Lesson 4: Learning Some Widely Used Techniques in Quantitative Forecasting

Read pages 82-88 of Stevenson’s book

Answer “Problems” 2, 4, 5, 6 & 7 in pages 122-123 of Stevenson’s book.

Make sure your answers are accompanied by their corresponding solutions to
the aforementioned problem.

Problem 2
a. Plot the monthly data on a sheet of graph paper.

Sales (000 units)

24
20
16
12
8
4
0
Feb March April May June July August

b.Forecast September sales volume using each of the following:

(1) A linear trend equation.

Using the trend line equation, the September sales volume would be 17.

(2) A five month moving average.

(3) Exponential smoothing with a smoothing constant equal to .20,

assuming a March forecast of 19 (000).

(4) The naïve approach.

September Forecast = August + (August-July)

September Forecast = 20 + (20-22)
September Forecast = 18
 (5) A weighted average using .60 for August, .30 for July and .10 for June.

b. Which method seems least appropriate? Why?

In my opinion, the least appropriate is the naïve approach as it only gets

the most recent result as the basis of forecast for the next month.

c. What does the term sales rather than demand presume?

You cannot sell more than what you have in your inventory. Therefore, it is
presumed that sales is always less than demand. When we use sales
data, the forecast will underestimate the demand.

Problem 4

a.Naive

b.A four-period moving average

c.Exponential smoothing with a=.30. Use 20 for week 2 forecast.

Problem 5
a. Are annual sales increasing or decreasing? By how much?

Using the formula Ft = 80 + 15t, the annual sales is increasing. The value of F t in
1990 is 80. For every change in time period, the increase in sales is 15 (000).

b.
Ft = 80 + 15t
Ft = 80 + 15 (2006-1990)
= 19200
 Problem 6
From the following graph, determine the equation of the linear trend line for time-share
sales of Glib Marketing Inc.

The graph shows a declining trend in sales. To find the formula, we have to find the
slope and y-intercept. The y-intercept using the graph is 500, wherein x=0 and y = 500
(0,500). Then, we have to find the slope using this formula:

Using two points in the graph, I used (10,300) and (5, 400) and then plot to the slope
formula:

The formula will be y = mx + b

Wherein m = -20 and b is 500.
The linear trend equation would be m = -20x + 500 or F t = -20x + 500 or Ft = 500 – 20x

Problem 7
a.Determine a linear trend for expected freight car loadings.
b. Use the trend equation to predict expected loadings for weeks 20 and 21.

c. The manager intends to install new equipment when the volume exceeds 800 loadings
per week. Assuming the current trend continues, the loading volume will reach that level
in approximately what week?