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BE1401 Business Operations & Processes

Forecasting Exercises
1 Explain the similarity between exponential smoothing and weighted moving averages method of
forecasting.
2. The historical demand data for the Soh Soh brand of Bread produced by the Ah Wah Bread
Company is given in Table 1.

Month Nov. 05 Dec. 05 Jan. 06 Feb. 06 Mar. 06 Apr. 06


Demand for Soh Soh Bread (in no. of loaves) 55,234 62,921 58,396 54, 397 53,321 55,401
Table 1: Historical demand data for Soh Soh bread
Required
(a) Using a 3-month moving average method, determine the demand forecast for the months of
February, March and April 2006.
(b) Using a 3-month weighted moving average method (with identical weights for the earlier months
and double the weight for the most recent month), determine the demand forecast for the months
of February, March and April 2006.
(c) Which of the forecasts [determined in parts (a) and (b)] is better? Why? Use MSE.

Use Table 2 for the Questions 3, 4, 5, and 6.

Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales($ '000) 400 425 415 430 440 455 457 481 492 505
Table 2

3. Using the time series in Table 2, calculate the 4-year simple moving average forecast for 2013.
4. For the data in Table 2, calculate a 6-year weighted moving average forecast for 2013, using the
following weights: 0.1, 0.1, 0.1, 0.2, 0.2, and 0.3 from the oldest to the most recent year.
5. Using an α of 0.25, calculate the 2013 forecasting using the simple exponential smoothing
model. Use the data given in Table 2 and assume a 2012 forecast of $500,000.
6. Using α = 0.25 and α = 0.1, calculate the demand forecast for the years 2009 to 2013. Assume a
2008 forecast of 422. Which value of α gives a better forecast? (Hint: Calculate the MSE of
forecast for the periods 2009 to 2012).
7. The ACME Corporation has experienced steady growth in annual sales in its 10-year history.
(See Table 3). The firm has traditionally used a 4-year moving average to predict sales for the
coming year. The new vice-president of marketing feels that a simple 4-year moving average is
too simple-minded and results in extremely poor sales forecasts. Because these inaccuracies
affect many important managerial decisions, the vice-president of marketing has asked you to
determine the best time-series technique for estimating sales by comparing the sales forecast for
the last three years (2010-12) using:
a. The 4-year moving average
b. A weighted 6-year moving average using the following weights 0.1, 0.1, 0.1, 0.2, 0.2, 0.3
from the oldest to the most recent year
c. A simple exponential smoothing model using α = 0.10. Assume a 2009 forecast of $400,000.
Which technique results in the best forecast? (Lowest MSE).

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales($) 305,000 328,000 345,000 370,000 387,000 404,000 405,000 419,000 417,000

Table 3