Question

A) Consider the following data:

Period: Demand:

Jan. 20 units

Feb 33 units

March 28 units

April 35 units

May 37 units

June   25 units

The sales department is planning for July and wants to estimate the demand. Set up an Exponential Smoothing Forecast Model and then compute the demand forecast for July.

B) Briefly describe two general forecasting approaches.

Answer 1

A. The demand for July = 29 units using the exponential smoothening forecast model

o Assume a smoothening constant of 0.6

o Assume α = 0.6, 1-α = 0.4

o Using exponential smoothening, forecast for a period can be calculated as=

(α)*(demand in previous week) + (1-α)*(forecast of the previous week).

o Hence forecast for Feb = (0.6*20)+(0.4*20) = 20

o Forecast for Mar = (0.6*33)+(0.4*20) = 27.8

o Similarly, forecast for July = (0.6*25)+(0.4*35.1) = 29

B. The two approaches to forecasting are qualitative and quantitative. Examples of qualitative techniques are market research, expert judgement, Delphi method, etc. These approaches are used when historical data is not available for forecasting. Moving averages, exponential smoothening, weighted averages, etc are examples of quantitative forecasting. It is a mathematical approach and are used when historical data is available.