Question

Topic 3

Book: Operations and Supply Chain Management Jacobs & Chase 14e

6. a.) Evaluate the forecasting model using 3 month moving average, and 3 month moving weighted average, and exponential. The weights are .5 for the most recent demand, .25 for the other months. Alpha = .3. Use the weighted moving average for January Forecast.

b.) Calculate MAD and MAPE for each and compare. Which method is a better forecast and why?

      Demand

Oct        300

Nov       360

Dec        425

Jan        405

Feb        430

Mar         505

Apr         550

May        490

Answer 1

FORECAST = SIGMA(PREVIOUS N DEMANDS) / N

WHERE N = 3

FORECAST 4 = (300 + 360 + 425) / 3 = 361.7

FORECAST 5 = (360 + 425 + 405) / 3 = 396.7

FORECAST 6 = (425 + 405 + 430) / 3 = 420

FORECAST 7 = (405 + 430 + 505) / 3 = 446.7

FORECAST 8 = (430 + 505 + 550) / 3 = 495

FORECAST 9 = (505 + 550 + 490) / 3 = 515

FORECAST ERROR

PERIOD	ACTUAL DEMAND	FORECAST	DEVIATION(D - F)	ABS DEVIATION	(ABS DEV / DEMAND) * 100
1	300
2	360
3	425
4	405	361.7	43.3	43.3	10.69
5	430	396.7	33.3	33.3	7.74
6	505	420	85	85	16.83
7	550	446.7	103.3	103.3	18.78
8	490	495	-5	5	1.02
SIGMA			259.9	269.9	55.06

MAD = SIGMA(ABSOLUTE DEVIATION) / N, WHERE N = 5

MAD = 269.9 / 5 = 53.98

MAPE = SIGMA(ABSOLUTE DEVIATION / DEMAND * 100) / N, WHERE N = 5

MAPE = 55.06 / 5 = 11.01

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

WHERE LARGEST WEIGHTS ARE MULTIPLIED BY THE MOST RECENT DEMANDS

FORECAST 4 = ((425 * 0.5) + (360 * 0.25) + (300 * 0.25)) / 1 = 377.5

FORECAST 5 = ((405 * 0.5) + (425 * 0.25) + (360 * 0.25)) / 1 = 398.75

FORECAST 6 = ((430 * 0.5) + (405 * 0.25) + (425 * 0.25)) / 1 = 422.5

FORECAST 7 = ((505 * 0.5) + (430 * 0.25) + (405 * 0.25)) / 1 = 461.25

FORECAST 8 = ((550 * 0.5) + (505 * 0.25) + (430 * 0.25)) / 1 = 508.75

FORECAST 9 = ((490 * 0.5) + (550 * 0.25) + (505 * 0.25)) / 1 = 508.75

FORECAST ERROR

PERIOD	ACTUAL DEMAND	FORECAST	DEVIATION(D - F)	ABS DEVIATION	(ABS DEV / DEMAND) * 100
1	300
2	360
3	425
4	405	377.5	27.5	27.5	6.79
5	430	398.75	31.25	31.25	7.27
6	505	422.5	82.5	82.5	16.34
7	550	461.25	88.75	88.75	16.14
8	490	508.75	-18.75	18.75	3.83
SIGMA			211.25	248.75	50.37

MAD = SIGMA(ABSOLUTE DEVIATION) / N, WHERE N = 5

MAD = 248.75 / 5 = 49.75

MAPE = SIGMA(ABSOLUTE DEVIATION / DEMAND * 100) / N, WHERE N = 5

MAPE = 50.37 / 5 = 10.07

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

FORECAST 2 = 377.5 + (0.3 * (300 - 377.5) = 354.3

FORECAST 3 = 354.3 + (0.3 * (360 - 354.3) = 356

FORECAST 4 = 356 + (0.3 * (425 - 356) = 376.7

FORECAST 5 = 376.7 + (0.3 * (405 - 376.7) = 385.2

FORECAST 6 = 385.2 + (0.3 * (430 - 385.2) = 398.6

FORECAST 7 = 398.6 + (0.3 * (505 - 398.6) = 430.5

FORECAST 8 = 430.5 + (0.3 * (550 - 430.5) = 466.4

FORECAST 9 = 466.4 + (0.3 * (490 - 466.4) = 473.5

PERIOD	ACTUAL DEMAND	FORECAST	DEVIATION(D - F)	ABS DEVIATION
1	300	377.5	-77.5	77.5
2	360	354.3	5.7	5.7
3	425	356	69	69
4	405	376.7	28.3	28.3
5	430	385.2	44.8	44.8
6	505	398.6	106.4	106.4
7	550	430.5	119.5	119.5
8	490	466.4	23.6	23.6
SIGMA			319.8	474.8

MAD = SIGMA(ABSOLUTE DEVIATION) / N, WHERE N = 8

MAD = 474.8 / 8 = 59.35

MAPE = SIGMA(ABSOLUTE DEVIATION / DEMAND * 100) / N, WHERE N = 8

MAPE = 108.68 / 8 = 13.59

4. BASED ON THE MAD AND MAPE, WEIGHTED MOVING AVERAGE IS THE BETTER FORECASTING METHOD

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