Assignment 2

Forecasting and Inventory Control

Objectives:

1. Deepen into forecasting methods.

Specific objectives:

1. Determine the best forecasting method depending on the data behavior.

Activities

1. Forecast the sales on “EX.1” on the “Assignment 2 data.xlsx” file (25 marks).
a. Plot the sales.
b. Determine the best forecasting method. Justify your answer.
c. Depending on the forecasting method you chose, determine the initial states (level, slope,
seasonality) and the smoothing parameters (alpha, beta) using R.
d. Forecast the sales with the given data, additionally, forecast the sales for the next 5 years.
e. Obtain the residuals and discuss about them. Is this model suitable for the data?

2. Forecast the sales on “EX.2” on the “Assignment 2 data.xlsx” file (25 marks).
a. Plot the sales.
b. Determine the best forecasting method. Justify your answer.
c. Depending on the forecasting method you chose, determine the initial states (level, slope,
seasonality) and the smoothing parameters (alpha, beta) using R.
d. Forecast the sales with the given data, additionally, forecast the sales for the next 5 years.
e. Obtain the residuals and discuss about them. Is this model suitable for the data?

3. Forecast the sales on “EX.3” on the “Assignment 2 data.xlsx” file (25 marks).
a. Plot the passengers.
b. Determine the best forecasting method. Justify your answer.
c. Depending on the forecasting method you chose, determine the initial states (level, slope,
seasonality) and the smoothing parameters (alpha, beta, gamma) using R.
d. Forecast the sales with the given data, additionally, forecast the sales for the next 12 months of
the next year.
e. Obtain the residuals and discuss about them. Is this model suitable for the data?
4. Explain the moving average smoothing technique and apply a moving average smoothing of order
5 to the following dataset, substract the trend and plot both time series, the original and the
smoothed one, and discuss the results (25 marks).

For convention we are going to say that a m order moving average smoothing is given by:
+𝑞

𝑦𝑡 = ∑ 𝑥𝑡+𝑟
𝑟= −𝑞

Where 𝑚 = 2𝑞 + 1.

Year Sales 5-MA

(GWh)
1989 2354.34
1990 2379.71
1991 2318.52 2381.53
1992 2468.99
1993 2386.09
1994 2569.47
1995 2575.72
1996 2762.72
1997 2844.5
1998 3000.7
1999 3108.1
2000 3357.5
2001 3075.7
2002 3180.6
2003 3221.6
2004 3176.2
2005 3430.6
2006 3527.48
2007 3637.89
2008 3655

I have put the first value of the smoothed time series so you can guide yourself!