Forecasting And Demand Planning

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Forecasting And Demand Planning

© All Rights Reserved

- OM3 Ch 14 Operations Scheduling and Sequencing
- OM3 Ch 15 Quality Management
- OM3 Ch 16 Quality Control and SPC
- OM3 Ch 17 Lean Operating Systems
- OM3 Ch 05 Technology and Operations Management
- OM3 Ch 04 Operations Strategy
- OM3 Ch 12 Managing Inventories
- OM3 Ch 10 Capacity Management
- Operations Management-Ch3-Test Bank
- OM3 Ch 13 Resource Management
- OM3 Ch 18 Project Management
- OM3 Ch 03 Measuring Performance in Operations
- Operations Management_ch4
- OM3 Ch 01 Goods,Services,AndOperationsManagement
- Solutions Chapter 5
- Data Mining Algos and Techniques
- F5 Train the Trainer
- A Comparison of Stock Trend Prediction Using Accuracy Driven Neural Network Variants
- Procurement Policies
- Statistics for Business and Economics: bab 18

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TRUE/FALSE

1. Better operational decisions can be made by integrating forecasting with value chain and capacity

management systems.

ANS: T

PTS: 1

2. Top managers use detailed forecasts of unit sales for individual products (e.g., brands and sizes) for

decisions involving financial planning and for sizing and locating new facilities.

ANS: F

PTS: 1

3. Long range forecasts expressed in sales dollars are more meaningful to top managers than to managers

at the operations level.

ANS: T

PTS: 1

ANS: F

PTS: 1

ANS: F

PTS: 1

6. All time series contain random variation but may not contain trend or seasonal components.

ANS: T

PTS: 1

7. Trends are characterized by repeatable periods of ups and downs over short periods of time.

ANS: F

PTS: 1

8. Seasonal patterns can occur over the weeks during a month, over days during a week, or hours during

a day.

ANS: T

PTS: 1

ANS: T

PTS: 1

ANS: T

PTS: 1

11. Aggregate forecasts are generally much easier to develop whereas detailed forecasts require more time

and resources.

ANS: T

PTS: 1

Chapter 11

12. A major difference between MSE and MAD is that MAD is influenced much more by large forecast

errors than by small errors.

ANS: F

PTS: 1

13. MAD, MSE, and MAPE forecast error metrics generally give similar numerical results so it doesn't

matter which one is used.

ANS: F

PTS: 1

14. Statistical forecasting is based upon the assumption that the future will be an extrapolation of the past.

ANS: T

PTS: 1

15. A single moving average is most appropriate for data with identifiable trends.

ANS: F

PTS: 1

16. As the value of k is increased in a moving average forecasting model, the forecast reacts more slowly

to recent changes in the time series.

ANS: T

PTS: 1

17. Exponential smoothing models "never forget" past data as long as the smoothing constant is strictly

between 0 and 1. In contrast, moving average methods "completely forget" all data older than k

periods in the past.

ANS: T

PTS: 1

18. In an exponential smoothing model, larger values of alpha (i.e., closer to 1) place less emphasis on

recent data and more on older data.

ANS: F

PTS: 1

19. In a regression model, both the dependent and independent variables must be numerical.

ANS: T

PTS: 1

20. An R2 of 0.70 mean 30% of the variability in the dependent variable was explained by the independent

variable.

ANS: F

PTS: 1

21. Regression models are often used in forecasting to incorporate causal variables that may influence a

time series.

ANS: T

PTS: 1

22. An exponential smoothing model can be found easily by applying the Excel Add Trendline option to a

time series.

ANS: F

PTS: 1

Chapter 11

23. Judgmental forecasting should only be used if no historical data are available.

ANS: F

PTS: 1

24. The Delphi method is a forecasting approach that is based on expert opinion.

ANS: T

PTS: 1

ANS: F

PTS: 1

26. Single exponential smoothing with a smoothing constant value of .25 puts the same weight on the

most recent actual demand as a 4-period moving average.

ANS: T

PTS: 1

27. Single exponential smoothing is a forecasting technique that uses a weighted average of

past time-series values to forecast the value of the time series in the next period.

ANS: T

PTS: 1

28. The smoothing constant, , used in the basic exponential smoothing model, can range in

value from -1 to +1.

ANS: F

PTS: 1

29. A major difference between forecast accuracy measures MAD and MSE is that MAD is

influenced much more by large forecast errors than by small errors.

ANS: F

PTS: 1

30. Irregular variation and random variation both refer to unexplainable deviation of a time

series from a predictable pattern.

ANS: F

PTS: 1

MULTIPLE CHOICE

1. ____ forecasts are needed to plan work-force levels, allocate budgets among divisions and schedule

jobs and resources.

a. Long-range

b. Intermediate-range

c. Short-range

d. Demand planning

ANS: B

PTS: 1

a. Long-range

b. Intermediate-range

c. Short-range

d. Demand planning

Chapter 11

ANS: A

PTS: 1

3. ____ forecasts are needed for planning production schedules and to assign workers to jobs.

a. Long-range

b. Intermediate-range

c. Short-range

d. Demand planning

ANS: C

PTS: 1

4. Which of the following is not one of the five characteristics of a time series?

a. Time bucket

b. Trend

c. Cyclical

d. Random variation

ANS: A

PTS: 1

a. Cyclical pattern

b. Random Variation

c. Irregular variation

d. Seasonal pattern

ANS: C

PTS: 1

6. Repeatable periods of ups and downs over short periods of time are called ____.

a. Trends

b. Seasonal patterns

c. Cyclical patterns

d. Irregular variation

ANS: B

PTS: 1

7. Regular patterns in a data series that take place over long periods of time are called ____.

a. Trends

b. Seasonal patterns

c. Cyclical patterns

d. Irregular variation

ANS: C

PTS: 1

8. The forecasting error measurement that is different in that the measurement scale factor is eliminated

is

a. MSE

b. MAD

c. RMSE

d. MAPE

ANS: D

PTS: 1

a. Delphi

b. Exponential smoothing

c. Moving average

d. Linear regression

Chapter 11

ANS: A

PTS: 1

10. A moving average model works best when ____ in the time series.

a. Only irregular variation is present

b. Only a trend is present

c. There is no trend, seasonal, or cyclical pattern

d. Trend, seasonal, and cyclical patterns all exist

ANS: C

PTS: 1

a. Large values of alpha () place more emphasis on recent data

b. Small values of alpha () place more emphasis on recent data

c. Very volatile time series with substantial random variability should use a large value for

alpha ()

d. Very stable time series with little random variability should use small values for alpha ()

ANS: A

PTS: 1

a. Small values of alpha () place more emphasis on past data

b. Larger values of alpha () have the advantage of quickly adjusting the forecast

c. If alpha () equals zero, the forecast will never change

d. If alpha () equals one, the forecast will never change

ANS: D

PTS: 1

13. If single exponential smoothing is used and the time series has a negative trend, the forecast will

a. Lag

b. Overshoot

c. Be on target

d. Have a MAD equal to zero

ANS: B

PTS: 1

a. Is limited to one dependent and one independent variable

b. Is best with linear relationships

c. Maximizes the sum of the squared deviations between the actual time series value and the

estimated values of the dependent variable

d. Can be used with time as the independent variable

ANS: D

PTS: 1

a. 80% of the variability in the independent variable is explained by the dependent variable

b. 80% of the variability in the dependent variable is explained by the independent variable

c. 80% of the variability in the dependent variable is not explained by the independent

variable

d. Multiple regression was used

ANS: B

PTS: 1

16. If actual demand for a product is highly influenced by only random variation, the quantitative

technique to use for forecasting demand is

OM3 Test Bank

Chapter 11

a.

b.

c.

d.

Regression

Moving average

Mean Absolute Percentage Error (MAPE)

Delphi

ANS: B

PTS: 1

a. Works best for long-term forecasting

b. Yields a mathematically optimal solution

c. Assigns weights to past data that decay exponentially as the data gets older

d. Cannot be adapted to handle trend

ANS: C

PTS: 1

18. Which of the following does not fit with the Delphi method?

a. Group of experts

b. Brought together as a group

c. Process iterates until a consensus is reached

d. Qualitative as well as numerical outputs

ANS: B

PTS: 1

19. All of the following are important in choosing a forecasting method except

a. Smoothing constant ()

b. Time span for which forecast is made

c. Data requirements

d. Quantitative skills needed

ANS: A

PTS: 1

20. Which of the following is not a valid approach to gathering data for judgmental forecasting?

a. Questionnaire

b. Telephone contact

c. Personal interview

d. Company records

ANS: D

PTS: 1

a. Determining the planning horizon length.

b. Determining the time bucket size (i.e., year, quarter, month, week, day, etc.).

c. Using a smoothing constant of 0.1 in Delphi methods of forecasting.

d. Identifying cyclical patterns.

ANS: C

PTS: 1

a. bias

b. error

c. accuracy

d. outliers

ANS: A

PTS: 1

Chapter 11

23. A group of international experts published a set of principles of forecasting that includes all of the

following except

a. Use quantitative rather than qualitative methods.

b. Combine forecasts from approaches that are similar.

c. Ask experts to justify their forecasts in writing.

d. Use multiple measures of forecast accuracy.

ANS: B

PTS: 1

SHORT ANSWER

1. Explain how forecasting is used at different levels of an organization.

ANS:

Top managers need long-range forecasts expressed in total sales dollars for use in financial planning

and for sizing and locating new facilities. At the middle management level, managers of the various

product groups need aggregate forecasts of sales volume for their products to establish production

plans. Finally, managers at the operational level need forecasts by brand and size to plan material

usage and production schedules.

PTS: 1

2. Discuss the three planning horizons used in forecasting and the types of decisions made in each.

ANS:

The planning horizon is the length of time on which a forecast is based.

Long-range forecasts cover a planning horizon of 1 to 10 years and are necessary to plan for

expansion of facilities and to determine future needs for land, labor and equipment.

Intermediate-range forecasts cover a 3- to 12-month period and are needed to plan work-force levels,

allocate budgets among divisions, establish purchasing plans, and schedule jobs and resources.

Short-range forecasts focus on the planning horizon of up to three months and are used by operations

managers to plan production schedules, assign workers to jobs, to determine short-term capacity

requirements and to aid shipping departments in planning transportation needs and establishing

delivery schedules.

PTS: 1

3. What is a time series, and what types of characteristics typically make up time series?

ANS:

A time series is a set of observations measured at successive points in time or over successive periods

of time. To explain the pattern of data in a time series, it is often helpful to think in terms of five

characteristics: trend, seasonal, cyclical, random variation, and irregular (one-time) variation.

A trend is the underlying pattern of growth or decline in a time series. This gradual shifting over time

is usually due to such long-term factors as changes in performance, technology, productivity,

population, demographic characteristics and customer preferences.

Seasonal patterns are characterized by repeatable periods of ups and downs over short periods of

time. Seasonal patterns usually conform to buyer behavior and different needs over the course of a

year, a quarter and so on.

Chapter 11

Cyclical patterns are regular patterns in a data series that take place over long periods of time. A

common example of a cyclical pattern is the movement of stock market values during "bull" and

"bear" market cycles.

Random variation (sometimes called noise)is the unexplained deviation of a time series from a

predictable pattern, such as a trend, seasonal, or cyclical pattern. Random variation is caused by shortterm, unanticipated, and nonrecurring factors and is unpredictable.

Irregular variation is one-time variation that is explainable.

PTS: 1

4. Define forecast error and describe ways that it is measured.

ANS:

Forecast error is the difference between the observed value of the time series and the forecast, or A t

Ft. Three types of forecast error metrics are mean square error (MSE), mean absolute deviation

(MAD), and mean absolute percentage error (MAPE).

PTS: 1

5. Explain the difference between statistical forecasting and judgment forecasting.

ANS:

Statistical forecasting is based on the assumption that the future will be an extrapolation of the past.

Statistical methods can generally be categorized as time series methods, which extrapolate historical

time series data, and regression methods, which, in addition to extrapolating historical time series

data, can also include other potentially causal factors that influence the behavior of the time series.

Judgmental forecasting relies upon opinions and expertise of people in developing forecasts.

PTS: 1

6. Explain the difference between a moving average and single exponential smoothing forecasting model.

ANS:

A moving average (MA) forecast is an average of the most recent "k" observations in a time series.

Single exponential smoothing (SES) is a forecasting technique that uses a weighted average of past

time-series values to forecast the value of the time series in the next period. SES forecasts are based on

averages using and weighting the most recent actual demand more than older demand data. SES

models use all past data while MA models only use the most recent observations.

PTS: 1

7. Define regression analysis and explain how it is an approach to forecasting.

ANS:

Regression Analysis is a method for building a statistical model that defines a relationship between a

single dependent variable and one or more independent variables, all of which are numerical.

Chapter 11

An example of a simple regression model for forecasting is one in which the value of a time series (the

dependent variable) is a function of a single independent variable, time. In more advanced forecasting

applications, other independent variables such as economic indexes or demographic factors that might

influence the time series can be incorporated into a regression model. A linear regression model with

more than one independent variable is called a multiple regression model. Multiple regression

provides a technique for building forecasting models that not only incorporate time but other potential

causal variables.

PTS: 1

8. Explain judgmental forecasting, including grass roots forecasting and the Delphi Method.

ANS:

Judgmental forecasting relies upon opinion and expertise of people in developing forecasts. When no

historical data are available, only judgmental forecasting is possible. But even when historical data are

available and appropriate, they cannot be the sole basis for prediction. The demand for goods and

services is affected by a variety of factors, such as global markets and cultures, interest rates,

disposable income, inflation, and technology. Competitors actions and government regulations also

have an impact.

Grass roots forecasting is simply asking those who are close to the end consumer, such as salespeople,

about the customers purchasing plans.

The Delphi Method consists of forecasting by expert opinion by gathering judgments and opinions of

key personnel based on their experience and knowledge of the situation. The experts are not consulted

as a group so as not to bias their predictions, i.e. a dominant personality in the group. The responses

and supporting arguments of each individual are summarized by an outside party and returned to the

experts along with further questions. Experts whose opinions fall in the mid-range of estimates as well

as those whose predictions are extremely high or low might be asked to explain them. The process

iterates until a consensus is reached by the group.

PTS: 1

9. Describe some of the issues that managers must consider in applying forecasting methods in practice.

ANS:

In practice, managers use a variety of judgmental and quantitative forecasting techniques. Statistical

methods alone cannot account for such factors as sales promotions, competitive strategies, unusual

economic or environmental disturbances, new product introductions, large one-time orders, labor

union strikes, and so on. Many managers begin with a statistical forecast and adjust it to account for

such factors. Others may develop independent judgmental and statistical forecasts and then combine

them, either objectively by averaging or in a subjective manner. The choice of a forecasting method

depends on the time span for which the forecast is being made, the needed frequency of forecast

updating, data requirements, the level of accuracy desired, and the quantitative skills needed.

PTS: 1

PROBLEM

1. Using the data shown below, compute the mean square error, mean absolute deviation, and mean

absolute percentage error for the forecasts shown.

Month

OM3 Test Bank

Forecast Demand

Actual Demand

Chapter 11

April

May

June

July

August

170

225

210

260

200

180

200

200

240

230

ANS:

Mean square error = [(180 170)2 + (200 225)2 + (200 210)2 + (240 260)2 + (230 200)2] /5 =

425.0

Mean absolute deviation = (10 + 25 + 10 + 20 + 30)/5 = 19

Mean absolute percentage error = (.056 + .125 + .050 + .083 + .130)(100)/5 = 8.89%

PTS: 1

2. Sales of a new CD at a store for the last 4 weeks are shown below.

Week

Sales

a.

b.

c.

1

112

2

105

3

125

4

118

Find a 4 period moving average forecast for the next week.

Actual sales for week 5 were 105 units. What would be the 3- and 4-period moving

average forecasts for week 6?

ANS:

a.

(105 + 125 + 118)/3 = 116

b.

c.

4-period: (105 + 125 + 118 + 105)/4 = 113.25

PTS: 1

3. Ed Rogers owns an appliance store. Sales data on a particular model of a DVD player for the past six

months are:

Month

Jan

Feb

Mar

Apr

May

Jun

Sales

35

29

39

42

51

56

Forecast sales for July using an exponential smoothing model with a smoothing constant of 0.40.

Assume that the forecast for May was 36.25.

Chapter 11

10

ANS:

FJUN = 36.25 + 0.4(51 36.25) = 42.15

FJUL = 42.15 + 0.4(56 42.15) = 47.69

PTS: 1

4. Ed Rogers owns an appliance store. Sales data on a particular model of a DVD player for the past six

months are shown below along with the results of two different forecasting models that were

developed t:

Month

Jan

Feb

Mar

Apr

May

Jun

Sales

35

29

39

42

51

56

Forecast 1

30

28

43

40

48

55

Forecast 2

33

32

35

45

52

52

ANS:

Month

Jan

Feb

Mar

Apr

May

Jun

Sales

35

29

39

42

51

56

5

1

4

2

3

1

2

3

4

3

1

4

MAD (Forecast 2) = 17/6 = 2.83

Model 1 is the better model.

PTS: 1

5. Based on the information shown below, develop forecasts for June using both a 2-period moving

average model and an exponential smoothing model with = 0.10. For the exponential smoothing

model, assume the forecast for February was 800.

Month

February

March

April

May

Actual Demand

850

900

975

950

ANS:

Moving average model: FJUNE = (975 + 950)/2 = 962.5

Exponential smoothing model:

FFEB = 800

FMAR = 800 + .1(850 800) = 805

FAPR = 805 + .1(900 805) = 814.5

FMAY = 814.5 + .1(975 800) = 830.55

FJUN = 830.55 + .1(950 800) = 842.495

PTS: 1

Chapter 11

11

6. The manager of a gas station along an interstate highway has observed that gasoline sales generally

increase each week over the summer months as more families travel by car on vacations. He also

believes that sales are sensitive to fluctuations in the price of gasoline. He developed the following

regression model:

Sales = 59407 + 509 (Week) 16463 (Price/gallon)

a.

b.

What is the sales forecast for the 11th week of the summer if the price per gallon is

estimated to be $3.00?

ANS:

a.

Sales increase on average by 509 gallons per week during the summer months. An

increase in the price/gallon of $1 reduces weekly sales by 16,463 gallons; equivalently, a

$0.10 increase in the price of gas reduces weekly sales by 1,646 gallons.

b.

PTS: 1

7. A 7-month simple moving average would approximately equate with what alpha () factor for simple

exponential smoothing?

ANS:

= 2/(k + 1) = 2/(7 + 1) = 0.25

PTS: 1

8. A Taiwan electronics company exports personal computers (PCs) to the U.S. Their PC

sales (in thousands) over the past five years are given below.

Yea

r

1

2

3

4

5

Sale

s

6

9

13

15

20

b. What is the forecast for sales in year 6?

ANS:

a.

Sales (y)

6

9

13

15

20

63

Year (x)

1

2

3

4

5

15

x2

1

4

9

16

25

55

Chapter 11

xy

6

18

39

60

100

223

y2

36

81

169

225

400

911

12

a = [ (55) (63) - (15) (223)] / [(5) (55) - (15) (15)] = 120/50 = 2.4

b = [(5) (223) (15) (63)] / [(5( (55) (15) (15)] = 170/50 = 3.4

Y = 2.4 + 3.4X

b. For year 6: Y = 2.4 + 3.4(6) = 22.8

PTS:

9. Consider the sales for six consecutive weeks for Sams Strawberries. The sales are in

flats sold.

Wee

k

1

2

3

4

5

6

Sale

s

16

18

14

10

20

22

a. Using a 3-period moving average, forecast the sales for weeks four through six.

b. Use exponential smoothing with = .3 to forecast sales for weeks four through six.

c. Use linear regression (time series) to develop a prediction equation that will forecast

sales. Then use that prediction equation to get forecasts for weeks four through six.

d. Use MAD to pick the best forecasting method of A through C.

ANS:

a. Week 4: (16 + 18 + 14)/3 = 16.0

Week 5: (18 + 14 + 10)/3 = 14.0

Week 6: (14 + 10 + 20)/3 = 14.7

b. Ft = Ft-1 + (At-1 Ft-1)

F2 = 10 + .3(16 10) = 11.8

F3 = 11.8 + .3(18 11.8) = 13.7

F4 = 13.7 + .3(14 13.7) = 13.8

F5 = 13.8 + .3(10 13.8) = 12.7

F6 = 12.7 + .3(20 12.7) = 14.9

c.

x

1

2

3

4

y

16

18

14

10

xy

16

36

42

40

20

22

2

1

10

0

10

0

13

2

36

6

x2

1

4

9

1

6

2

5

3

6

9

1

Chapter 11

13

Y = 13.467 + .914X

Week 4: 13.467 + .914(4) = 17.1

Week 5: 13.467 + .914(5) = 18.0

Week 6: 13.467 + .914(6) = 19.0

Week

4

5

6

Actual

10

20

22

Forec.

16.0

14.0

14.7

MA

|Dev.|

6.0

6.0

7.3

19.3

ES

Forec.

13.8

12.7

14.9

LR

|Dev.|

3.8

7.3

7.1

18.2

Forec.

17.1

18.0

19.0

|Dev.|

7.1

2.0

3.0

12.1

MAD MA:

19.3/3 = 6.43

MAD ES:

18.2/3 = 6.07

MAD LR:

12.1/3 = 4.03

Linear regression has the lowest MAD.

PTS:

10. Valentine's Day is the best day of the year for selling roses at River Road Florist. Dozens of

roses sold on Valentine's Day over six years are as follows:

Year

2005

2006

2007

2008

2009

2010

a.

b.

d.

e.

Dozen

104

109

101

114

104

100

What is the forecast for Valentine's Day in 2011 using a 3-period moving average?

What is the forecast for Valentine's Day in 2011 using a 5-period moving average?

What is the MAD for years 2008 - 2010 using a 3-period moving average?

What is the tracking signal for years 2008 - 2010 using a 3-period moving average?

ANS:

a. F(2011) = (114 + 104 + 100)/3 = 106.00

b. F(2011) = (109 + 101 + 114 + 104 + 100)/5 = 105.6

c. F(2008) = (104 + 109 + 101)/3 = 104.67

F(2009) = (109 + 101 + 114)/3 = 108.00

F(2010) = (101 + 114 + 104)/3 = 106.33

MAD = (9.33 + 4.00 + 6.33)/3 = 6.55

d. TS = (9.33 - 4.00 - 6.33)/6.55 = -.153

PTS:

11. The Espresso Cart has had the following pattern of espresso sales over the last two weeks:

Week 1

Week 2

Chapter 11

14

Monday

Tuesday

Wednesday

Thursday

Friday

873

904

911

887

899

Monday

Tuesday

Wednesday

Thursday

Friday

912

859

906

900

?

What is the forecast for Friday's sales using a three-day moving average?

ANS:

F(Friday) = (859 + 906 + 900)/3 = 888.33

PTS: 1

12. State Division of Motor Vehicles (DMV) statistics show the rate of new driver's license

applications to be as shown below:

Month

Week

April

1

2

3

4

1

2

3

4

May

Application

s

238

199

215

212

207

211

196

206

a. Using a 3-week moving average, what is the forecast for the first week in April?

b. Using a 5-week moving average, what is the forecast for the first week in April?

ANS:

a. F(April, 1) = (211 + 196 + 206)/3 = 613/3 = 204.33

b. F(April, 1) = (212 + 207 + 211 + 196 + 206)/5 = 1032/5 = 206.4

PTS:

13. The following data represents the home mortgage loan interest rates at a local bank over an

eight-month period:

Month

1

2

3

4

Rate (%)

8.7

8.7

8.6

8.6

Month

5

6

7

8

Rate (%)

8.6

8.4

8.8

8.8

a. What is the forecast for month 8 using a moving average model with an AP = 4?

b. What is the forecast for month 9 using a moving average model with an AP = 6?

ANS:

a. F(Day 8) = (8.8 + 8.4 + 8.6 + 8.6)/4 = 8.60

b. F(Day 9) = (8.8 + 8.8 + 8.4 + 8.6 + 8.6 + 8.6)/6 = 8.63

OM3 Test Bank

Chapter 11

15

PTS:

14. Community General Hospital finds itself treating many bicycle accident victims. Data from

the last seven 24-hour periods is shown below:

Day

1

2

3

4

5

6

7

Bicycle Victims

6

8

4

7

9

9

7

a. What is the forecast for day 4 using a moving average model with AP = 3?

b. With an alpha value of .5 and a starting forecast in day 4 equal to the actual data, what

is the exponentially smoothed forecast for day 8?

c. What is the MAD for days 6 to 8 for an exponentially smoothed forecasting model

with an alpha value of .5 and a starting forecast in day 4 equal to the actual data?

d. What is the tracking signal for days 6 to 8 for an exponentially smoothed forecasting

model with an alpha value of .5 and a starting forecast in day 4 equal to the actual data?

ANS:

a. F (Day 4) = (4 + 8 + 6) / 3 = 6

b. F(Day 5) = 7 + .5(7 7) = 7.00

F(Day 6) = 7 + .5(9 7) = 8.00

F(Day 7) = 8 + .5(9 8) = 8.50

F(Day 8) = 8.5 + .5(7 8.5) = 7.75

c. MAD = (2.0 + 1.0 + 1.5)/3 = 1.50

d. TS = (2.0 + 1.0 1.5)/1.50 = 1.00

PTS:

15. A major biotechnology company has developed a new drug for arthritis victims using

gene-splicing technology. It has been on the market for five months and has experienced

the following sales (in thousands of dollars):

Month

January

February

March

April

May

Sales

26

32

34

34

36

a. What is the exponential smoothing forecast for May assuming that January sales is also

the initial forecast and the alpha value is .5?

b. What is the exponential smoothing forecast for May assuming that January sales is also

the initial forecast and the alpha value is .8?

Chapter 11

16

c. What is the MAD for exponentially smoothed forecasts for months March to May

assuming that January sales is also the initial forecast and the alpha value is .5?

d. What is the MAD for exponentially smoothed forecasts for months March to May

assuming that January sales is also the initial forecast and the alpha value is .8?

e. What is the tracking signal for exponentially smoothed forecasts for months March to

May assuming that January sales is also the initial forecast and the alpha value is .5?

f. What is the tracking signal for exponentially smoothed forecasts for months March to

May assuming that January sales value is .8?

ANS:

a. F(February)= 26 + .5(26 26) = 26

F(March) = 26 + .5(32 26) = 29

F(April)

= 29 + .5(34 29) = 31.5

F(May)

= 31.5 + .5(34 31.5) = 32.75

b. F(February)= 26 + .8(26 26) = 26

F(March) = 26 + .8(32 26) = 30.8

F(April)

= 30.8 + .8(34 30.8) = 33.36

F(May)

= 33.36 + .8(34 33.36) = 33.87

c. MAD = (6 + 5 + 2.5)/3 = 13.5/3 = 4.50

d. MAD = (6 + 3.2 + .64)/3 = 3.28

e. TS = (6 + 5 + 2.5)/4.50 = 3.00

f.

PTS:

Chapter 11

17

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