Operations Management, 20ME41P 2021-22

DEMAND FORECASTING
Simple Moving Average
 Here equal weightage is given to all the periods.
 This method combines the demand data from several of the most recent periods, and their average
being the forecast for the next period.
 In this method, average of demands used is a fixed number of recent periods.
Therefore, moving average = Sum of demands for periods / Chosen number of periods

Therefore, moving average = = 1/n D1 +1/n D2+ - - - - 1/n Dn,

Where, n = chosen number of periods, t = 1 is the oldest period in the n-period average, t= n is the most
recent period, Di = the demand in the ith period.
Weighted Moving Average (WMA)
 Here more weightage is given to recent periods compared to older periods.
 Weighted moving average is done by assigning different weights to different periods but the sum is
equal to one.
 Therefore, weighted moving average = Sum of demands for the chosen number of periods and each
one is multiplied by its respective weightage.

Where, Ct = weightage for the time period t and Dt = demand in the time period t.

Problems on Simple and Weighted Moving Average Method

1) The sale of cars for the month of January, February and March is given in the table below.
Month January February March
Sale of
400 500 400
Cars

Estimate the forecast sales for the month of April using Three-Month Simple Moving Average
Method. Plot the column chart.

Three month moving average = Sum of demands for the periods / chosen number of periods
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Forecast for the month of April using Three month moving average =
(400 + 500 + 900) / 3 = 1800 / 3 = 600
Month Jan Feb Mar Apr
Sale of Cars 400 500 400
Forecast of Sales using 3
600
month moving average

2) Monthly sale of Bicycles for the year 2021 is given in the table below…
Month May June July August September
Sale of
2000 2500 3000 2800 4000
Bicycles

Estimate the forecast sales for the month of October using Five-Month Simple Moving Average
Method. Plot the column chart.

Five month moving average = Sum of demands for the periods / chosen number of periods
Forecast for the month of October using Five month moving average =
(2000 + 2500 + 3000 + 2800 + 4000) / 5 = 14300 / 5 = 2860

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Month May Jun Jul Aug Sep Oct

Sale of Bicycles 2000 2500 3000 2800 4000

Forecast of Sales using 5
2860
month moving average

3) The sale of computers month of January, February and March is given in the table below...
Month January February March
Sale of
40 50 40
Computers
Estimate the forecast sales for the month of April using Three-Month Weighted Moving Average
Method using weights 0.5, 0.3 and 0.2. Plot the column chart.

Three months weighted moving average where weight for the month of March = 0.5, February = 0.3
and January = 0.2.
Therefore, weighted moving average = 0.5 x 40 + 0.3 x 50 + 0.2 x 40 = 20 + 15 + 8 = 43
Therefore forecast for April using Three month weighted moving average = 43 units.

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Problem on Combination of Naive, Simple and Weighted Moving Average Method

4) Monthly sale of Two-wheelers of XYZ Company for the year 2021 is given in the table below.
Month May June July August September
Sale of
200 250 300 280 400
Two-wheeler
Estimate the forecast sales for the month of October by the following methods…
a) Naive Forecast Method.
b) Three-Month Simple Moving Average Method.
c) Five-Month Simple Moving Average Method.
d) Three-Month Weighted Moving Average Method using Weights 0.5, 0.3 and 0.2.
e) Plot the column chart for each method and also comparative plot of all methods.
a) Let us estimate the forecast sales for the month of October by Naive forecast method…
As per the method, the actual sales of two wheeler for the month of September-2021 will be considered
as the forecast of sales for the month of October-2021.
So, actual sales of two wheeler for month of September-2021 = Forecast of October-2021 = 400
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Month May June July August September October

Actual Sales of
200 250 300 280 400
Two-wheeler
Forecast Sales as per
400
Naive Approach

b) Let us estimate the forecast sales for the month of October by Three-Month Simple Moving
Average Method …

Three month moving average = Sum of demands for the periods / chosen number of periods
Three month moving average = (400 + 280 + 300) / 3 = 980 / 3 = 326.67
Forecast for the month of October using Three month moving average = 326.67

Month May June July August September October

Sale of
200 250 300 280 400
Two-wheeler
Forecast Sales as per 3-Month
326.67
Simple Moving Average Method

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Operations Management, 20ME41P 2021-22

c) Let us estimate the forecast sales for the month of October by Five-Month Simple Moving
Average Method …

Three month moving average = Sum of demands for the periods / chosen number of periods
Three month moving average = (400 + 280 + 300 + 250 + 200) / 5 = 1430 / 5 = 286
Forecast for the month of October using Three month moving average = 286
Month May June July August September October
Sale of
200 250 300 280 400
Two-wheeler
Forecast Sales as per
5-Month Simple
286
Moving Average
Method

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Operations Management, 20ME41P 2021-22

d) Let us estimate the forecast sales for the month of October by Three-Month Weighted Simple
Moving Average Method …
Three months weighted moving average where weight for the month of September = 0.5, August =
0.3 and July = 0.2.
Therefore, weighted moving average = 0.5 x 400 + 0.3 x 280 + 0.2 x 300 = 200 + 84 +60 = 344
Therefore forecast for October using Three month weighted moving average = 344.
Month May June July August September October
Sale of
200 250 300 280 400
Two-wheeler
Forecast Sales as
per 3-Month
344
Weighted Moving
Average Method

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Comparison of Forecast of Sales by Methods of Forecasting

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