Practice Set 6 Demand Management and Forecasting

PART I. Qualitative questions

Question 1
What are the five major principles behind demand forecasting?

Question 2
What are the benefits of the Delphi method over panel consensus?
PART II. Quantitative questions

Question 3 (Quantitative forecasting techniques)

Sunrise Baking Company markets doughnuts through a chain of food stores. The following data lists the
company’s demand in dozens of doughnuts for the past weeks. Sunrise Baking Company forecasts its
demand for each day of the week separately.

4 weeks ago 3 weeks ago 2 weeks ago Last week

Monday 2200 2400 2300 2400
Tuesday 2000 2100 2200 2200
Wednesday 2300 2400 2300 2500
Thursday 1800 1900 1800 2000
Friday 1900 1800 2100 2000
Saturday (Closed on Saturday)
Sunday 2800 2700 3000 2900

Make a forecast for this week on the following basis:

a. Daily, using a simple four-week moving average.

b. Daily, using a weighted moving average with weights of 0.1, 0.2, 0.3 and 0.4 (from the farthest to
most recent weeks).

c. Sunrise is also planning its purchase of ingredients for bread production. If bread demand had
been forecasted for last week at 22000 loaves and only 21000 loaves were actually demanded,
what would be Sunrise’s forecast for this week using exponential with α = 0.1?
Question 4 (Quantitative forecasting techniques)
Historical demand for a product is:
Demand
January 12
February 11
March 15
April 12
May 16
June 15

a. Using a weighted moving average with weights of 0.6, 0.3, and 0.1 (from the most recent to
farthest months), find the July forecast.

b. Using a simple three-month moving average, find the July forecast.

c. Using an exponential smoothing with α = 0.2 and a June forecast = 13, find the July forecast.
Make whatever assumptions you wish.

d. Using simple linear regression analysis, calculate the regression equation for the preceding
demand data.

e. Using the regression equation in d, calculate the forecast for July.

Question 5 (Linear regression)
The following shows the demand for stereo headphones in the past year. The store owner, Nina, wants to
use this set of data to find the demand for headphones in the first month of the next year, using linear
regression.

Month Demand (Units)

January 4200
February 4300
March 4000
April 4400
May 5000
June 4700
July 5300
August 4900
September 5400
October 5700
November 6300
December 6000
Question 6 (Exponential smoothing)
Here are the actual tabulated demands for an item for a nine-month period (January through September).

Month Actual
January 110
February 130
March 150
April 170
May 160
June 180
July 140
August 130
September 140

a) Use simple exponential smoothing with an alpha of 0.2 to estimate April through September.

Question 7 (Exponential smoothing & MAD)

The following tabulations are actual sales of units for six months and a starting forecast in January.

Actual Forecast
January 100 80
February 94
March 106
April 80
May 68
June 94

a) Calculate forecasts for the remaining five months using simple exponential smoothing with α =
0.2.

b) Calculate MAD for the forecasts.

Question 8 (MAD & MSE)
The following data come from regression line projections:

Actual Forecast
406 410
423 419
423 428
440 435
Compute the MAD and MSE.

Question 9 (MAD & TS)

Harlen Industries has a simple forecasting model: Take the actual demand for the same month last year
and divide that by the number of fractional weeks in that month. This gives the average weekly demand
for that month. This weekly average is used as the weekly forecast for the same month this year. This
technique was used to forecast eight weeks for this year, which are shown below along with the actual
demand that occurred. The following eight weeks show the forecast (based on last year) and the demand
that actually occurred:

Week Forecast Actual

1 140 137
2 140 133
3 140 150
4 140 160
5 140 180
6 150 170
7 150 185
8 150 205

a. Compute the MAD.

 b. Compute the tracking signal.

c. Based on your answers to a and b, comment (in one sentence) on Harlen’s method of forecasting.

Question 10 (MAPE)
You’re given the following actual demand and forecast:

Actual Forecast
700 660
760 840
780 750
790 835
850 910
950 890
Compute the MAPE.
Question 11 (Tracking signal)
The following table shows predicted product demand using your particular forecasting method along with
the actual demand that occurred:

Actual Forecast
1,550 1,500
1,500 1,400
1,600 1,700
1,650 1,750
1,700 1,800

a) Compute the tracking signal using the mean absolute deviation and running sum of forecast
errors.

b) Discuss whether your forecasting method is giving good predictions.

Question 12 (Tracking signal)

The tracking signals computed using past demand history for three different products are as follows. Each
product used the same forecasting technique.

TS 1 TS 2 TS 3
1 -2.70 1.54 0.10
2 -2.32 -0.64 0.43
3 -1.70 2.05 1.08
4 -1.1 2.58 1.74
5 -0.87 -0.95 1.94
6 -0.05 -1.23 2.24
7 0.10 0.75 2.96
8 0.40 -1.59 3.02
9 1.50 0.47 3.54
10 2.20 2.74 3.75

Discuss the tracking signals for each and what the implications are.