Question

The monthly sales for Telco Batteries, Inc., were as follows in Table 1

Table 1: Monthly Sales

MONTH	SALES
January	10
February	14
March	15
April	14
May	12
June	10
July	14
August	18
September	20
October	20
November	22
December	23

Forecast January sales using each of the following:

1. A 4-month moving average.
2. Exponential smoothing using an alpha = 0.25
3. Which of the forecast models is better and why?
4. Using the tracking signal with a control limit of +/- to show if the exponential smoothing model of b) is in control. Discuss your result.

Answer 1

a) 4 - month Moving Average:

Exponential smoothing using an alpha = 0.25

the simple exponential smoothing (SES) forecast is somewhat superior to the simple moving average (SMA) forecast because it places relatively more weight on the most recent observation

Tracking signals = Cumulative error / MAD

=36.59 / 3.53 = 10.37