Test Questions

Chapter 5—Demand Forecasting
TRUE/FALSE
1. The goal of a good forecasting technique is to minimize the deviation between actual demand and the
forecast.
ANS: T PTS: 1
BUSPROG: Analytic LO: 5-1 Bloom’s: Comprehension Difficulty: Easy
2. It is possible to expect 100 percent forecast accuracy most of the time.
ANS: F PTS: 1
3. Toymaker Spin Master, did not properly forecast demands for their new product, Hatchimals, in 2016.
This caused stockouts for their distributors.
ANS: T PTS: 1
4. Minimizing the negative impacts of the bullwhip effect on supply chains is one of the goals of an
effective CPFR system.
ANS: T PTS: 1
5. Random variations represent either increasing or decreasing movements over many years due to
factors such as population growth, population shifts, cultural changes and income shifts.
ANS: F PTS: 1
BUSPROG: Analytic LO: 5-2 Bloom’s: Knowledge Difficulty: Easy
6. Cyclical variations are longer than a year and are influenced by macroeconomic and political factors.
ANS: T PTS: 1
7. Trend variations are wavelike movements that are shorter than a year.
ANS: F PTS: 1
8. The Delphi forecasting approach is applicable for high-risk technology forecasting; large, expensive
projects; or major new product introductions
ANS: T PTS: 1
9. Quantitative forecasting methods are based on opinions and intuition, whereas qualitative forecasting
methods use mathematical models and relevant historical data to generate forecasts.
ANS: F PTS: 1
10. Individual biases could negatively impact the effectiveness of the Sales Force Composite forecasting
approach, due to the proximity of the sales personnel to the consumers.
ANS: T PTS: 1
11. If you felt that recent demand trends were more significant, and thus should be emphasized more in
formulating a forecast, then in forecasting demand for the upcoming demand period, you would
probably favor using a simple moving average over the conventional weighted moving average.
ANS: F PTS: 1
12. Regression analysis is commonly used in the cause-and-effect forecasting model.
ANS: T PTS: 1
13. Given the following information, the forecast for period two using exponential smoothing and  = 0.3
is 60.5.
Period Demand Forecast
1 64 59
2 70
ANS: T PTS: 1
BUSPROG: Analytic LO: 5-4 Bloom’s: Application Difficulty: Moderate
14. The calculated forecast for May is 46, using the actual demand shown in the table below, and a 3-
month weighted moving average with weights 0.1, 0.4, 0.5 (the heaviest weight applied to the most
recent period).
Nov. Dec. Jan. Feb. Mar. Apr.

39 36 40 38 48 46
ANS: T PTS: 1
15. The Naïve forecast, Mean Profit Leverage, and Mean Square Error are examples of forecasting
accuracy measures.
ANS: F PTS: 1
16. As tighter control limits are instituted for the tracking signal, there is a greater probability of finding
exceptions that require no action, but it also means catching changes in demand earlier.
ANS: T PTS: 1
17. Forecast error is the actual quantity minus the forecast.

ANS: T PTS: 1
18. The true value of CPFR comes from the sophisticated forecasting algorithms that provide companies
with highly accurate forecasts, not from the exchange of forecasting information.
ANS: F PTS: 1
19. One of the benefits of CPFR include integration of planning, forecasting, and logistics activities.
ANS: T PTS: 1
20. Without supply chain trading partners collaborating and exchanging information, the supply chain will
always be suboptimal and contain excess inventories, resulting in less-than-maximum supply chain
profits.
ANS: T PTS: 1
21. CPFR is more likely to succeed if companies educate their employees on the benefits of the process
changes and the disadvantages of maintaining the status quo.
ANS: T PTS: 1
MULTIPLE CHOICE
1. All of the following may influence demand and should be considered when developing a forecast
EXCEPT
a. New competition
b. Supplier quality
c. Ergonomic conditions
d. Emerging markets
ANS: C PTS: 1
2. The impact of poor communication and inaccurate forecasts resonates along the supply chain and
results in the:
a. Bullwhip effect
b. Delphi method
c. CPFR effect
d. Mean deviation
ANS: A PTS: 1
3. Inaccurate forecasts can result in negative outcomes like:

a. High inventory costs and increased profits
b. Imbalances in supply and demand
c. Material shortages and decreased costs of obsolescence
d. Low inventory costs and stockouts
ANS: B PTS: 1
4. In 2016, Spin Master, did not properly forecast demand for their new product, Hatchimals, causing
___________ for their distributors.
a. Excess stock
b. The bullwhip effect
c. Stockouts
d. Price reductions
ANS: C PTS: 1
5. What component of a time series has variations in demand which show peaks and valleys that repeat
over a consistent interval such as hours, days, weeks, months, or years?
a. Trend Variations
b. Cyclical Variations
c. Random Variations
d. Seasonal Variations
ANS: D PTS: 1
6. Your company is conducting forecasting that revolves around population growth in large cities. This
type of forecasting can be referred to as what component of a time series?
a. Cyclical Variations
b. Trend Variations
c. Seasonal Variations
d. Random Variations
ANS: B PTS: 1
7. Cyclical variations are longer than a year and can be influenced by:
a. Events such as natural disasters
b. Imbalances in supply and demand
c. Political factors
d. Population growth
ANS: C PTS: 1
8. Random variations in a Time Series component are due to:

a. Population growth
b. Unpredictable events
c. Using a large value for the exponential smoothing constant
d. Inaccurate responses of the expert participants
ANS: B PTS: 1
9. When there is not a lot of currently relevant data available it is generally best to use:
a. Qualitative forecasting
b. Time series forecasting
c. Naive forecasting
d. Simple moving average forecasting
ANS: A PTS: 1
10. Which one of the following is NOT a type of qualitative forecasting?

a. Sales force composite
b. Consumer survey
c. Jury of executive opinion
d. Simple moving average
ANS: D PTS: 1
11. Quantitative forecasts use mathematical techniques that are based on:
a. Expert opinions
b. Surveys
c. Historical data
d. Sales force knowledge of the market
ANS: C PTS: 1
12. When linear trend forecasts are developed, demand would typically be:
a. The independent variable
b. The dependent variable
c. The lead variable
d. The passive variable
ANS: B PTS: 1
13. The following time-series approach to forecasting uses historical data to generate a forecast and works
well when demand is fairly stable over time:
a. Naïve Forecast
b. Weighted Moving Average
c. Simple Moving Average
d. Exponential Smoothing
ANS: C PTS: 1
14. Using the data set below, what would be the forecast for period 4 using a three period moving average:
(Choose the closest answer.)
Period Actual Demand

1 10000
2 12400
3 13250
4 15750
5 20500
6 18500
a. 11500
b. 11883
c. 12244
d. 14008
ANS: B PTS: 1
15. Using the data set below, what would be the forecast for period 5 using a four period weighted moving
average? The weights for each period are 0.05, 0.15, 0.30, and 0.50 from the oldest period to the most
recent period, respectively. (Choose the closest answer.)

1 10000
2 12400
3 13250
4 14750
5 15220
6 18500
a. 12820
b. 13105
c. 13710
d. 14610
ANS: C PTS: 1
16. Using the data set below, what would be the forecast for period 5 using the exponential smoothing
method? Assume the forecast for period 4 is 14000. Use a smoothing constant of  = 0.4 (Choose the
closest answer.)

1 10000
2 12400
3 13250
4 14750
5 15220
6 18500
a. 12660
b. 13190
c. 14030
d. 15220
ANS: C PTS: 1
17. Using the actual demand shown in the table below, what is the forecast for May (accurate to 1
decimal) using a 3-month weighted moving average and the weights 0.20, 0.35, 0.45 (with the heaviest
weight applied to the most recent period. Round to nearest whole number)?
Nov. Dec. Jan. Feb. Mar. Apr.

39 36 40 38 48 58
a. 51
b. 56
c. 62
d. 68
ANS: A PTS: 1
18. Given the following information, calculate the forecast (round to nearest whole number) for period
three using exponential smoothing and  = 0.4.

1 64 59
2 70
a. 60
b. 65
c. 68
d. 71
ANS: B PTS: 1
BUSPROG: Analytic LO: 5-4 Bloom’s: Application Difficulty: Difficult
19. The smoothing constant for exponential smoothing must be?

a. Positive
b. Negative
c. Between 0 and 1
d. Greater than 1
ANS: C PTS: 1
BUSPROG: Analytic LO: 5-4 Bloom’s: Knowledge Difficulty: Moderate
20. A positive error implies that a forecast was?

a. Too low
b. Too high
c. Neither too high or too low
d. The sign of an error gives no information as to the direction of the error
ANS: A PTS: 1
21. A forecast tracking signal is used to determine:
a. If the product has shipped on time

b. The location of the current shipment
c. The price to charge for the product
d. If the forecast bias is within the acceptable control limits
ANS: D PTS: 1
22. The formula for the forecast error, is calculated by using the equation:
a. Actual demand for period t minus the forecasted demand for period t
b. Actual demand for period t divided by the forecasted demand for period t
c. Actual demand for period t plus the forecasted demand for period t
d. The average of Actual demand for period t and forecasted demand for period t
ANS: A PTS: 1
23. What is considered an acceptable range for a tracking signal?

a. ±1
b. ±2
c. ±3
d. ±10
ANS: C PTS: 1
24. A forecasting method has produced the following data over the past 5 months shown in the data set.
What is the mean absolute deviation (accurate to 1 decimals)?
Month Actual Forecast

1 12 11
2 13 10
3 10 8
4 11 6
5 9 8
a. 
b. 1.2
c. 2.0
d. 2.4
ANS: D PTS: 1
25. Based on the information in the data set below, what is the mean squared error (accurate to 1 decimal)?
Month Actual Forecast

1 12 11
2 13 10
3 10 8
4 11 6
5 9 8
a. 8.0
b. 10.0
c. 1.00
d. 0.8
ANS: A PTS: 1
BUSPROG: Analytic LO: 5-4 Bloom’s: Application Difficulty: Easy
26. The real value of Collaborative Planning, Forecasting and Replenishment (CPFR) comes from:
a. Sophisticated forecasting algorithms
b. Exchange of forecasting information
c. Both A and B
d. None of the above
ANS: B PTS: 1
27. What does the acronym CPFR represent?

a. Coordinated planning and forecasting relationships
b. Collaborative planning, forecasting, and replenishment
c. Centralized purchasing and forecasting relationships
d. Collaborative purchasing, forecasting, and receivables
ANS: B PTS: 1
28. According to the textbook, the top three challenges for CPFR implementation include all of the
following EXCEPT:
a. Making organizational and procedural changes
b. Trust between supply chain partners
c. Cost
d. Supplier lead times
ANS: D PTS: 1
29. Which of the following is a benefit of CPFR?

a. Provides an analysis of key performance metrics
b. Integrates planning, forecasting and logistics activities
c. Uses joint planning and promotions management
d. All of the above
ANS: D PTS: 1
30. Which of the following is a major cultural issue and big hurdle for widespread implementation of
CPFR?
a. There is no software available to use
b. Global economic changes
c. Trust
d. All of the above
ANS: C PTS: 1
SHORT ANSWER
1. List and Explain two types of qualitative forecasting methods.
ANS:
a. Jury of Executive Opinion: This type of qualitative forecasting is usually used for long-
range forecasting. An experienced group of senior management executives
knowledgeable about the market, competitors, and the business environment develop a
forecast in the hopes that their experience will provide them with a competitive
advantage.
b. Delphi Method: Internal and external experts are surveyed about future events and long-
term forecasts of demand. Following the survey, the answers are summarized, and this
summary is sent back out to the experts. Experts are then able to modify their responses
based on the summary. The process continues until a consensus is reached. Experts in
this process never physically need to meet; they communicate only through their survey
responses and their subsequent responses to the summaries.
c. Sales Force Composite: This qualitative forecasting method utilizes the knowledge of
the sales force. The sales force is seen to have recent and accurate information
concerning the market and the needs of the customer. Based on this knowledge the sales
force is asked to create a forecast to estimate the needs of the customer.
d. Consumer Survey: Surveys are administered to customers via phone, mail, Internet, or
personal interviews. Customers are surveyed about issues such as future buying habits,
new product ideas, and opinions about existing products. Using statistical tools and
managerial judgment, a forecast is devised.
PTS: 10
BUSPROG: Communication LO: 5-3 Bloom’s: Comprehension Difficulty: Moderate
2. Given the following information, calculate the forecast (round to nearest whole number) for period
four using exponential smoothing and  = 0.3. Use a tracking signal to determine if there is a bias
problem with the forecasting method. (Assume the control limit for the tracking signal is ± 3.

1 1620 1590
2 1680
3 1720
4 1770
ANS:
Since you do not have the forecast for periods 2 and 3, you must calculate those first in order to use
them in calculating the forecast for period four.
F2 = 1590 + .3(1620 – 1590) = 1599
F3 = 1599 + .3(1680 – 1599) = 1623
F4 = 1623 + .3(1720 – 1623) = 1652
RSFE = (1620 – 1590) + (1680 - 1599) + (1720 - 1623) + (1770 – 1652) = 326
MAD = 81.5
Tracking signal = 326/81.5 = 4
The results indicate a bias in the forecasts as the tracking signal is not within the control limits of ± 3.
PTS: 5
3. What is a tracking signal? How can managers use the information provided by the tracking signal to
improve the quality of forecasts?
ANS:
Tracking signal is used to determine if a forecasting model is stable over time. If the tracking signal
falls outside the pre-set control limits, there is a bias problem with the forecasting method and an
evaluation of the way forecasts are generated is warranted. The tacking signal provides an indication
of whether the forecasts are consistently over or under actual demand. A biased forecast will lead to
excessive inventories or stock-outs. Adjustments to the forecasts can be made accordingly. Some
inventory experts suggest using 4 for high-volume items and 8 for lower-volume items while others
prefer a lower limit. For example, a company may start off with a control limit for their tracking signal
of 4. Over time, the quality of forecasts improved and the control limits were reduced to 3. As
tighter limits are instituted there is a greater probability of finding exceptions that require no action,
but it also means catching changes in demand earlier.
PTS: 5
BUSPROG: Communication LO: 5-4 Bloom’s: Application Difficulty: Moderate
4. Explain the key challenges of CPFR implementation.
ANS:
The key challenges are the difficulty of making internal changes, total implementation
cost, and trust. Resistance to change should be addressed by top management. A project
will be more likely to succeed if top management commits time and resources to the
project. It is important that companies educate their employees on the benefits of the
process changes. Companies need to budget for the cost of using this technique as
demands for employee time and resources will be a factor. Trust is challenge because
many retailers are reluctant to share the type of proprietary information required by
CPFR.
PTS: 5
5. List FOUR benefits that can be achieved by implementing a successful CPFR program.
ANS:
a. Strengthens partner relationships
b. Provides analyses of sales and order forecasts
c. Uses point-of-sale data, seasonal activity, promotions, new product introductions and
store openings or closings to improve forecast accuracy
d. Manages the demand chain and proactively eliminates problems before they appear
e. Allows collaboration on future requirements and plans
f. Uses joint planning and promotions management
g. Integrates planning, forecasting and logistics activities
h. Provides efficient category management and understanding of consumer purchasing

patterns
i. Provides analysis of key performance metrics

PTS: 5
ESSAY
1. The four components of time series data are: trend variations, cyclical variations, seasonal variations,
and random variations. Briefly describe each type of variation.
ANS:
a. Trend variations: Trend variations can either be increasing or decreasing demand
movements over a number of years. These variations can be due to factors such as
population growth, population shifts, cultural change, and income shifts.
b. Cyclical variations: This type of variation is typified by wave-like movements where

demand fluctuates up-and-down. These fluctuations must be sustained for leased one
year. Variation is usually influenced by macroeconomic and/or political factors.
c. Seasonal variations: variation is seasonal; demand becomes somewhat predictable on

certain days, weeks, months, years, or seasons. In the United States the most common
form of seasonal variation is seen in many retail industries during the Christmas season
when demand usually spikes.
d. Random variations: Unexpected or unpredictable events such as natural disasters,

strikes, and wars will cause random variations in demand. The threat of hurricane will
usually cause a tremendous spike in demand for items like batteries, bottled water, and
wood products.
PTS: 10
BUSPROG: Communication LO: 5-2 Bloom’s: Comprehension Difficulty: Difficult
2. Answer the following questions regarding quantitative and qualitative forecasting:

a. Define quantitative forecasting.
b. Explain the naïve forecasting method and give an example.
c. What are the benefits of using the naïve forecasting method?
d. Under which circumstances would one utilize a combination of both quantitative and
qualitative forecasting?
ANS:
a. Define quantitative forecasting.
Quantitative forecasts use various mathematical models which use historical data and/or
associative variables to forecast demand.
b. Explain the naïve forecasting method and give an example of this technique.
The naïve method uses the forecast for the next period to be the same as the actual
demand in the last period. For example if actual demand for January was 150 units, then
forecast the demand for February to be 150 units.
c. What are the benefits of using the naïve forecasting method?
The naïve method is easy to understand, and is inexpensive to develop, store data and
operate.
d. Under which circumstances would one utilize a combination of both quantitative and
qualitative forecasting?
When there is a long-time horizon, it is generally recommended to utilize a combination
of both quantitative and qualitative techniques.
PTS: 10
BUSPROG: Communication LO: 5-3 Bloom’s: Comprehension Difficulty: Difficult
3. Use the data set below to answer the questions that follow.
Period Demand Sales

Volume
1 1000
2 1200
3 1450
4 1650
5 1700
6 1850
a. Find the four-period simple moving average forecasts for Periods 5 and 6.
b. Find the four-period weighted moving average forecasts for Periods 5 and 6 using
weights of 0.05, 0.25, 0.30, and 0.40 from the earliest period to the latest period,
respectively.
c. Which set of forecasts is more accurate, the simple moving average forecasts or the
weighted moving average forecasts? Why is that set of forecasts more accurate in this
particular case (using Data Set E4)?
d. Will that type of forecast always be more accurate? Why or why not?
ANS:
a. Find the four period simple moving average forecasts for Periods 5 and 6.
Forecast for Period 5 = (1000 + 1200 + 1450 + 1650)/4 = 1350
Forecast for Period 6 = (1200 + 1450 + 1650 + 1700)/4 = 1500
b. Find the four period weighted moving average forecasts for Periods 5 and 6 using
weights of 0.05, 0.25, 0.30, and 0.40 from the earliest period to the latest period,
respectively.
Forecast for Period 5 = .05(1000) + .25(1200) + .3(1450) + .4(1650) = 1445
Forecast for Period 6 = .05(1200) + .25(1450) + .3(1650) + .4(1700) = 1598
c. Which set of forecasts is more accurate, the simple moving average forecasts or the
weighted moving average forecasts?
In this case the weighted moving average forecasts are more accurate, using the
mean absolute deviation (MAD) to compare forecast accuracy. For the Simple moving
average, the MAD for the 2 periods is 350. For the Weighted moving average forecast,
the MAD is 254 for the 2 periods.
Why is that set of forecasts more accurate in this particular case?

Because demand is increasing in every period and the weighted moving average
forecast, which weighs more heavily recent periods of demand in calculating the forecast
versus early periods of demand, is more capable of reflecting recent changes in demand
patterns.
d. Will that type of forecast always be more accurate? Why or why not?
While the weighted moving average forecast works very well with this particular data
set, it might not be as effective if demand were more stable from period to period. When
there's a greater degree of stability in demand from period to period, a simple moving
average forecast would likely be more effective. Nonetheless, if demand patterns were
very random it is uncertain which forecasting model would be more accurate. It is for
this reason the textbook describes a number of different forecasting methods that when
used together can help an organization see a more complete picture of what the future
may hold. Use of the MAD is necessary to compare forecast accuracy.
The student may also note that while the weighted moving average forecast was more
accurate, neither forecasting model would have aptly prepared the organization for the
increasing demands that were experienced during periods five and six. The student
might even mention some of the other models from the textbook. The exponential
smoothing forecasting model and trend adjusted exponential smoothing forecasting
model may be more effective for this particular data set.
PTS: 10
BUSPROG: Communication LO: 5-4 Bloom’s: Application Difficulty: Difficult

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Chapter 5—Demand Forecasting

2. It is possible to expect 100 percent forecast accuracy most of the time.

12. Regression analysis is commonly used in the cause-and-effect forecasting model.

Nov. Dec. Jan. Feb. Mar. Apr.

17. Forecast error is the actual quantity minus the forecast.

3. Inaccurate forecasts can result in negative outcomes like:

8. Random variations in a Time Series component are due to:

10. Which one of the following is NOT a type of qualitative forecasting?

Period Actual Demand

Period Actual Demand

Period Actual Demand

Nov. Dec. Jan. Feb. Mar. Apr.

Period Demand Forecast

19. The smoothing constant for exponential smoothing must be?

20. A positive error implies that a forecast was?

21. A forecast tracking signal is used to determine:

a. If the product has shipped on time

23. What is considered an acceptable range for a tracking signal?

Month Actual Forecast

Month Actual Forecast

27. What does the acronym CPFR represent?

29. Which of the following is a benefit of CPFR?

1. List and Explain two types of qualitative forecasting methods.

Period Demand Forecast

4. Explain the key challenges of CPFR implementation.

b. Provides analyses of sales and order forecasts

e. Allows collaboration on future requirements and plans

f. Uses joint planning and promotions management

g. Integrates planning, forecasting and logistics activities

h. Provides efficient category management and understanding of consumer purchasing

i. Provides analysis of key performance metrics

b. Cyclical variations: This type of variation is typified by wave-like movements where

c. Seasonal variations: variation is seasonal; demand becomes somewhat predictable on

d. Random variations: Unexpected or unpredictable events such as natural disasters,

2. Answer the following questions regarding quantitative and qualitative forecasting:

Period Demand Sales

Why is that set of forecasts more accurate in this particular case?

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