CHAPTER 3

DISCUSSION AND REVIEW QUESTIONS

1. Quantitative techniques rely on the use of historical data or association among variables to
develop forecasts. It is consists of analyzing objectives and the results of this techniques are
presented either in graphs, charts, and tables.

The limitations do quantitative techniques have is limited respondents and audiences because
some people are difficult to understand and not comfortable working in statistical data.

2. A poor planning is a consequences of poor forecasts. This could end in offering services and
products that customers don’t have interest in. Budget, labor, material requirements, purchasing,
and production will all be affected by poor forecasting and planning.
3. Consumer surveys.
 Using consumer surveys is a considerable amount of knowledge and skill is required
to construct a survey, administer it, and correctly interpret the results for valid
information. In addition, surveys can be expensive and time consuming.
Sales force composite
 Because salesforce has direct contact with customers they are often good sources of
information. Staff members however, several drawbacks to using salesforce opinions
that may be unable to distinguish between what customers would like to do and what
they actually will do. A salesperson can also overly influenced by recent experiences
after several periods of low sales.
Committee of managers or executives.
 There is the risk that the view of one person will prevail, and the possibility that
diffusing responsibility for the forecast over the entire group may result in less
pressure to produce a good forecast.

4. Forecasts are generally wrong.

Why are forecasts generally wrong?

 Forecasts are generally wrong because of forecasting errors and predicting too much
by long term forecasts they will perceived as having more incorrect forecasts.
Explain the term “wrong” as it pertains to a good forecast.
 A wrong forecast could contain inaccurate results, it cannot be expressed in
meaningful units, and it can be difficult to draw valid inferences for further use.
5. Forecasts are often judged adequately when the forecast errors only exhibit random variations.
A tool for detecting non-randomness is a control chart. The upper and lower control limits on the
control chart are useful in that they represent the upper and lower limits of the range of
acceptable variation.
6. Forecast errors plays an important role in determining whether to use wide or narrow control
limits for forecasts.
7. The difference between these measures is that MAD weights all errors evenly; MSE weights
errors according to their squared values. There is a common use of these measures is to compare
the accuracy of alternative forecasting methods.
8. In exponential smoothing the average of the various data points reduces exponentially as it
ages. The older it gets the less weight it’s carries. While in moving average method there is an
equal average is given to all data regardless of the age.
9. How does the number of periods in a moving average affect the responsiveness of the
forecasts?
The fewer the number of periods in the simple moving average forecasting method, the
greater the method's responsiveness to changes in demand.

10. Small number of data points means weighting old and new data the same, large number of
data points usually weighted more heavily and therefore having a high smoothing value, desire
of the manager of how responsive a forecast should be, and finally relative cost of not
responding to a real change with the cost of responding to random variations found in the data
are the factors that enter into the choice of a value for the smoothing constant in exponential
smoothing.
11. A seven-day forecast can accurately predict the weather about 80 percent of the time and a
five-day forecast can accurately predict the weather approximately 90 percent of the time.
However, a 10-day—or longer—forecast is only right about half the time.
12. Moving averages can smooth time series data, reveal underlying trends, and identify
components for use in statistical modelling. Smoothing is the process of removing random
variations that appear as coarseness in a plot of raw time series data. It reduces the noise to
emphasize the signal that can contain trends and cycles. Analysts also refer to the smoothing
process as filtering the data.
13. Demand is the desire to own something or the quantity of a certain product, whereas, sales is
the process by which people pay money to acquire something they demand. In terms of a
business operation, demand either has to be created or has to already exist in order for sales to
occur.
14. A reactive approach takes the forecast as a given while proactive approach takes an
unacceptable forecast and attempts to alter demand. Highway department preparing snow
removal equipment for a predicted storm is an example of reactive approach. Another example is
evacuation of residents due to hurricane warnings. Colleges adopting a more aggressive stance
towards applicants due to a forecast of a declining college-age population base is an example of
proactive approach. Promotions, discounts, firms that use advertising, and so on tend to be
proactive in dealing with forecasts.

15. A flexible production system is the designing of manufacturing systems in a way that enables
adaptability to quickly react to market shifts or other influencing factors when producing
products. More specifically, a flexible production system is built with automation that enables
routing flexibility to change product types and order of operations quickly and machine
flexibility that can scale to produce different volumes, at different capacities, or by offering
multiple capabilities. Flexible production systems provide the advantage of shorter lead times,
increased production rates, and more effective use of machinery.
16. Forecasting in the context of supply chain involves connection and communication between
the supply chain data base. Assume that Company B is durable goods manufacturer. Based on
the market and historical sales information, Company B determines short and intermediate term
multi-period forecasts
for its product and
provides its forecast
information to its
suppliers’ databases.
Let’s also assumes
that Company C
supplies Company B
with parts and
components.
Company C uses the
forecasting
information from
Company b as well as other companies it supplies and develops its own forecasts and provides
all the forecasting information it possesses to its suppliers. This type of corporation and
communication among the supply chain databases provides all of the companies on the supply
chain with additional information to generate better forecasts.
17. The quantitative techniques are proved to be more accurate and better comparing to
qualitative techniques, but it cannot be used in some cases, particularly when good quality and
dependable historical data is not available

PROBLEM

2.

a.
b.

(1)20

(2) 15+20+18+22+20= 95/5= 19

(3).60(20)+.30(22)+.10(18)= 20.4

(4) 19+.20(20-19)

=19+0.2

=19.2

(5) 16.86+0.5(8)

= 20.86

3.

a. 88+.1(89.6-88)

= 88+0.16

= 88.16

b. 88.16+.1(92-88.16)

=88.16+0.384

= 88.54

4.

a. 22
 b. 22+18+21+22= 83/4 = 20.75

c. 20+.30(22-20.60)

= 20+0.6

= 20.60

20.60+.30(18-20.60)

= 20.60+ -0.78

= 19.82

19.82+.30(21-19.82)

= 19.82+ 0.35

= 20.17

20.71+.3.(22-20.17)

= 20.17+0.55

= 20.72

21.

a.

Period Demand F1 e Iel F2 e lel

1 68 66 2 2 66 2 2

2 75 68 7 7 68 7 7

3 70 72 -2 2 70 0 0

4 74 71 3 3 72 2 2

5 69 72 -3 3 74 -5 5

6 72 70 2 2 76 -4 4
7 80 71 9 9 78 2 2

8 78 74 4 4 80 -2 2

Total 32 24

F1 MAD= 32/4= 4 F2 MAD= 24/8= 3

F2 is more appropriate, seeing as the MAD value is lowest.

b.

Period Demand F1 (error)squared F2 (error)squared

1 68 66 (2)= 4 66 (2)= 4

2 75 68 (7)= 49 68 (7)= 49

3 70 72 (2) = 4 70 (0)= 0

4 74 71 (3)= 9 72 (2)= 4

5 69 72 (3) = 9 74 (5)= 25

6 72 70 (2) = 4 76 (4)= 16

7 80 71 (9) = 81 78 (2)= 4

8 78 74 (4) = 16 80 (2) = 4

Total 176 106

F2 is more appropriate, shown in the graph that F2 has the lowest value.

c. Possibly one may already be in use, familiar to users, and have past values for comparison. If tracking
signals control charts are used, MSE would be natural, if control charts tracking signals are used, MAD
would be more natural.

d.

Period Demand F1 Absolute F2 Absolute

 percent error percent error

1 68 66 100(2/68)= 66 100(2/68)=
2.94% 2.94%

2 75 68 100(7/75) = 68 100(7/75)=
9.33% 9.33%

3 70 72 100(2/70)= 70 100(0/70)=
2.86%
0%

4 74 71 100(3/74)= 72 100(2/74)=
4.05%
2.70%

5 69 72 100(3/69)= 74 100(5/69)=
4.35%
7.25%

6 72 70 100(2/72)= 76 100(4/72)=
2.78%
5.56%

7 80 71 100(9/80)= 78 100(2/80)=
11.25
2.5%

8 78 74 100(4/78)= 80 100(2/78)=
5.13%
2.56%

Total 42.69% 32.84%

F1 MAPE= 42.69/8=5.34% F2 MAPE= 32.84/8= 4.11%

As seen in the calculation the MAPE for F1 is 5.34% while the MAPE for F2 is 4.11% this means that the
F2 is the most accurate.

22.

a.

Month Sales Forecast 1 e Iel Forecast 2 e lel

1 770 771 -1 1 769 -1 1

2 789 785 4 4 787 2 2

3 794 790 4 4 792 2 2

4 780 784 -4 4 798 -18 18

5 768 770 -2 2 774 -6 6

6 772 768 4 4 770 2 2

7 760 761 -1 1 759 1 1

8 775 771 4 4 775 0 0

9 756 784 2 2 788 -2 2

10 790 788 2 2 788 2 2

Total 28 36

F1 MAD= 28/10= 2.8 F2 MAD= 36/10= 3.6

Month Sales Forecast 1 (error)squared Forecast 2 (error)squared

1 770 771 (1)= 1 769 (1)=1

2 789 785 (4)= 16 787 (2)=4

3 794 790 (4)=16 792 (2)=4

4 780 784 (4)=16 798 (18)=324

5 768 770 (2)=4 774 (6)=36

6 772 768 (4)=16 770( (2)=4

7 760 761 (1)=1 759 (1)=1

8 775 771 (4)=16 755 (0)=0

9 756 784 (2)=4 788 (2)=4

10 790 788 (2)=4 788 (2)=4

Month Sales Forecast 1 (error)squared Forecast 2 (error)squared

Total 94 382

F1 MSE= 94/10= 9.4 F2 MSE= 382/10= 38.2

Since 2.8<3.6 and 9.4<38.2, forecast 1 is better.

b.

Month Sales Forecast 1 Absolute Forecast 2 Absolute

percent error percent error

1 770 771 100(1/770)= 769 100(1/770)=

0.13% 0.13%

2 789 785 100(4/789)= 787 100(2/789)=

0.51% 0.25%

3 794 790 100(4/794)= 792 100(2/794)=

0.50% 0.25%

4 780 784 100(4/780)= 798 100(18/780)=

0.51% 2.31%

5 768 770 100(2/768)= 774 100(6/768)=

0.26% 0.78%

6 772 768 100(4/772)= 770 100(2/772)=

0.52% 0.26%

7 760 761 100(1/760)= 759 100(1/760)=

0.13% 0.13%

8 775 771 100(4/775)= 775 100(0/775)= O

0.52% %

9 786 784 100(2/786)= 788 100(2/786)=

0.52% 0.25%

10 790 788 100(2/790)= 788 100(2/790)=

0.22% 0.25%
Total 3.58% 4.61%

F1 MAPE = 3.58/10= 0.36% F2 MAPE= 4.61/10= 0.46%

Since 0.36<0.46, forecast method 1 is better.

c.

Month Sales Naive Forecast A-F (error) e (error)squared

1 770

2 789 770 19 19 (19)= 361

3 794 789 5 5 (5)= 25

4 780 794 -14 14 (14)= 196

5 768 780 -12 12 (12)= 144

6 772 762 4 4 (4)= 16

7 760 772 -12 12 (12)= 144

8 775 760 15 15 (15)= 255

9 786 775 11 11 (11)= 121

10 790 786 4 4 (4)= 16

11 790

Total 20 96 1248

MAD= 96/9= 10.67 MSE= 1248/8= 156

MAD and MSE values for naive method are much higher than MAD and MSE values for the other two
foracasting methods. Therefore, naive forecasting method does not appear to be execute as well as the
other two forecasting methods.