Naive approach

assumes demand in next period is the same as demand

in most recent period
Only works when demand is stable

Moving average
more periods used smoother

Weighted moving average recent past

WMA 2 Wi Di
Wi weight for period i between 0 and
2 Wi 1.00
Exponentional smoothing Pastmonth
actafiano
Ft ti XDt t ll d Ft
lo Prellforecast
forecast weightins of present period
for next factor
period

Little weight stabledemand

higher weight unstabledemand

Works well for stable items

Satisfactory for short range forecasts
Detects trends
Forecast that reduces the error
 o

µ
b

Dt actual demand in
Estimation of error Period t

Mean absolute deviation

MAD El Dt El
viodos

Mean squared error

2
EIDt
USE
fi.tn Positivenumber lowbias
the lower the value I the better Asmall bias

Mean absolutepercentagedeviation MAPD ZIDttfi.IE

Dt

Mean abs error

ZOOCDtlft.Dt.in
No forecast is an exact prediction of demand
Previous methods are better for stable demand not dynamic
6
Naive Parameters

Movingavg difference between Mperiods

avg andrealvalues d
Weighted moving
avg weightsforperiods o

Exponential smoothing Smoothingfactor

 We need to have an estimation of expected error

Error in forecasting can be reduced byforecasts Are more accurate

for
Periods of time closer to the Present
Lessvariability
Use aggregate date Less uncertainty

Forecast accuracy
Howincorrect is the forecast
Error can be used to safety stock to accountfor posible error
evaluateand change the method

Forecasting seasonality
Identify patterns and regularities in the lol of demand
Seasonal factor
are for
each
µ
seasonal index Periodavg demand Periodavg demand
seasons
gum avgdemand of all periods Descasonalized demand

Calculate forecast first weighted nov avg

Seasonal forecast seasonal index Deseasonalized demand

Forecasting trends
Adjusted exponential smoothing
A Ft t Et Tt ti Te exponentially smoothed trend
factor
Teti El F ti Ft t ll B Tt Tt last period T
aq
 A 5 D 3
qreoj.IE
fFebruary 37C 5 t ll 5 37 31
actual
1feb 37 3se7 C 3 t 1 30 0
East
Farah 90C 5 t ll 5137 38
muy
Tmarch 38.5 37 l 3 tlt.rs 0
4SFaer
4ll.S tll sl38 s 39.75
Tarr 139.75 38511.3 t t 3 95 69
Fray 37C 5 t ll _5 39.75 38.38

Tway 38.38 3975 S t ll 31.69 07

Linear trend line

Linear regression extrinsic casual forecasting method

Avg thateliminates relative error

Linear trend line a intercept at period 0

Y a t b b slope
Y demand
X period