Forecasting

4
PowerPoint presentation to accompany
Heizer, Render, Munson
Operations Management, Twelfth Edition, Global Edition
Principles of Operations Management, Tenth Edition, Global Edition

PowerPoint slides by Jeff Heyl

Copyright © 2017 Pearson Education, Ltd. 4-1

 Outline
▶ Global Company Profile:
Walt Disney Parks & Resorts
▶ What Is Forecasting?
▶ The Strategic Importance of
Forecasting
▶ Seven Steps in the Forecasting
System
▶ Forecasting Approaches

Copyright © 2017 Pearson Education, Ltd. 4-2

 Outline - Continued
▶ Time-Series Forecasting
▶ Associative Forecasting Methods:
Regression and Correlation Analysis
▶ Monitoring and Controlling Forecasts
▶ Forecasting in the Service Sector

Copyright © 2017 Pearson Education, Ltd. 4-3

 Forecasting Provides a
Competitive Advantage for Disney

► Global portfolio includes parks in Shanghai,

Hong Kong, Paris, Tokyo, Orlando, and
Anaheim
► Revenues are derived from people – how
many visitors and how they spend their
money
► Daily management report contains only the
forecast and actual attendance at each park
Copyright © 2017 Pearson Education, Ltd. 4-4
 Forecasting Provides a
Competitive Advantage for Disney

► Disney generates daily, weekly, monthly,

annual, and 5-year forecasts
► Forecast used by labor management,
maintenance, operations, finance, and park
scheduling
► Forecast used to adjust opening times, rides,
shows, staffing levels, and guests admitted

Copyright © 2017 Pearson Education, Ltd. 4-5

 Forecasting Provides a
Competitive Advantage for Disney

► 20% of customers come from outside the

USA
► Economic model includes gross domestic
product, cross-exchange rates, arrivals into
the USA
► A staff of 35 analysts and 70 field people
survey 1 million park guests, employees, and
travel professionals each year
Copyright © 2017 Pearson Education, Ltd. 4-6
 Forecasting Provides a
Competitive Advantage for Disney

► Inputs to the forecasting model include airline

specials, Federal Reserve policies, Wall
Street trends, vacation/holiday schedules for
3,000 school districts around the world
► Average forecast error for the 5-year forecast
is 5%
► Average forecast error for annual forecasts is
between 0% and 3%

Copyright © 2017 Pearson Education, Ltd. 4-7

 Learning Objectives
When you complete this chapter you
should be able to :
4.1 Understand the three time horizons and
which models apply for each
4.2 Explain when to use each of the four
qualitative models
4.3 Apply the naive, moving-average,
exponential smoothing

Copyright © 2017 Pearson Education, Ltd. 4-8

 What is Forecasting?
► Process of predicting a
future event
► Underlying basis
of all business
??
decisions
► Production
► Inventory
► Personnel
► Facilities
Copyright © 2017 Pearson Education, Ltd. 4-9
 Forecasting Time Horizons
1. Short-range forecast
► Up to 1 year, generally less than 3 months
► Purchasing, job scheduling, workforce levels,
job assignments, production levels
2. Medium-range forecast
► 3 months to 3 years
► Sales and production planning, budgeting
3. Long-range forecast
► 3+ years
► New product planning, facility location,
research and development
Copyright © 2017 Pearson Education, Ltd. 4 - 10
 Distinguishing Differences
1. Medium/long range forecasts deal with more
comprehensive issues and support
management decisions regarding planning
and products, plants and processes
2. Short-term forecasting usually employs
different methodologies than longer-term
forecasting
3. Short-term forecasts tend to be more
accurate than longer-term forecasts

Copyright © 2017 Pearson Education, Ltd. 4 - 11

 Influence of Product Life
Cycle
Introduction – Growth – Maturity – Decline
► Introduction and growth require longer
forecasts than maturity and decline
► As product passes through life cycle,
forecasts are useful in projecting
► Staffing levels
► Inventory levels
► Factory capacity
Copyright © 2017 Pearson Education, Ltd. 4 - 12
 Product Life Cycle
Introduction Growth Maturity Decline

Best period to Practical to change Poor time to Cost control

increase market price or quality change image, critical
share image price, or quality
Company Strategy/Issues

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position
Hybrid engine vehicles Laptop computers

Boeing 787 Xbox One

DVDs
3D printers

Life Cycle Curve

Electric
vehicles
Apple Video
SmartWatch 3-D game physical
players rentals

Figure 2.5
Copyright © 2017 Pearson Education, Ltd. 4 - 13
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting critical Standardization Little product
and development Product and Fewer rapid differentiation
critical process reliability product changes, Cost
Frequent product Competitive more minor minimization
and process changes
Strategy/Issues

product Overcapacity in
OMStrategy/Issues

design changes improvements and Optimum capacity the industry

Short production options Increasing stability Prune line to
runs Increase capacity of process eliminate items
High production Shift toward not returning
costs product focus good margin
Limited models Enhance Reduce
Long production capacity
Attention to quality distribution runs
OM

Product
improvement and
cost cutting

Figure 2.5
Copyright © 2017 Pearson Education, Ltd. 4 - 14
 Types of Forecasts
1. Economic forecasts
► Address business cycle – inflation rate, money
supply, housing starts, etc.
2. Technological forecasts
► Predict rate of technological progress
► Impacts development of new products
3. Demand forecasts
► Predict sales of existing products and services

Copyright © 2017 Pearson Education, Ltd. 4 - 15

 Strategic Importance of
Forecasting
► Supply-Chain Management – Good
supplier relations, advantages in product
innovation, cost and speed to market
► Human Resources – Hiring, training,
laying off workers
► Capacity – Capacity shortages can result
in undependable delivery, loss of
customers, loss of market share

Copyright © 2017 Pearson Education, Ltd. 4 - 16

 Seven Steps in Forecasting
1. Determine the use of the forecast
2. Select the items to be forecasted
3. Determine the time horizon of the
forecast
4. Select the forecasting model(s)
5. Gather the data needed to make the
forecast
6. Make the forecast
7. Validate and implement the results
Copyright © 2017 Pearson Education, Ltd. 4 - 17
 The Realities!
► Forecasts are seldom perfect,
unpredictable outside factors may
impact the forecast
► Most techniques assume an
underlying stability in the system
► Product family and aggregated
forecasts are more accurate than
individual product forecasts

Copyright © 2017 Pearson Education, Ltd. 4 - 18

 Forecasting Approaches
Qualitative Methods
► Used when situation is vague and
little data exist
► New products
► New technology
► Involves intuition, experience
► e.g., forecasting sales on Internet

Copyright © 2017 Pearson Education, Ltd. 4 - 19

 Forecasting Approaches
Quantitative Methods
► Used when situation is ‘stable’ and
historical data exist
► Existing products
► Current technology
► Involves mathematical techniques
► e.g., forecasting sales of color
televisions
Copyright © 2017 Pearson Education, Ltd. 4 - 20
 Overview of Qualitative
Methods
1. Jury of executive opinion
► Pool opinions of high-level experts,
sometimes augmented by statistical
models
2. Delphi method
► Panel of experts, queried iteratively

Copyright © 2017 Pearson Education, Ltd. 4 - 21

 Overview of Qualitative
Methods
3. Sales force composite
► Estimates from individual salespersons
are reviewed for reasonableness, then
aggregated
4. Market Survey
► Ask the customer

Copyright © 2017 Pearson Education, Ltd. 4 - 22

 Jury of Executive Opinion
► Involves small group of high-level experts
and managers
► Group estimates demand by working
together
► Combines managerial experience with
statistical models
► Relatively quick
► ‘Group-think’
disadvantage

Copyright © 2017 Pearson Education, Ltd. 4 - 23

 Delphi Method
► Iterative group
process, continues Decision Makers
(Evaluate responses
until consensus is and make decisions)
reached
► Three types of Staff
(Administering
participants survey)
► Decision makers
► Staff
► Respondents Respondents
(People who can make
valuable judgments)
Copyright © 2017 Pearson Education, Ltd. 4 - 24
 Sales Force Composite
► Each salesperson projects his or her
sales
► Combined at district and national
levels
► Sales reps know customers’ wants
► May be overly optimistic

Copyright © 2017 Pearson Education, Ltd. 4 - 25

 Market Survey
► Ask customers about purchasing
plans
► Useful for demand and product
design and planning
► What consumers say and what they
actually do may be different
► May be overly optimistic

Copyright © 2017 Pearson Education, Ltd. 4 - 26

 Overview of Quantitative
Approaches
1. Naive approach
2. Moving averages
3. Exponential Time-series
smoothing models
4. Trend projection
5. Linear regression Associative
model

Copyright © 2017 Pearson Education, Ltd. 4 - 27

 Time-Series Forecasting

► Set of evenly spaced numerical data

► Obtained by observing response
variable at regular time periods
► Forecast based only on past values, no
other variables important
► Assumes that factors influencing past
and present will continue influence in
future

Copyright © 2017 Pearson Education, Ltd. 4 - 28

 Time-Series Components

Trend Cyclical

Seasonal Random

Copyright © 2017 Pearson Education, Ltd. 4 - 29

 Components of Demand
Trend
component
Demand for product or service

Seasonal peaks

Actual demand
line

Average demand
over 4 years

Random variation
| | | |
1 2 3 4
Time (years)
Figure 4.1

Copyright © 2017 Pearson Education, Ltd. 4 - 30

 Trend Component
► Persistent, overall upward or
downward pattern
► Changes due to population,

technology, age, culture, etc.

► Typically several years duration

Copyright © 2017 Pearson Education, Ltd. 4 - 31

 Seasonal Component
► Regular pattern of up and down
fluctuations
► Due to weather, customs, etc.
► Occurs within a single year
PERIOD LENGTH “SEASON” LENGTH NUMBER OF “SEASONS” IN PATTERN
Week Day 7
Month Week 4 – 4.5
Month Day 28 – 31
Year Quarter 4
Year Month 12
Year Week 52

Copyright © 2017 Pearson Education, Ltd. 4 - 32

 Cyclical Component
► Repeating up and down movements
► Affected by business cycle, political,
and economic factors
► Multiple years duration
► Often causal or
associative
relationships

0 5 10 15 20
Copyright © 2017 Pearson Education, Ltd. 4 - 33
 Random Component
► Erratic, unsystematic, ‘residual’
fluctuations
► Due to random variation or unforeseen
events
► Short duration
and nonrepeating

M T W T
Copyright © 2017 Pearson Education, Ltd. F 4 - 34
 Naive Approach
► Assumes demand in next
period is the same as
demand in most recent period
► e.g., If January sales were 68, then
February sales will be 68
► Sometimes cost effective and
efficient
► Can be good starting point

Copyright © 2017 Pearson Education, Ltd. 4 - 35

 Moving Averages
► MA is a series of arithmetic means
► Used if little or no trend
► Used often for smoothing
► Provides overall impression of data
over time

Copyright © 2017 Pearson Education, Ltd. 4 - 36

 Moving Average Example
MONTH ACTUAL SHED SALES 3-MONTH MOVING AVERAGE
January 10
February 12
March 13
April 16 (10 + 12 + 13)/3 = 11 2/3
May 19 (12 + 13 + 16)/3 = 13 2/3
June 23 (13 + 16 + 19)/3 = 16
July 26 (16 + 19 + 23)/3 = 19 1/3
August 30 (19 + 23 + 26)/3 = 22 2/3
September 28 (23 + 26 + 30)/3 = 26 1/3
October 18 (26 + 30 + 28)/3 = 28
November 16 (30 + 28 + 18)/3 = 25 1/3
December 14
(28 + 18 + 16)/3 = 20 2/3

Copyright © 2017 Pearson Education, Ltd. 4 - 37

 Weighted Moving Average
► Used when some trend might be
present
► Older data usually less important
► Weights based on experience and
intuition

Weighted
moving
average

Copyright © 2017 Pearson Education, Ltd. 4 - 38

 Weighted Moving Average
MONTH ACTUAL SHED SALES 3-MONTH WEIGHTED MOVING AVERAGE
January 10
February 12
March 13
April 16 [(3 x 13) + (2 x 12) + (10)]/6 = 12 1/6
May 19
June WEIGHTS
23 APPLIED PERIOD

July 26 3 Last month

August 30 2 Two months ago

September 28 1 Three months ago

October 18 6 Sum of the weights

November Forecast for

16this month =
December 3 x 14
Sales last mo. + 2 x Sales 2 mos. ago + 1 x Sales 3 mos. ago
Sum of the weights

Copyright © 2017 Pearson Education, Ltd. 4 - 39

 Weighted Moving Average
MONTH ACTUAL SHED SALES 3-MONTH WEIGHTED MOVING AVERAGE
January 10
February 12
March 13
April 16 [(3 x 13) + (2 x 12) + (10)]/6 = 12 1/6
May 19 [(3 x 16) + (2 x 13) + (12)]/6 = 14 1/3
June 23 [(3 x 19) + (2 x 16) + (13)]/6 = 17
July 26 [(3 x 23) + (2 x 19) + (16)]/6 = 20 1/2
August 30 [(3 x 26) + (2 x 23) + (19)]/6 = 23 5/6
September 28 [(3 x 30) + (2 x 26) + (23)]/6 = 27 1/2
October 18
[(3 x 28) + (2 x 30) + (26)]/6 = 28 1/3
November 16
[(3 x 18) + (2 x 28) + (30)]/6 = 23 1/3
December 14
[(3 x 16) + (2 x 18) + (28)]/6 = 18 2/3

Copyright © 2017 Pearson Education, Ltd. 4 - 40

 Potential Problems With
Moving Average
1. Increasing n smooths the forecast but
makes it less sensitive to changes
2. Does not forecast trends well
3. Requires extensive historical data

Copyright © 2017 Pearson Education, Ltd. 4 - 41

 Graph of Moving Averages
Weighted moving average (from Example 2)

30 –

25 –
Sales demand

20 –
Actual sales
15 –

Moving average
10 –
(from Example 1)

5–
| | | | | | | | | | | |

J F M A M J J A S O N D
Figure 4.2 Month

© 2014 Pearson Education, Inc. 4 - 42

 Exponential Smoothing
► Form of weighted moving average
► Weights decline exponentially
► Most recent data weighted most
► Requires smoothing constant ()
► Ranges from 0 to 1
► Subjectively chosen
► Involves little record keeping of past
data
Copyright © 2017 Pearson Education, Ltd. 4 - 43
 Exponential Smoothing
New forecast = Last period’s forecast
+ a (Last period’s actual demand
– Last period’s forecast)

Ft = Ft – 1 + a(At – 1 – Ft – 1)

where Ft = new forecast

Ft – 1 = previous period’s forecast
a = smoothing (or weighting) constant (0 ≤ a ≤ 1)
At – 1 = previous period’s actual demand

Copyright © 2017 Pearson Education, Ltd. 4 - 44

 Exponential Smoothing
Example
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant a = .20

© 2014 Pearson Education, Inc. 4 - 45

 Exponential Smoothing
Example
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant a = .20

New forecast = 142 + .2(153 – 142)

© 2014 Pearson Education, Inc. 4 - 46

 Exponential Smoothing
Example
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant a = .20

New forecast = 142 + .2(153 – 142)

= 142 + 2.2
= 144.2 ≈ 144 cars

© 2014 Pearson Education, Inc. 4 - 47

 Effect of
Smoothing Constants
▶ Smoothing constant generally .05 ≤ a ≤ .50
▶ As a increases, older values become less
significant

WEIGHT ASSIGNED TO
MOST 2ND MOST 3RD MOST 4th MOST 5th MOST
RECENT RECENT RECENT RECENT RECENT
SMOOTHING PERIOD PERIOD PERIOD PERIOD PERIOD
CONSTANT (a ) a(1 – a) a(1 – a)2 a(1 – a)3 a(1 – a)4
a = .1 .1 .09 .081 .073 .066

a = .5 .5 .25 .125 .063 .031

Copyright © 2017 Pearson Education, Ltd. 4 - 48

 Impact of Different 

225 –
Actual a = .5
demand
200 –
Demand

175 –
a = .1
| | | | | | | | |
150 –
1 2 3 4 5 6 7 8 9
Quarter
Copyright © 2017 Pearson Education, Ltd. 4 - 49
 Impact of Different 

225 –
Actual a = .5
► Choose high of  values
demand
when
200 – underlying average
Demand

is likely to change
► Choose low values of 
175 –
when underlying average a = .1
is stable
| | | | | | | | |
150 –
1 2 3 4 5 6 7 8 9
Quarter
Copyright © 2017 Pearson Education, Ltd. 4 - 50
 Selecting the Smoothing
Constant
The objective is to obtain the most
accurate forecast no matter the
technique
We generally do this by selecting the
model that gives us the lowest forecast
error according to one of three preferred
measures:
► Mean Absolute Deviation (MAD)
► Mean Squared Error (MSE)
► Mean Absolute Percent Error (MAPE)

Copyright © 2017 Pearson Education, Ltd. 4 - 51

 Common Measures of Error

Mean Absolute Deviation (MAD)

Copyright © 2017 Pearson Education, Ltd. 4 - 52

 Determining the MAD
ACTUAL
TONNAGE FORECAST WITH
QUARTER UNLOADED FORECAST WITH a = .10 a = .50
1 180 175 175

2 168 175.50 = 175.00 + .10(180 – 175) 177.50

3 159 174.75 = 175.50 + .10(168 – 175.50) 172.75

4 175 173.18 = 174.75 + .10(159 – 174.75) 165.88

5 190 173.36 = 173.18 + .10(175 – 173.18) 170.44

6 205 175.02 = 173.36 + .10(190 – 173.36) 180.22

7 180 178.02 = 175.02 + .10(205 – 175.02) 192.61

8 182 178.22 = 178.02 + .10(180 – 178.02) 186.30

9 ? 178.59 = 178.22 + .10(182 – 178.22) 184.15

Copyright © 2017 Pearson Education, Ltd. 4 - 53

 Determining the MAD
ACTUAL FORECAST ABSOLUTE FORECAST ABSOLUTE
TONNAGE WITH DEVIATION WITH DEVIATION
QUARTER UNLOADED a = .10 FOR a = .10 a = .50 FOR a = .50
1 180 5.00 5.00
175 175
2 168 7.50 9.50
175.50 177.50
3 159 15.75 13.75
174.75 172.75
4 175 1.82 9.12
173.18 165.88
5 190 16.64 19.56
173.36 170.44
6 205 29.98 24.78
175.02 180.22
7 180 1.98 12.61
178.02 192.61
8 182 3.78 4.30
178.22 186.30
Sum of absolute deviations: 82.45 98.62
Copyright © 2017 Pearson Education, Ltd. 4 - 54
Σ|Deviations|
MAD = 10.31 12.33
 Common Measures of Error

Mean Squared Error (MSE)

Copyright © 2017 Pearson Education, Ltd. 4 - 55

 Determining the MSE
ACTUAL
TONNAGE FORECAST FOR
QUARTER UNLOADED a = .10 (ERROR)2
1 180 175 52
= 25
2 168 175.50 (–7.5)2
= 56.25
3 159 174.75 (–15.75)2
= 248.06
4 175 173.18 (1.82)2
= 3.31
5 190 173.36 (16.64)2
= 276.89
6 205 175.02 (29.98)2
= 898.80
7 180 178.02 (1.98)2
= 3.92
8 182 178.22 (3.78)2
= 14.29
Sum of errors squared = 1,526.52
Copyright © 2017 Pearson Education, Ltd. 4 - 56
 Common Measures of Error

Mean Absolute Percent Error (MAPE)

Copyright © 2017 Pearson Education, Ltd. 4 - 57

 Determining the MAPE
ACTUAL
TONNAGE FORECAST FOR ABSOLUTE PERCENT ERROR
QUARTER UNLOADED a = .10 100(|ERROR|/ACTUAL)
1 180 175.00 100(5/180) = 2.78%
2 168 175.50 100(7.5/168) = 4.46%
3 159 174.75 100(15.75/159) = 9.90%
4 175 173.18 100(1.82/175) = 1.05%
5 190 173.36 100(16.64/190) = 8.76%
6 205 175.02 100(29.98/205) = 14.62%
7 180 178.02 100(1.98/180) = 1.10%
8 182 178.22 100(3.78/182) = 2.08%
Sum of % errors = 44.75%

Copyright © 2017 Pearson Education, Ltd. 4 - 58

 Comparison of Measures
TABLE 4.1 Comparison of Measures of Forecast Error

MEASURE MEANING APPLICATION TO CHAPTER EXAMPLE

Mean absolute How much the forecast For a = .10 in Example 4, the forecast for grain
deviation (MAD) missed the target unloaded was off by an average of 10.31 tons.
Mean squared The square of how much For a = .10 in Example 5, the square of the forecast
error (MSE) the forecast missed the error was 190.8. This number does not have a
target physical meaning, but is useful when compared to the
MSE of another forecast.
Mean absolute The average percent For a = .10 in Example 6, the forecast is off by 5.59%
percent error error on average. As in Examples 4 and 5, some forecasts
(MAPE) were too high, and some were low.

Copyright © 2017 Pearson Education, Ltd. 4 - 59

 Comparison of Forecast Error
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1 180 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 174.75 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 190 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62

Copyright © 2017 Pearson Education, Ltd. 4 - 60

 Comparison of Forecast Error
Rounded Absolute Rounded Absolute
Actual∑ |deviations|
Forecast Deviation Forecast Deviation
MAD
Quarter
=
Tonnage
Unloaded
with
a = .10
for
a = .10
with
a = .50
for
a = .50
n
1 180 175 5.00 175 5.00
2 For a168
= .10 175.5 7.50 177.50 9.50
3 159 = 82.45/8
174.75 = 15.75
10.31 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For a190
= .50 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 = 98.62/8
178.02 = 12.33
1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62

Copyright © 2017 Pearson Education, Ltd. 4 - 61

 Comparison of Forecast Error
Rounded Absolute Rounded Absolute
∑ (forecast
Actual errors)
Forecast 2
Deviation Forecast Deviation
MSE = Tonnage with for with for
Quarter Unloaded an
= .10 a = .10 a = .50 a = .50
1 180 175 5.00 175 5.00
2 For a168
= .10 175.5 7.50 177.50 9.50
3 159 174.75 = 190.8
= 1,526.52/8 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For a190
= .50 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 = 1,561.91/8
180 178.02 = 195.24
1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
MAD 10.31 12.33

Copyright © 2017 Pearson Education, Ltd. 4 - 62

 Comparison of Forecast Error
Roundedn Absolute Rounded Absolute
∑
Actual 100|deviation
Forecast
i|/actuali
Deviation Forecast Deviation
MAPE
Quarter
=
Tonnage
i=1
Unloaded
with
a = .10
for
a = .10
with
a = .50
for
a = .50
1 180 175
n 5.00 175 5.00
2 For a=
168 .10 175.5 7.50 177.50 9.50
3 159 174.75
= 44.75%/8 15.75
= 5.59% 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For a=
190 .50 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 = 54.00%/8
178.02 =1.98
6.75% 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
MAD 10.31 12.33
MSE 190.82 195.24

Copyright © 2017 Pearson Education, Ltd. 4 - 63

 Comparison of Forecast Error
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded a = .10 a = .10 a = .50 a = .50
1 180 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 174.75 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 190 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
MAD 10.31 12.33
MSE 190.82 195.24
MAPE 5.59% 6.75%
Copyright © 2017 Pearson Education, Ltd. 4 - 64
 Essay-Questions
 What is a qualitative forecasting model, and when is its use appropriate?
 ldentify and briefly describe the two general forecasting approaches.
 Suppose you need to forecast the amount of relief aid needed following an
earthquake. Which type of forecast do you think is the most appropriate:
qualitative or quantitative? Why? Is collaborative planning, forecasting, and
replenish­ment (CPFR) applicable in this case?
 Explain why such forecasting devices as moving averages, weighted
moving averages, and exponential smoothing are not well suited for data
series that have trends.
 What is the basic difference between a weighted moving aver­age and
exponential smoothing?

Copyright © 2017 Pearson Education, Ltd. 4 - 65

Copyright © 2017 Pearson Education, Ltd. 4 - 66