Question

In: Operations Management

Exponential Smoothing With the following information, identify which alpha value would you use to forecast july-dic...

Exponential Smoothing

With the following information, identify which alpha value would you use to forecast july-dic using exponential smoothing and why? Choose between 0.1, 0.5 or 0.8

Month

June

Actual

16

July

12

August

16

Sept.

15

Oct.

11

Nov.

19

Dec.

21

Solutions

Expert Solution

ALPHA 0.1

FORECAST = FORECAST + (ALPHA * (ACTUAL DEMAND - FORECAST))

FORECAST 2 = 16 + (0.1 * (16 - 16) = 16

FORECAST 3 = 16 + (0.1 * (12 - 16) = 15.6

FORECAST 4 = 15.6 + (0.1 * (16 - 15.6) = 15.64

FORECAST 5 = 15.64 + (0.1 * (15 - 15.64) = 15.58

FORECAST 6 = 15.58 + (0.1 * (11 - 15.58) = 15.12

FORECAST 7 = 15.12 + (0.1 * (19 - 15.12) = 15.51

FORECAST ERROR


PERIOD

ACTUAL DEMAND

FORECAST

DEVIATION(D - F)

ABS DEVIATION

1

16

16

0

0

2

12

16

-4

4

3

16

15.6

0.4

0.4

4

15

15.64

-0.64

0.64

5

11

15.58

-4.58

4.58

6

19

15.12

3.88

3.88

7

21

15.51

5.49

5.49

SIGMA

0.55

18.99


MAD = SIGMA(ABSOLUTE DEVIATION) / N, WHERE N = 7

MAD = 18.99 / 7 = 2.71


ALPHA 0.5

FORECAST = FORECAST + (ALPHA * (ACTUAL DEMAND - FORECAST))

FORECAST 2 = 16 + (0.5 * (16 - 16) = 16

FORECAST 3 = 16 + (0.5 * (12 - 16) = 14

FORECAST 4 = 14 + (0.5 * (16 - 14) = 15

FORECAST 5 = 15 + (0.5 * (15 - 15) = 15

FORECAST 6 = 15 + (0.5 * (11 - 15) = 13

FORECAST 7 = 13 + (0.5 * (19 - 13) = 16

FORECAST ERROR


PERIOD

ACTUAL DEMAND

FORECAST

DEVIATION(D - F)

ABS DEVIATION

1

16

16

0

0

2

12

16

-4

4

3

16

14

2

2

4

15

15

0

0

5

11

15

-4

4

6

19

13

6

6

7

21

16

5

5

SIGMA

5

21


MAD = 21 / 7 = 3

ALPHA 0.8


FORECAST = FORECAST + (ALPHA * (ACTUAL DEMAND - FORECAST))

FORECAST 2 = 16 + (0.8 * (16 - 16) = 16

FORECAST 3 = 16 + (0.8 * (12 - 16) = 12.8

FORECAST 4 = 12.8 + (0.8 * (16 - 12.8) = 15.36

FORECAST 5 = 15.36 + (0.8 * (15 - 15.36) = 15.07

FORECAST 6 = 15.07 + (0.8 * (11 - 15.07) = 11.81

FORECAST 7 = 11.81 + (0.8 * (19 - 11.81) = 17.56


FORECAST ERROR


PERIOD

ACTUAL DEMAND

FORECAST

DEVIATION(D - F)

ABS DEVIATION

1

16

16

0

0

2

12

16

-4

4

3

16

12.8

3.2

3.2

4

15

15.36

-0.36

0.36

5

11

15.07

-4.07

4.07

6

19

11.81

7.19

7.19

7

21

17.56

3.44

3.44

SIGMA

5.4

22.26


MAD = 22.26 / 7 = 3.18





2. USING THE MEAN ABSOLUTE DEVIATION, WE CAN SAY THAT FORECAST WITH ALPHA VALUE OF 0.1 IS THE CLOSEST TO THE ACTUAL DEMAND VALUE AND IS, THEREFORE, MORE SUITABLE.

** Leaving a thumbs-up would really help me out. Let me know if you face any problems.

keosha answered 8 months ago
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