East West University

Assignment on Sales Forecasts

Course Title: Operations Management

Course Code: OPM 501

Submitted to:
Dr. A. K. M. Masud
Professor
Department of Industrial & Production Engineering
Bangladesh University of Engineering Technology (BUET)

Submitted by:

Salsabil Tabassum 2020-3-95-019

Basir Ullah Alrazi 2020-3-95-059
Urmila Saha 2020-2-95-035

Date of Submission: December 31, 2021

 Acknowledgement
At first, we would like to express our gratitude to Dr.A.K.M.Masud for giving us the opportunity
to prepare this assignment and grateful for his guidance and support. We tried our level best to
include most of the relevant information what we have collected regarding sources. We have
taken help from books and notes. Preparing this time worthy assignment, we have gained a lot of
knowledge, which will assist us in future. Moreover, in preparing this assignment, we have faced
many obstacles. In spite of these obstacles, we have paid our earnest efforts to complete the
assignment. Finally, we can refrain us from conveying thank to our course teacher Dr.
A.K.M.Masud for giving us an opportunity to prepare such time demanding task.

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 Executive Summary

The report aims at determining the appropriate method of forecasting to forecast the demand or
sales of a specific product of a specific company. To facilitate the analysis, we have selected
“Light Fair BD Ltd”. The report contains a comparative analysis of sales forecast of Light Fair
BD Ltd. Use the four methods of forecast including; Linear Forecast, Simple Moving Average,
Weighted Moving Average and Exponential Smoothing. The data mainly collected from primary
source as well as the monthly category and distributor wise sales report of Light Fair BD Ltd.
The forecasting operations are doing based on the sales data of Light Fair BD Ltd. To find the
appropriate forecast method, the Mean Absolute Deviation calculated for each method. For the
exponential method, the forecasted sales are found for 3 alpha values and for the 3 months
weighted moving average 2 trials with different weights are done to find the forecast closest to
actual sales. From the calculation of Mean Absolute Deviation from each method and the
graphical representation of the forecasted figures, we have come to a decision that the Linear
Regression Method is the appropriate method to forecast the sales of Light Fair BD Ltd. since
the MAD is the lowest while forecasting through this method.

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Contents
Company Overview.................................................................................................4
Forecasting...............................................................................................................5
Sales Forecasts of Light Fair BD ltd......................................................................7
1. Weighted moving average Method.................................................................8
2. Simple moving average Method......................................................................8
3. Exponential Smoothing Method......................................................................9
4. Simple Linear Rogation Model.........................................................................9
5. Mean Absolute Deviation..............................................................................11
Which forecast is best for Light Fair BD ltd.......................................................11

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 Company Overview

Light Fair BD Limited is a distribution company based in Bangladesh. They import lubricants
and distribute throughout Bangladesh. They offer their customers an integrated set of products
and services with competitive pricing while meeting the highest standards. They focus on buying
and selling and conduct business-to-business operations in any part of the world. Light Fair BD
ltd. company engaged in sales & marketing of different brand of engine oil throughout the
country through its strong sales & service network.

Products

 Lubricants
 All Kinds of spare parts.
 ATF, GREASE,
 Gear oil, Turbine oil
 Brake Fluid, Hydraulic Oil
 Battery, Tyres, allow rim
 Filter Paper, & All Kinds of Automobile spare parts.

Light Fair BD Ltd. - SAVSOL. Every lubricant brand talks about performance, Savsol has a
differentiator: green performance.

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 Forecasting

Organizations use forecasting methods to predict business outcomes. Forecasts create estimates
that can help managers develop and implement production strategies. Operations managers are
responsible for the processes that deliver the final product. These forecasts are using for
budgeting, sales and demand planning. They aid decision making and planning around possible
events. The method of forecasting will vary according to available data and industry size and
respective goals. Forecasts developed using both qualitative and quantitative data. Although they
are useful in making educated predictions, they are not always accurate, so they should be used
with caution.

Quantitative forecasting (Time –Series): Time series forecasts use historical data to
make predictions about the future. Data corresponds to a specific period, such as monthly inputs
over a span of ten years. These forecasts rely on the assumption that past patterns will repeat in
the future, so these data inputs used to create long-term forecasts. This method used for short-
term predictions. It based on mathematical models and objective in nature.

Some examples of quantitative forecasting methods are –

 Simple moving averages

 Weighted moving averages
 Simple exponential smoothing
 Simple Linear Regression Model

Quantitative forecasting models often judged against each other by comparing their accuracy
performance measures. Some of these measures include Mean Absolute Deviation (MAD).

Simple Moving Average: In this method, we take the average of the last “n” periods and
use that as the forecast for the next period. The value of “n” defined by the management in order
to achieve a more accurate forecast.

Formula: At-1 + At-2 +……+ At-n/n

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Weighted Moving Average: This method is the same as the simple moving average with
the addition of a weight for each one of the last “n” periods. In practice, these weights need to be
determined in a way to produce the most accurate forecast.

Formula: W1At-1+ W2At-2+ W3At-3+…..+ WnAt-n

Exponential Smoothing: This method uses a combination of the last actual demand and the
last forecast to produce the forecast for the next period. There are a number of advantages to
using this method. It can often result in a more accurate forecast. It is an easy method, which
enables forecasts for quick react to new trends or changes. A benefit to exponential smoothing is
that it does not require a large amount of historical data. Exponential smoothing requires the use
of a smoothing coefficient called Alpha (α). The Alpha that is choose will determines how
quickly the forecast responds to changes in demand. It also referred to as the Smoothing Factor.

Formula: Ft = Ft-1 + α (Dt-1 – Ft-1)

Simple Linear Regression Model: Simple linear regression is a regression model that
estimates the relationship between one independent variable and one dependent variable using a
straight line. Both variables should be quantitative.

Formula: Yt= a + bxY

Mean Absolute Deviation: MAD stands for mean absolute deviation, which is the average
of the absolute deviations. An absolute deviation is the absolute value of the actual data minus
the fitted value. The best line should have zero MAD the larger the MAD, the worse the model.

Formula:
∑ A t −Ft
n

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 Sales Forecasts of Light Fair BD ltd

Here, we take one of the Light Fair BD ltd product, which is Savsol. We collect some of the data
of this product. Based on that data we calculate the four model which are given below-

Month Sales (Gallon in units)

January 0
February 200
March 300
April 450
May 400
June 650
July 600
August 500
September 700
October 900
November 800

Calculation
1. Weighted moving average Method

Weight 0.5 0.3 0.2

F4 = 210 F7 = 535 F10= 620

F5 = 355 F8 = 575 F11= 760

F6 = 395 F9= 560 F12 = 810

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2. Simple moving average Method

Month Sales 3 months 6 months

January 0
February 200
March 300
April 450 166.67
May 400 316.67
June 650 389.33
July 600 500 333.33
August 500 550 433.33
September 700 583.33 483.33
October 900 600 550
November 800 700 625
December 800 631.67

3. Exponential Smoothing Method

Exponential Smoothing = 0.5

F1 = 0 F2 = 0 F3 = 100 F4 = 200

F5 = 325 F6 = 362.5 F7 = 506.3 F8 = 553.15

F9= 526.58 F10= 613.29 F11= 756.65 F12 = 778.33

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 4. Simple Linear Rogation Model
Yt = a+bx
Here,
n=11

x x2 y xy
1 1 0 0
2 4 200 400
3 9 300 900
4 16 450 1800
5 25 400 2000
6 36 650 3900
7 49 600 4200
8 64 500 4000
9 81 700 6300
10 100 900 9000
11 121 800 8800
66 506 7,300 41,300

x̅ = 6
y̅ = 663.64

∑ xy−n( y)( x )
b=
∑ x 2−n ¿ ¿
41,300−(11 ×663.64 × 6)
= 506−11( 6)
2

41,300−43,800.24
= 506−396
−2500.24
= 110

= -22.73

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 a = y̅ - b(x̅)

= 663.64 – (-22.73) (6)

= 663.64 + 136.38

= 800.02

Yt= a+bx

= 800.02 – 22.73x

5. Mean Absolute Deviation

Month x y forecast LR Forecast MA Forecast ES Forecast WMA

January 1 0 777.29 -777.3 0 0

February 2 200 754.56 -554.6 0 200

March 3 300 731.83 -431.8 100 200

April 4 450 709.1 -259.1 166.67 283.3 200 250 210 240

May 5 400 686.37 -286.4 316.67 83.33 325 75 355 45

June 6 650 663.64 -13.64 389.33 260.7 362.5 287.5 395 255

July 7 600 640.91 -40.91 500 100 506.3 93.7 535 65

August 8 500 618.18 -118.2 550 -50 553.2 -53.2 575 -75

September 9 700 595.45 104.55 583.33 116.7 526.6 173.4 560 140

October 10 900 572.72 327.28 600 300 613.3 286.7 620 280

November 11 800 549.99 250.01 700 100 756.7 43.3 760 40

December 12 527.26 800 778.3 810

-1800.1 1194.03 1556.4 990

-163.6 149.25 141.5 123.8

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 Which forecast is best for Light Fair BD ltd
(A comparative Discussion)

In this report, we forecast the sales of light fair BD Ltd.by using four different methods. The
methods are- Simple Moving Average, Weighted Moving Average, Exponential Smoothing and
Linear Regression. We also calculated error of sales forecast and MAD of sales forecast. After
calculating the MAD of all method, we found that Linear Regression is best method for forecast
sales data of Light fair BD Ltd. Because MAD of Linear Regression method is the lowest among
all other method for this sales data. So, we suggest them to use Linear Regression for forecast
sales data, for getting more accurate sales forecast.

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 Conclusion

Forecasting is a technique that uses historical data as inputs to make informed estimates that are
predictive in determining the direction of future trends. Businesses utilize forecasting to
determine how to allocate their budgets or plan for anticipated expenses for an upcoming period.
But it is important to know that Forecasting has its limitations as well. Different Forecasting
methods adopted by different firms’ changes the visible health and profit levels for either better
or worse. Different analysts may get different results from the same information. Hence, we must
conclude that forecasting methods are one of the tools (although a major one) while taking a
decision.

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