.66 1.66
5 10,000 21,250 21,059 0.47
6 18,000 21,750 21,583 0.83
7 23,000 22,500 22,107 1.04
8 38,000 22,125 22,631 1.68
9 12,000 22,625 23,155 0.52
10 13,000 24,125 23,679 0.55
11 32,000 24,203 1.32
12 41,000 24,727 1.66

45,000
40,000
35,000
30,000 Demand
25,000
Deseasonliz
20,000 ed Demand
15,000
10,000
5,000
0
1 2 3 4 5 6 7 8 9 10 11 12
 TrendSeasonExpSmoothReg

Adaptive Forecasting - Trend and Seasonality Corrected Exponential Smoothing (Winter's Model)
REGRESSION SUMMARY OUTPUT

Regression Statistics
Multiple R 0.9580652
R Square 0.917889
Adjusted R Squar 0.9042038
Standard Error 414.50331
Observations 8

ANOVA
df SS MS F Significance F
Regression 1 11523809.5 11523809.5 67.07182 0.000179
Residual 6 1030877.98 171812.996
Total 7 12554687.5

CoefficientsStandard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%

Upper 95.0%
Intercept 18,439 440.808708 41.8299089 1.249E-08 17360.37 19517.61 17360.37 19517.61
X Variable 1 524 63.9592497 8.18973841 0.000179 367.3068 680.3123 367.3068 680.3123

initial estimate of
level

initial estimate of
trend
 TrendSeasonExpSmooth

Forecasts Using Trend and Seasonality Corrected Exponential Smoothing)

Demand Trend Seasonal Factor Forecast
Period t Dt Level Lt Tt St Ft
18,439 524
1 8,000 18,763 514 0.47 8,944
2 13,000 19,251 513 0.68 13,173
3 23,000 19,753 512 1.17 23,137
4 34,000 20,281 513 1.66 33,727
5 10,000 20,835 515 0.47 9,808
6 18,000 21,849 540 0.68 14,590
7 23,000 22,115 526 1.17 26,209
8 38,000 22,660 527 1.66 37,681
9 12,000 23,413 538 0.47 10,936
10 13,000 23,458 514 0.68 16,368
11 32,000 24,309 531 1.17 28,063
12 41,000 24,819 530 1.66 41,340
13 0.47 11,956
14 0.68 17,684
15 1.17 30,914
16 1.66 44,832

alpha 0.1
Beta 0.05
50,000
Gamma 0.1 45,000
40,000
35,000
30,000 Demand
25,000 Forecast
20,000
15,000
10,000
5,000
0
1 2 3 4 5 6 7 8 9 10 11 12