Question

Period Demand

1 110

2 115

3 125

4 127

5 130

6 134

a) Prepare trend equation to forecast demand.

b) Forecast demand for periods 1 to 6 using the trend equation. Compute the errors associated with such forecasts c) Use the errors obtained in part b to create 2.0s control limits, where s  is the standard deviation. Create plot of the control chart with the associated points representing the errors from period 2 to period 6.

d) If demand in the next two periods turns out to be 120 and 135, can you conclude that the forecasts are in control?

Answer 1

(a)

So,

the trendline equation is written as Forecast (Y) = 106.80 + 4.7114 * Period (x)

(b)

The Error and Square of Errors have been shown in the last two columns.

(c)

So,

Sum of Squares (SSE) = 23.086

MSE = SSE / (n - 1) = 23.086 / (6 - 1) = 4.617

Std dev (s) = √MSE = √4.617 = 2.1488

So, the 2.0s control limits will be written as 0 +/ 2.0*2.1488 i.e. 0 +/- 4.30

(d)

As we can see that the errors are beyond the +/- 4.30 limit, the forecasts are not in control.