Question

1. The demand for a certain SKU at XYZ Company is shown in the table below. Calculate the monthly forecast for 2015 using a 3-month moving average. Calculate the MAD and the tracking signal. Is this a good forecast?

Period	Demand	Forecast	Error	MAD	Bias	TS
Oct 17	850
Nov 17	950
Dec 17	900
Jan 18	1000
Feb 18	950
Mar 18	1050
Apr 18	850
May 18	1100
Jun 18	900
Jul 18	1150
Aug 18	1100
Sep 18	900
Oct 18	1000
Nov 18	800
Dec 18	1000

Answer 1

Answer:

By taking average of last three months for calculating the forecast of the month, we get the 3 month moving average forecasting

Month	Demand	3 month Moving Average	Forecast	Error	Absolute Deviation	MAD = Mean Absolute Deviation	Bias	TS
Oct-17	850					MAD = Sum of Absolute Deviation / No. of months = 1350 / 12 = 112.50	Bias = Sum of errors / No. of months = 50 / 12 = 4.167	TS = Sum of errors / MAD = 50 / 112.5 = 0.44
Nov-17	950
Dec-17	900
Jan-18	1000	900	900	100	100
Feb-18	950	950	950	0	0
Mar-18	1050	950	950	100	100
Apr-18	850	1000	1000	-150	150
May-18	1100	950	950	150	150
Jun-18	900	1000	1000	-100	100
Jul-18	1150	950	950	200	200
Aug-18	1100	1050	1050	50	50
Sep-18	900	1050	1050	-150	150
Oct-18	1000	1050	1050	-50	50
Nov-18	800	1000	1000	-200	200
Dec-18	1000	900	900	100	100
			Total	50.00	1350.00

The forecast looks good because the value of TS is 0.44 and the value of MAD 112.50

The lower TS value shows that the forecast was good.

The errors are not much large with respect to the demand forecasting.