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A. Bruce Clark, Ph.D., Texas Southern University, P. O. Box 218655, Houston, TX 77218, 281-579-9103
Abstract: The American Marketing Association found that 74% of companies use a judgmental, correlation/regression or time series forecasting technique. Time series approaches, in general, and double exponential smoothing models, in particular, have broad industry appeal. Thus, we use a two-part spreadsheet project to teach double exponential smoothing. In Part 1, students prepare a baseline forecast on monotonically/uniformly increasing data. Then, in Part 2, they determine multipliers, before preparing daily baseline forecasts for two representatives, and then applying the multipliers to get realistic projections. Because sales forecasting software costs $20,000 to $34,000, this project potentially offers tremendous value to administrators and managers.
To better plan their use of resources, 74% of 587 major business firms surveyed by the American Marketing Association used "formal forecasting systems," according to Kress and Snyder (1994). The forecasts generated by these systems, in turn, accounted for the success of 92% of the companies that Makridakis (1990) examined. The reason these systems accounted for the success of so many companies is because they allowed them to better predict the needs of different groups so they could decide how to best serve those groups (Zick and Widdows, 1995). Since those who understand forecasting will more likely have successful careers, it makes sense for business professors to dedicate at least some class time teaching forecasting (Winer 2000), which is the rationale for this article. In fact, this author can think of several situations where former students at two different universities obtained outstanding jobs with FORTUNE 500 companies, as well as career advancements, due to their understandings of double exponential smoothed forecasting. However, before introducing a classroom project, that involves this particular forecasting technique, a brief overview of forecasting will be provided. Although companies use many types of forecasting systems, there are three basic categories according to Kress and Snyder (1994) and Winer (2000). First are judgmental approaches, which include sales force composite, buyer surveys, juries of experts, Delphi methods, scenario building, technological forecasting, cross impact studies, analog/similar-store approaches, and simulation. Their strength is ease of implementation, while their weakness is that their outcomes are based on politics rather than what is best from a business standpoint (Zick and Widdows, 1995). Second are correlation/regression approaches, which include methods as diverse as linear, nonlinear, LOGIT, and PROBIT approaches. Their strength is that they forecast based on other variables that have in essence "already been forecast." For instance, direct marketers often build a LOGIT predictive model based on a sample mailing. They then give every household in the population a probability score between zero and one of buying the product(s), so they can mail to those predicted to be profitable or at least break even. Yet, their weaknesses are their dependence upon other variables and their not showing sales trends. Third are time series approaches, which include single and double moving averages, single and double exponential smoothing, Holt’s two-parameters exponential smoothing and the Winter’s triple exponential smoothing method. The weakness is that they do not show the influence of other variables. However, their strengths are that they require limited data input and can rapidly show trends. Thus, they are arguably the most widely used approach in corporate America (Winer 2000), which is why are focus will be here. The simplest time series model is the single moving average, which involves simply summing a series of values and then divides by the number of values. However, this approach provides a flat forecast that does not show any trend. Therefore, "moving average forecasters" often use a double moving average, where they calculate a trend by subtracting a number from an immediately succeeding number. Then for the forecast one can use the base value plus an "average trend component." Yet, while easy to understand, double moving average forecasters must determine how many periods to go back and must recognize that it treats the first period used as equal to the last period in importance. However, this does not seem reasonable in that the most recent period’s decisions likely have a greater impact on the next period, when compared to several periods ago, and while one can apply weighting coefficients, it takes considerable effort to determine their magnitudes. Although the "moving average approaches" are the least complicated of the time series approaches, hybrid Box-Jenkins, which incorporate regression and time series methods, fall on the other end of the "difficulty continuum." The reason is they rely on autocorrelations, meaning the association between a variable at one time period and that same variable at some other time period, which means Box-Jenkins techniques handle almost any type of time series data and provide accurate short-range forecasts. Even so, Box-Jenkins models are not widely used due to their: (1) complexity, (2) inability to yield accurate long-term projections, and (3) requiring 6+ years of data if seasonal influences are present. Furthermore, new Box-Jenkins models are needed whenever sales data is updated, which means constant maintenance, due to the "instability" of the parameter estimates. In between Box-Jenkins and moving averages are exponential forecasting time series techniques, which are "better than" judgment, econometric regression, and Box-Jenkins methods (Guerts and Kelly 1986). On one hand, single exponential smoothing, like single moving average, does not reflect trends. On other hand, Winter's triple exponential smoothing procedure, provides a
uniformly) increasing pattern.13 are shown. that older individuals less likely weight any recent event very heavily. before teaching them how to add multiplier effects. one can then enter the formula =$G$10*D10+(1-$G$10)*E10 in cell E11. In this case. However. Whenever. 95% of 5%) to 21% (i. because it often "greatly overshoots" or "greatly undershoots" reality. the most recent day is predicted. In industry.e. comes determination of the "a" value to place in cell E26. and the forecast value that goes into cell E28 is E26+E27*1. As an added benefit to learning these sales forecasting techniques.000 for a single user system and $34. since many students desire to work for such companies. this paper will focus on double exponential smoothing systems. Nevertheless. Thus. which makes sense when one explains. while weighting coefficients vary for different companies. Yet. Next. the "a" is set equal to (2*E24)-F24. As shown in Appendix 1.. if an alpha value is placed in cell G10. Since this is the case. Likewise. using an analogy. when this author built forecasting systems relying on five years of daily data. Then. TEACHING STUDENTS TO BUILD SALES FORECASTING SYSTEM To teach double exponential smoothing. Yet.05 to 0. students can be told that setting an ∝ value is similar to setting an engine’s timing. S’’t represents the second smooth for the preceding period and ∝ is a weighting coefficient (Kotler 1997). when one goes back two periods. Specifically. Winter’s) exponential smoothing. the ∝ values were 0. one must understand that the formula for the first smooth and second smooth. This is done to "jump start" the process." S’t represents the first smooth for the preceding period. before one can get the "a" and "b" values. the value in E11 is equal to ∝*D10+(1-∝)*E10. as done with Holt's technique. C. the weighting coefficient ∝ needs to be set (Lilien and Kotler 1983)." the logic can be reinforced with a home purchase analogy. students can be told that they are receiving an incredible value. the proper ∝ value is determined. students are given fifteen days of monotonically/uniformly increasing historical data. where one drops the t-14 sales 479 . and the F11 value is equal to ∝*E10+(1-∝)*F10. and copy and paste this into cells E11 through F24. the values for S’t+1 and S’’t+1 must be obtained...e. it will be mentioned that when readers understand double exponential smoothing. E29 is set equal to E28-D24. The reason is that the Southwest Demand Solutions' web site. the influence ranges from 4. Nielsen. most consumer goods companies annually check this weighting coefficient.. the value of 3046 is the most recent actual value. The reason is that this is the ∝ value used in Appendix 3. value in F10 is set equal to that in E10. personal experience has revealed that double exponential smoothing techniques are preferred by leading marketing research companies like A. Nevertheless.000 for a multiple user system. Lastly. the acceptable range of ∝ is from 0. As indicated in directions. they will also comprehend triple (e. This means that 5% to 30% of the determination of a period's sales come from the immediately preceding period. Similarly. Similarly. cell E29) closest to zero. the value in cell E10 is set equal to that in D10.e. monotonically (i.30. S. since most house buyers focus more upon their current earnings than their high school income. one builds a forecasting system the data should be graphed to examine what it looks like.75% (i. by comparing the predicted last day's sales to its actual sales. he/she sees smooth. in Appendix 2. and while an alpha value normally does not change much (if at all) over time.05. In fact. personal experience has shown that it is best to teach students how to prepare a baseline forecast. Moreover. Next.e. the ∝ value is usually determined to the onehundredths place and occasionally to the one-thousandths place. 70% of 30%). the sales forecast. the "b" value in E27 is set equal to [$G$10/(1-$G$10)]*[E24-F24]. The goal is to find the ∝ value that yields a difference (i. Thus. and leading consumer goods corporations like Anheuser Busch. Likewise. only the ∝ value results of 0. it is rarely used (Kress and Snyder 1994). Similarly. Then. different ∝ values are entered into cell G10. for t+m periods in the future is that of a straight line and it is: St+m=a+bm In this latter formula. and when one does this for contrived data in Appendix 1.05 when one has large amounts of data. when students understand how to use one set of parameters (i. To aid understanding. coefficient weights) for both the first and second smooth. Another useful fact is that an ∝ value is closer to 0.forecast that increases or decreases at accelerating or decelerating rates. the a and b are: a=2S’t+1–S’’t+1 b=[∝/(1-∝)][S’t+1–S’’t+1] (4) (5) (3) Yet. These equations are as follows: S’t+1=∝Xt +(1-∝)S’t S’’t+1=∝S’t+(1-∝)S’’t (1) (2) In these equations. listed the "normal installation" price for sales forecasting software at $20.e. after entering formulas. before beginning process.. S’t+1 represents the first smooth for period "t+1. 2002. Using the data for the first fourteen days." Xt is the actual sales figure during period "t..g. on September 15. they can envision how to use two different sets of weights. it is often helpful to have students submit the results for multiple ∝ values. While students generally understand merits of not putting much weight on "ancient history. Instead.
13496 + 13630 + 13437 + 12802 + 5149 + 2852 + 15266). (Readers might find it interesting to note that the daily multipliers and growth rates were based upon a "real consulting project" that this author performed that was simplified for teaching purposes. average/adjusted) multipliers.. This being the case. the calculations of “a” and “b. because these are not concerns of this project. and while this is a slightly better approach." Thus. Therefore. This is especially the case for retailers. 13255 + 13402 + 13226 + 12615 + 5081 + 2817 + 15096). After the growth rate for the one week period is obtained.e. one is predicting a "Tuesday value.002157).e.. Once this is done. the projections for the two representatives are each compared to their actual values. these seven values are totaled and divided by seven to get the average value of 21887.e.002157). one must remember what day is being predicted in the determination of the ∝ value section." Thus. Following this. In this case. had same advertising. it should be noted that for unstable daily data. Similarly.. "simple interest rate approach” is instead used in this example. Taking this latter number and dividing by 27097. the second week's sales are 76632 (i. cell F26 in Appendix 3. having two sales representatives provides another dilemma. the first step for the problem in Appendix 4 is to plot the data to see what it looks like. the methodology used by leading syndicated marketing firms and consumer goods companies to handle daily variations provides an informative variation. the logic is that of "dividing and conquering.e.value in order to run the model using the same number of periods as were used to build the model. if the firm.e. Thus..26 value equals 26751 times 1. The other values in the "average/adjusted" and "adjusted/average" columns are likewise determined. one assigns a growth multiplier value of "1" to Monday.807740. This might involve summing individual sales representative's data to "the office level" or comparing actual sales for an extended period to a forecast for an extended period.e. it should be mentioned that when companies are developing such systems they are normally much more concerned about predicting "bread and butter" products. the problem. One reason is that it teaches students about how to calculate "multipliers..807740. In a like vein. we have a week column with the values 1.26 yields 0. shelf-space or." Additionally. since it "takes time to get the process rolling. If the projection for each representative is. except that one has to first control for the day of week influences.238022. where inclement weather or a holiday can drastically impact a given day's sales. as before. equals the 6399 value times 0. When this is done. Then. with the ∝ value determined to the one-thousandths place. students can be asked to see whether they can legitimately use one ∝ value and one set of multipliers for both representatives. "no more than say 5% off" from the actual value. Lastly. for instance. one should plot the data to see how well the system is working. and if one graphs the t-14 through t+7 values. the 27097. Next. This is done by subtracting first. going back to the Tuesday) it is 1. the value equals D21+D22. it may be helpful to note that while different products. as alluded to in its directions. OTHER MORE ADVANCED ASSIGNMENTS 480 . an individual might want to aggregate it. At this juncture.. cells D5. is seen to be very similar to the problem shown in Appendices 1. the value equals F26+$D$22.. As shown. These differences are then summed and the alpha that yields a sum of differences closest to zero is chosen. and the first week's sales are 75492 (i.e. after determining each day's adjusted sales values.012944 (i. In so doing. which represents t+1). it represents 15096+15266. one normally needs only one ∝ value.73 value. brand loyalty. after one has the proper entries. cell F27). immediately forecast a baseline forecast using the data with the day of week influences removed. this value is divided by seven to yield the average percentage sales increase per day. Yet. territories and brokers will very often have different multipliers. for the Tuesday value. while for two periods forward (i. E5. In this particular example. week sales. sales force efficiency as at "present. going back two days from Monday) the multiplier is 1. Similarly the reciprocal of this last value is 1. 1+6*0. before one plots the results that readily show the developed system working quite well. The 5168. meaning one might want to compare total sales for an entire month to the aggregated daily predictions. This baseline forecast is then "adjusted" using the “adjusted/average multipliers” that account for the day of week effects. Once one determines the sales with day of week effects removed. 2 and 3. before removing the day of week effects from the actual sales using the seven (i. rather than "simple interest rate type" calculation. This pattern continues until six days back (i. While instructors can put several twists on the project at this juncture.) Based upon personal experience at this nation’s largest research firms." However. enters appropriate formula in cell E6 and copies this formula into cells E6 to F19 and. one again “jump starts” process. Then for Saturday (i. Yet.. and F7 all have the same value. 1+2*0. This latter formula of =F26+$D$22 can then be copied and pasted into cells F28 through F32. the appropriate ∝ value is found using both sales representatives. which is why the percentage increase in sales is calculated. personal experience has shown that this additional "mathematical kink" often causes students to lose sight of process. students often erroneously add the 13632 value.e. The difference is then divided by the first week's sales. one can.” as equal to 2*E19-F19 and [$G$5/(1-$G$5)]*[E19-F19] are straightforward. as revealed. than their "fringe" items. Using the growth multiplier.2157% higher than the "1" value." To reduce this tendency. before working back from that day. in this case. While one can use a compound growth rate function. the adjusted sales column is obtained.54. for instance. one obtains each day's sales for two weeks." meaning one has to control for the growth rate before addressing the day of week issue. then there is probably little to be gained from using two sets of multipliers or two different ∝ values.002157 which is 0.e. 2 and 3. F6.004315 (i. This is shown by the growth multiplier for Sunday being 1. it should be noted that. In the case of the 30362 value for Monday. the plot reveals that the baseline forecasting system works quite well. for the next period forecast (i.. E6.012944. As indicated by Appendix 3. let's say. one determines how large sales would have been in previous days. from second. they forget that first fourteen days are used to build a model to predict "most recent day. F5. The sales with the day of week effects removed for the Representative 1 and Representative 2 sales are shown. In essence.
and packaging differences.5% below the norm. exchange rate." Likewise one might want to have students build confidence interval logic into their systems that is derived from a comparison of actual and projected values. or to buy a sales forecasting package. For instance. since its business was strongly tied to the "moving industry. However.Although the first two portions of this project give students the skills needed to handle many. Thus. The result of this business decision was that the morale of the eight representatives increased. as well as noodle and rice multipliers. where sales per client declined from June to December. they can then determine where to best focus a company's new product activities. students can develop a "zone" where predicted sales are likely to occur with say 80%. In a like vein. in keeping with the New Testament parable of the talents. and reassigned their accounts to the eight solid performers. Thus. they will realize the strengths of double exponential smoothing which are that it (1) uses historical data to predict the exact same variable and (2) shows trends. 481 . the company reduced the base salaries that it was paying by 20%. brand. everyone was a "winner. and the presence or absence of a Leap Year. salesperson. students might be asked to examine which days of the week are statistically different from other days." On the one hand. they will at least have a better appreciation of double exponential smoothing approaches. the sales of what became a successful turkey noodle product were predicted long before it was ever made. by determining turkey and chicken multipliers. economic. In such cases. of this company's ten sales representatives. the optimum promotional period is six weeks. type of customer. A subsequent analysis showed why the June to December sales appeared "flat. As an example. one can incorporate business cycle. and even weather effects. but instead derive them from the data of other products. holiday. it did not have a turkey noodle soup. or at a minimum have an "input screen. The reason is to empower them to know the best approach for a particular situation and the sources where they can. rather than temporary. students. To further compound a problem. sales normally peak at the midpoint of a price promotion. However. since a longer duration leads to individuals assuming that a price reduction is permanent. additional "twists" are possible. with a 95%+ probability. promotions and holidays can simultaneously occur. Even if former students later decide that it is best to hire an expert. However. can be taught to build regression equations that determine the relative influences of components and package sizes. 90% or 95% accuracy. this author built a system for a "soup manufacturer" that made chicken noodle." except the "deadbeat employees. Explained differently. A client claimed that its business was not seasonal based on a comparison of the June and December results during a single year. student feedback has shown that it is important to address these issues in order that they develop better understandings of the strengths and weaknesses of each forecasting technique. For instance. The reason that the peak is "relatively larger than the valley" is that a company captures sales that would otherwise go to its competitors during a promotional period. the results for February of one year might differ from the February of another year due to a difference in the number of work days versus weekend days. which have "degree day" multipliers that adjust for temperature effects upon natural gas consumption." Further analysis." The implications. with the height of the peak being roughly 10% higher than what the sales would otherwise be. Moreover. Nevertheless. However. even if students decide to hire expert(s) to build their forecasting systems. during the two-week post-promotion period. showed that eight had increasing sales. this did not make sense. the loss in sales is associated with the "on deal stockpiling" of brand-loyal patrons. the company was growing its market share. CONCLUSIONS The project just presented provides students with a good understanding of forecasting systems. if need be. On the other hand. terminated the two poor performing sales representatives. in more advanced courses. two had. judgmental techniques may be better when employee involvement positively affects motivation. there is a post-promotion decrement that lasts for about two weeks. for most consumer products. as well as opportunities. another interesting "twist" is to have students build "reasonability defaults" into their systems to prevent "negative sales" or absurd growth rates for new product introductions. and turkey rice products.0% below "average" to about 0. whenever such systems are designed for companies. when it comes to these overrides. Thus. However. In fact. and its sales increased by 28% during next year." Yet another interesting assignment is to have students build systems that "fit multiplicative regression equations. Nevertheless. on the other hand. Along with multipliers for seasonal. if not most. In essence these two factors "canceled each other. which has led to better job offers and decisions that helped advance careers. Therefore. which allow managers to rapidly spot problem areas like declining sales or market share. Subsequently. Another very interesting twist is to examine price promotion and post-promotion effects. these safeguards are almost always incorporated. Yet. From the first to second post promotional week the sales go from approximately 1. with the "band" becoming wider. In other words. as did their commissions. An example of the latter is performed by natural gas pipeline companies. one should try not to hard-code information. time zone. territory. Moreover. Based on personal experience. Thus. the eight representatives made more money than they had ever made before. chicken rice." and most households seemingly relocate during the summer when children are not in school. In the process. the insights gained in this project should prove helpful in those decisions." and then solve for component multipliers. Box-Jenkins methods may be better when highly accurate short-term forecasts are desired and calibration efforts are not a primary concern. students can be given situations with multicollinearity. decreasing sales. Simultaneously. along with other soups. the industry did indeed have a seasonal element. according to feedback received. corporate forecasting situations. of these bands. can be seen by a real situation that this author encountered. obtain more information. and hence sales. as one goes "further out. the company. while correlation/regression approaches may be best when studies are done to discover the attributes of likely buyers so that they can be better targeted. Similarly. In so doing. for large pipeline databases. there are times when other approaches are more appropriate. another interesting project is to see how many different multipliers are really needed.
APPENDIX 1 Assignment Sheet Given to Students A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 B SMOOTHED USING FIRST PREDICT COMPARING FOR ALPHA ALPHA 0.01 WORDS.01 BELOW BEST LASTLY Day t-14 t-13 t-12 t-11 t-10 t-9 t-8 t-7 t-6 t-5 t-4 t-3 t-2 t-1 Last Day What is What is Forecast Minus Actual D VALUES BUILD DAY. BEST ALPHA BEST ALPHA.01 WORDS.10 SHOW RESULTS FOR 1st Smooth 2958 2958 2959. TO ITS ABOVE THE ALPHA SHOW Sales 2958 2968 2978 2987 2995 3003 E FOR 15 DAYS FORECASTING GET BEST FORECAST.6 2959. IF RESULTS.5 G SHOWN.11 BEST 2nd Smth G SHOWN. TO BY RESULTS FOR OTHER AND 0.09 ALPHA. TO ITS ABOVE THE ALPHA SHOW Sales 2958 2968 2978 2987 2995 3003 3010 3017 3023 3028 3033 3037 3041 3044 3046 "a"? "b"? Forecast (last day) E FOR 15 DAYS FORECASTING GET BEST FORECAST.13 482 . BEST ALPHA BEST ALPHA. IS 0. Alpha-used 0. TO BY RESULTS FOR OTHER AND 0.2 2958.10 SHOW RESULTS FOR 1st Smooth F ARE MODEL ALPHA SHOW AND IN 0.11 BEST 2nd Smth 2958 2958 2958 2958. IF RESULTS. C OUTPUT 14 DAYS 15TH DAY 15 0.09 ALPHA. Alpha-used APPENDIX 2 Choice of Best Alpha Value A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 B SMOOTHED USING FIRST PREDICT COMPARING FOR ALPHA ALPHA 0. IS 0.3 2961. C OUTPUT 14 DAYS 15TH DAY 15 0.9 F ARE MODEL ALPHA SHOW AND IN 0.01 BELOW BEST LASTLY Day t-14 t-13 t-12 t-11 t-10 t-9 D VALUES BUILD DAY.7 2965.0 2968.
2 2968.4 3001.6 3008.7 3018.4 APPENDIX 3 Forecast of Sales for Next Week A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 B Below are the first Next are the “a” & C & second “b” values Day t-13 t-12 t-11 t-10 t-9 t-8 t-7 t-6 t-5 t-4 t-3 t-2 t-1 Last Day t+1 What is a? What is b? Forecasts.0 2976.3 2964.3 2978.8 2984.92 4.78 4. ∝-used 0. 7 days.3 2978. 3045.6 2996.6 3003.9 2988.05 for next E results for forecasts 1st Smth 2968 2968 2969.9 2991.9 2981.1 2979.2 2991.4 2966. Future Day 1 2 3 4 5 6 7 for “best” Expected Sales 3050.A.8 2969.4 2970.6 2972.3 2982. D smooth and the Sales 2968 2978 2987 2995 3003 3010 3017 3023 3028 3033 3037 3041 3044.3 alpha are: 483 .5 2998. 3046 N.8 3010.1 3066.1 3042.4 3014.21 2960.2 3070.7 2976.3 2971.43 3047.2 3074.13 7 days.4 2986.6 2978.16 17 18 19 20 21 22 23 24 25 26 27 28 29 t-8 t-7 t-6 t-5 t-4 t-3 t-2 t-1 Last Day What is What is Forecast Minus Actual 3010 3017 3023 3028 3033 3037 3041 3044 3046 "a"? "b"? Forecast (last day) 2973.7 2983.3 2993.8 F the “best” for next 2nd Smth 2968 2968 2968 2968.7 2962.21 1.0 3054.1 2974.2 2988.7 G Alpha.6 2969.5 3013.0 3058.1 3005.1 3062.6 2972.1 2983.6 2974.
000000 Average Adjusted Sales 27097.136.807740 0. what projections for next seven days will you give to your boss? Obs. 1 Sales 6399 6470 6385 6090 2453 1360 7288 6515 6580 6487 6180 2486 1377 7370 6581 Rep.51009% % sales increase/day = 0.APPENDIX 4 Second Portion of Project Assume you work for a Houston-based manufacturer of refinery equipment. 2 w/o DOW Effect 5537.08 25581. Total Week 1 & 2 Sales 26751 27032 26663 25417 10230 5669 30362 Growth Multiplier 1. Thus. Moreover.801050 0.58 5210.26 27323.008629 1.387182 The historical sales with the Day of Week effects removed that you show your boss are as follows: Obs. Thurs. Wed.58 26893.130353 3.006472 1.010786 1.228694 1.720886 Adjusted/Average 1.004315 1.79 5196. it is highly important that your firm know how much the two sales representatives will sell during the next seven days.259565 1.852606 0. Using the below sales data.168770 0.73 5182. The rationale is that you can use a multiplier to remove the day of week effect from sales. the daily patterns.54 Rep.00 21887. Since you have a college degree.87 5552. 1)*100 = 1.852606 Rep.57 5613.54 Average/Adjusted 0.012944 1.88 5567.238022 1.76 5239.855600 2. Mon.469406 0.14 5681. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Week 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 Day of Week Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Rep.813873 0.130353 3. you believe one set of multipliers and also one alpha will work.002157 1. that you have the % sales increase/day you can develop a multiplier to handle day of week effects. 1)/sales wk. When you graph the output for each representative's sales.23 30362.49 10274.813873 0.79 5598. 1 w/o DOW Effect 5168. Fri. and growth rates appear similar. Sat.2157% Now.25 484 . 2 – sales wk.248362 1.61 5225.163 or 0.807740 0. Sun. your boss has asked you to give her your best forecast of the sales for the two representatives for the next week.801050 0. so you can use a double exponential smoothing technique to forecast baseline sales.70 5582. a trustworthy colleague (who quickly solved the problem) told you that the correct alpha is either 0. The multiplier calculations that you show your boss are as follows: Day of Week Tues.855600 2. and that he forecast the total sales (for both representatives) seven days out to be 13. Because it is very expensive for you to inventory components.758. which is sold by your two sales representatives. 1 2 3 4 5 6 Week 1 1 1 1 1 1 Day of Week (DOW) Tuesday Wednesday Thursday Friday Saturday Sunday Average/ Adjusted 0. 2 Sales 6856 6932 6841 6525 2628 1457 7808 6981 7050 6950 6622 2663 1475 7896 7051 Total Sales 13255 13402 13226 12615 5081 2817 15096 13496 13630 13437 12802 5149 2852 15266 13632 %increase in sales = ((sales wk.
45 5590.82 5262.99 5570.58 5210.69 5549.06 5201.59 5692.93 5315.14 5572.807740 0. as well as the best alpha: Alpha used is: 0.87 5552.06 First Smooth Rep.06 Rep. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Rep.79 5184.91 5279.78 5211. 1 5168.70 5582. 2 5552. you predict the sales for each representative for the next seven days.58 5210.87 5539.57 5572.73 5168.87 5537.54 Rep.25 5628.82 5262.03 Frcsts minus Actual: 0.11 5570.89 5558. 1 w/o DOW Effect 5168.88 5552.98 8.02 5189.59 5692. 1 5168.29 Sum of Differences is: As a final step.852606 0. 2 w/o DOW Effect 5552.64 5174.68 5638.82 5201.70 5582.82 5262.79 5196.37 What is b? 7.38 Next.42 5611.79 5182.05 5183.61 5296.15 -0. Rep.720886 0.68 5638.136 Rep.15 5553.90 5555.08 5603.18 5229.73 5182.40 5608.19 5193.56 5242.85 5595.78 5204.720886 0.79 5182.04 5312.94 5193.98 5172.03 5576.855600 2.69 5564.29 5563.59 5287.75 Second Smooth Rep.43 5270.807740 5253.79 5183. and then applying the appropriate day of week multiplier to each of these values.38 5545.88 5553.75 5185.57 5613. 2 5537. 1 What is a? 5308.57 5613.65 What are forecasts? 5316.79 5196.41 5665.7 8 9 10 11 12 13 14 15 1 2 2 2 2 2 2 2 3 Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday 0.76 5239.45 5217.88 5554.11 5183. you show your boss the first and second smoothed values for the two sales representatives.24 5187. 2 w/o DOW Effect 5537.05 5187.87 5537. 1 5182.12 5695.67 5188.88 5567.93 5251.97 5214.06 5305.43 5617.73 5170.47 5192.91 5279. You do this by forecasting the sales with the day of week effects removed.813873 0.29 5557. 1 5182.17 5179.61 5225.23 0.93 5315.42 5581.37 5558.23 5626.40 5656.54 5253. 2 5537.73 5168.79 5578.45 5583.41 5563.17 5695.13 First Smooth Rep.65 5179. 2 3 4 5 6 7 8 9 10 11 12 485 .14 5538.91 5279.79 5182.91 5543.83 5647.54 5253.88 5552.99 5237.25 5628.40 5656.95 5553.81 5226.41 5665.13 5682. 2 5552.12 5695.94 Obs.12 5185.27 5542.41 5665.43 5270.51 5222.87 5538.43 5270.59 5206.20 Obs.21 5234.90 5540.26 5548.130353 3.83 5647.13 5682.76 5239.88 5552.73 5168.69 5170.61 5296. 1 w/o DOW Effect 5182.74 5628.95 5175.74 5193.79 5598.79 5673.79 5673.12 5209.10 5197.801050 0.75 5563.59 5287.30 5199.12 5635.90 5568.74 First Smooth Rep.42 5599.59 5287.12 Rep.73 5168.61 5296.37 5259.40 5656.83 5647.79 5598.67 5586.40 5560.01 5555.04 5312.38 First Smooth Rep.87 5537.79 5673.88 5567.09 Second Smooth Rep.91 Second Smooth Rep. 2 5686.15 5198.61 5225.68 5638.82 Second Smooth Rep.99 5169.06 5305.
Thurs. 1995.168770 0.36 5740.34 5717. Marketing Management.74 5253.04 5312. Multiplier 1.55 5682. Prentice-Hall: Upper Saddle River. 29: 460-469.59 5692.469406 0. Prentice-Hall: Upper Saddle River." International Journal of Forecasting. NY. Gary L. 1 What is a? 5314.81 5217.. REFERENCES Guerts.80 What is b? 7. Marketing Management: Analysis. Philip. Michael D.13 14 15 16 5305. 1 6644 6548 6237 2508 1389 7432 6642 Predicted Sales Rep.. Quorum Books: Westport. 2 7118 7015 6682 2687 1488 7962 7116 Checking the sales seven days out (against what your colleague found) reveals sales of 13./Avg.99 7. Patrick Kelly. NJ. NJ.71 5357. Mon. Zick.38 NA Rep. and Richard Widdows.52 5223.228694 1.04 5747. Harper and Row: New York.85 5269. Winer.01 5724.238022 Predicted Sales Rep.23 5578.95 5590.89 5365.67 5620. You then give these projections to your boss. 1986. Forecasting: Planning and Strategy for the 21st Century.12 5695. Kotler.47 5211. Planning. and Control.23 5628. and John Snyder.259565 1.66 5709.18 5206.17 5336. George.71 5637.07 Baseline Rep. Sun. S. G. 1990. 486 . 2000. NY. for the next seven days.47 The predicted sales..18 5245. 2 5701.248362 1. CT.387182 1. and Philip Kotler. Baseline Rep. 1994. 1 5321. Fri.81 5261. Forecasting and Market Analysis Techniques: A Practical Approach. Makridakis. Tues. Russell S. 1983. 2 5693. Lilien.04 5596.34 5645. who gives you a raise. Free Press: New York. 6642+7116). "Forecasting Retail Sales Using Alternative Models." Journal of Consumer Affairs.. Cathleen D. "Forecasting the Future of Consumer Programs in Higher Education.98 5329.74 NA Rep. and J.e.758 (i.53 5350. Kress.24 5583. 2(3): 261-272. are: Period 16 17 18 19 20 21 22 DOW Wed.93 5315.69 5732.71 Adj.35 5343. Sat. Marketing Decision Making: A Model-Building Approach. 1997. Implementation.