Question

	forecast	actual demand	error
2Q 2018		215
3Q 2018		210
4Q 2018		220
1Q 2019		225
2Q 2019		255
3Q 2019		240
4Q 2019		260
1Q 2020		270
2Q 2020

1. Using the 3 quarter moving average: What is the forecast for 4Q 2019, 1Q 2020, and 2Q 2020
2. Compute the forecast for 4Q 2019, 1Q 2020, and 2Q 2020 using exponential smoothing (start with 4Q 2019) with a smoothing factor of 0.6
3. Which forecast method provides a more accurate forecast?
4. Compute the forecast for 4Q 2019, 1Q 2020, and 2Q 2020 using a weighted moving average technique. The most recent period (for 4Q that will be 3Q 2019) is weighted at .5, second most recent at .35, and 3^rd most recent at .15.

Answer 1

1. The forecast for 4Q 2019, 1Q 2020, and 2Q 2020 using 3 quarter moving average is shown below: 240, 251.67 and 256.67.

· A 3 period moving average forecasting method can be used for calculating the forecasted value for the 4th period onwards by calculating the average demand of the previous 3 periods.

· Hence, forecast for the 4Q 2019 = (225+255+240)/3 =240.00

· Similarly calculate the forecast for 1Q 2020 and 2Q 2020.

2. The forecast for 4Q 2019, 1Q 2020, and 2Q 2020 using exponential smoothening is shown below:

· Given α = 0.6, 1-α = 0.4

· Assume forecast for 3Q 2019 = 240

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

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

· Hence forecast for 4Q 2019 = (0.6*240)+(0.4*240) = 240

· Forecast for 1Q 2020 = (0.6*260)+(0.4*240) = 252

· Similarly, forecast for 2Q 2020 can be done = 262.80

3. Accuracy can be found from the Mean Average Deviation (MAD) values

· MAD using 3 quarter moving average =

· Mean of the 3 quarter average forecasted values is = (240+251.67+256.67)/3= 249.45

· Subtract each forecasted value from the mean and take the absolute values

· Mean of the absolute values = (9.45+2.23+7.23)/3=6.30

· Hence, MAD = 6.30

· Similarly MAD using the exponential smoothening method = 7.73

· The 3 quarter moving average method is accurate as its MAD is closer

4. Using the weighted average method, forecasts for 4Q 2019, 1Q 2020, and 2Q 2020 = 243, 252.25, 262

· Forecast for 4Q 2019 = (3Q2019 demand * weight)+(2Q 2019 * weight) + (1Q 2019 * weight)

· =(240*0.5)+(255*0.35)+(225*0.15) = 243

· Similarly calculate forecast for 1Q 2020 and 2Q 2020