Course: Operation planning management Chapter #4 (Forecasting)

Course instructor: Sir Hyder

Example 1(Moving average)
Storage shed sales at Garden Supply are shown following with name of months and actual sales
Calculate 3-month moving average

Month Actual sales 3-month moving average

January 10

February 12

March 13

April 16

May 19

June 23

July 26

August 30

September 28

October 18

November 16

December 14

Example 2 (Weighted moving average)

Garden supply (see example 1) decides to forecast storage shed sales by weighing the past 3
months

Example 3
In January, a car dealer predicted February demand for 142 ford Mustangs. Actual February
demand was 153 autos. Using a smoothing constant chosen by management of Alpha = 0.20
You are required to find out new forecast for March demand.

Example 4

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During the past 8 quarters, the port of Baltimore has unloaded large quantities of grain for ships.
The port’s operation manger wants to test the use of exponential smoothing to see how well the
technique works in predicting tonnage unloaded. He guesses that the forecast of grain unloaded
in the first quarter was 175 tons. Two values of ALPHA are examined: ALPHA = 0.10 and
ALPHA = 0.50
Required: Evaluate the smoothing constant which smoothing constant is preferred

Quarter Actual tonnage unloaded Rounded forecasting with 0.1

1 180 175

2 168 ?= 175 + 0.1 (180 – 175)

3 159

4 175

5 190

6 205

7 180

8 182

9 ?

Example 8
The demand for electrical power at Edison over the period 1997 to 2003 is shown below, in
megawatts. Forecast 2004 demand, by fitting a straight-line trend to these data.

Year Electric power demand

1997 74

1998 79

1999 80

2000 90

2001 105

2002 142

2003 122

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Example 9
Monthly demand for IBM laptop computers at Karachi distributor for 2000 to 2002 is shown in
the following table:

Demand
Month 2000 2001 2002
Jan 80 85 105
Feb 70 85 85
Mar 80 93 82
Apr 90 95 115
May 113 125 131
June 110 115 120
July 100 102 113
Aug 88 102 110
Sep 85 90 95
Oct 77 78 85
Nov 75 82 83
Dec 82 78 80

If we expected the2003 annual demand for computers to be 1,200 units,

Required: Forecast the monthly demand

Problems

4.1 The following gives the number of pints of type A blood used at Hospital in the past 6
weeks.

W EEK P INTS U SED

August 31 360
September 7 389
September 14 410
September 21 381
September 28 368
October 5 374

a) Forecast the demand for the week of October 12 using a 3-week moving average.
b) Use a 3-week weighted moving average, with weights of .1, .3, and .6, using .6 for the
most recent week. Forecast demand for the week of October 12.
c) Compute the forecast for the week of October 12 using exponential smoothing with a
forecast for August 31 of' 360 and Alpha= .2.

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4.2
year 1 2 3 4 5 6 7 8 9 10 11
Demand 7 9 5 9 13 8 12 13 9 11 7
a) Starting in year 4 and going to year 12, forecast demand using a 3-year moving average.
b) Starting in year 4 and going to year 12, forecast demand using a 3-year moving average
with weights of .1, .3, and .6 using .6 for the most recent year..

4.3. Refer to problem 4.2 Develop a forecast for years 2 through 12 using exponential smoothing
with a = .4

4.5 The Carbondale Hospital is considering the purchase of a new ambulance. The decision will
rest partly on the anticipated mileage to be driven next year. The miles driven during die past 5
years are as follows.
Y EAR M ILEAGE
1 3,000
2 4,000
3 3,400
4 3,800
5 3,700

a) Forecast the mileage for next year using a 2-year moving average
b) Find the MAD for your forecast in pan (a).
c) Use a weighted 2-year moving average with weights of .4 and .6 to forecast next
year's mileage. (The weight of .6 is fur the most recent year.) What is the MAD of this forecast?
d) Compute the forecast for year 6 using exponential smoothing, an initial forecast for
year 1 of 3,000 miles, and n = .5.

4.42 A power and light has been collecting data on demand for electric power in a area for only
the past 2 years. Those data are shown in the following table:

Demand in megawatts

Month Last year This year

Jan 5 17

Feb 6 14

Mar 10 20

Apr 13 23

May 18 30

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 June 15 38

July 23 44

Aug 26 41

Sep 21 33

Oct 15 23

Nov 12 26

Dec 14 17

If it is expected the next year annual demand for electric power is 400 megawatts, Forecast
demand for each month next year using the model

Practice Problems: Chapter 4, Forecasting

Problem 1:
Auto sales are shown below. Develop a 3-week moving average.

Week Auto Sales

1 8
2 10
3 9
4 11
5 10
6 13
7 -
Problem 2:
Owner decides to forecast auto sales by weighting the three weeks as follows:

Weights Applied Period

3 Last week
2 Two weeks ago
1 Three weeks ago
6 Total

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Problem 3:
A firm uses simple exponential smoothing with   0.1 to forecast demand. The forecast for the
week of January 1 was 500 units whereas the actual demand turned out to be 450 units.
Calculate the demand forecast for the week of January 8.
Problem 4: Exponential smoothing is used to forecast automobile battery sales. Two value of 
are examined,   0.8 and   0.5. Evaluate the accuracy of each smoothing constant. Which is
preferable? (Assume the forecast for January was 22 batteries.) Actual sales are given below:

Month Actual Battery Sales Forecast

January 20 22

February 21

March 15

April 14

May 13

June 16

Problem 5:
Use the sales data given below to determine: (a) the least squares trend line, and (b) the predicted
value for 2008 sales.

Year Sales (Units)

2001 100
2002 110
2003 122
2004 130
2005 139
2006 152
2007 164
To minimize computations, transform the value of x (time) to simpler numbers. In this case,
designate year 2001 as year 1, 2002 as year 2, etc.