Question

Lopez Pizza shop wants to determine the best forecast technique for its dough. It evaluates the "exponential smoothing" and "Weighted moving average" methods.

By using MAPE, assess forecasting techniques and provide your advice/explanation for your choice..

a) For "exponential smoothing" consider smoothing constant is ALPHA = 0.5. The firm assumes the initial forecast for month 1 was 11 units (F₁ = 11)

b) For the "Weighted Moving average" , the weights used will be 6, and 3. (CONSIDER RECENT TO OLDEST)

Month	Actual demand
1	12
2	17
3	20
4	19

Answer 1

WEIGHTED MOVING AVERAGE

FORECAST = SIGMA(WEIGHT FOR PERIOD * DEMAND PER PERIOD) / SUM OF THE WEIGHTS

WHERE LARGEST WEIGHTS ARE MULTIPLIED BY THE MOST RECENT DEMANDS

FORECAST 3 = ((17 * 6) + (12 * 3)) / 9 = 15.33

FORECAST 4 = ((20 * 6) + (17 * 3)) / 9 = 19

FORECAST 5 = ((19 * 6) + (20 * 3)) / 9 = 19.33

FORECAST ERROR

PERIOD	ACTUAL DEMAND	FORECAST	DEVIATION(D - F)	ABS DEVIATION	(ABS DEV / DEMAND) * 100
1	12
2	17
3	20	15.33	4.67	4.67	23.35
4	19	19	0	0	0
SIGMA			4.67	4.67	23.35

MAPE = SIGMA(ABSOLUTE DEVIATION / DEMAND * 100) / N, WHERE N = 2

MAPE = 23.35 / 2 = 11.68

2. EXPONENTIAL SMOOTHING

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

FORECAST 2 = 11 + (0.5 * (12 - 11) = 11.5

FORECAST 3 = 11.5 + (0.5 * (17 - 11.5) = 14.25

FORECAST 4 = 14.25 + (0.5 * (20 - 14.25) = 17.13

FORECAST 5 = 17.13 + (0.5 * (19 - 17.13) = 18.07

FORECAST ERROR

PERIOD	ACTUAL DEMAND	FORECAST	DEVIATION(D - F)	ABS DEVIATION	(ABS DEV / DEMAND) * 100
1	12	11	1	1	8.33
2	17	11.5	5.5	5.5	32.35
3	20	14.25	5.75	5.75	28.75
4	19	17.13	1.87	1.87	9.84
SIGMA			14.12	14.12	79.27

MAPE = SIGMA(ABSOLUTE DEVIATION / DEMAND * 100) / N, WHERE N = 4

MAPE = 79.27 / 4 = 19.82

**INTERMEDIATE CALCULATIONS ROUNDED TO 2 DECIMAL PLACES. LET ME KNOW IF YOU FACE ANY PROBLEMS WITH THE ANSWER.