MBB3533: OPERATIONS MANAGEMENT
TUTORIAL CHAPTER 3 – FORECASTING
MOHAMMED GAMAL
1. The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly
on the anticipated mileage to be driven next year. The miles driven during the past 5 years are as follows:
Year Mileage
1 3.000
2 4,000
3 3,400
4 3,800
5 3,700
a. Forecast the mileage for next year (6th year) using a 2-year moving average.
b. Use a weighted 2-year moving average with weights of 0.4 and 0.6 to forecast next year's mileage.
(The weight of 0.6 is for the most recent year.)
c. Compute the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000
miles, and α = 0.5.
Answer:
a. Forecast the mileage for next year (6th year) using a 2-year moving average.
Moving average = sum demand in 2 yr period/2
Moving average for Nxt yr = (3800+3700)/2 = 3,750 Miles
b. Use a weighted 2-year moving average with weights of 0.4 and 0.6 to forecast next year's
mileage.(The weight of 0.6 is for the most recent year.)
>> Weighted moving average = sum (weight in period n)*(demand in period n)/Sum weights
So Weighted moving average Y6 =
((3800*0.4)+(3700*0.6))/(0.4+0.6)
= 3,740
>> MEAN ABSOLUTE DEVIATION = Sum(|Dt-Ft|)/n
where Dt is demand in Period t & Ft is FOrecats in period t
So Wtd Mving Avge for Y3 ie F(3)
= (3000*0.4+4000*0.6)/(0.4+0.6) = 3600
& D3 = 3400
So Wtd Mving Avge for Y4 ie F(4)
= (4000*0.4+3400*0.6)/(0.4+0.6) = 3640
& D4 = 3800
>> So Wtd Mving Avge for Y5 ie F(5)
= (3400*0.4+3800*0.6)/(0.4+0.6) = 3640
& D5 = 3700
c. Compute the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000
miles, and α = 0.5.?
➢ Expomentioal Smoothing F(t)
➢ F(t) =F(t-1)+a*(A(t-1) -F(t-1))
➢
➢ SO F(1) = 3000 + 0.5*(3000-3000) = 3000
➢ F(2) = 3000 + 0.5*(4000-3000) = 3500
➢ F(3) = 3500 + 0.5*(3400-3500) = 3450
➢ F(4) = 3450 + 0.5*(3800-3450) = 3625
➢ F(5) = 3625 + 0.5*(3700-3625) = 3663
➢ So FOrecast is 3663 miles
2. Cengiz Haksever runs an Istanbul jewelry shop. He advertises weekly in local Turkish newspaper and is
thinking of increasing his advertising budget. Before doing so, he decides to evaluate the past
effectiveness of these advertisings. Five weeks are sampled, and the data are shown in table below:
Sales ($1,000s) Advertising Budget that week
($100s)
11 5
6 3
10 7
6 2
12 8
Required:
i. Develop a linear regression equation.
ii. Forecast the sales if the advertising budget is $4.
Let x be the variable of Advertising and y be variable of Sales.
Using the least-squares regression model, we have
Sales Y ADVERTISING X X^2 Xy
11 5 25 55
6 3 9 18
10 7 49 70
6 2 4 12
12 8 64 96
TOTAL 45 25 151 251
AVERAGE 9(=45/5) 5(=25/5)
THEN:
a = Average of y - b*Average of x = 9 - 1*5 = 4 Sales (in $1,000s) = 4 + 1 (Advertisement
budget in $100s)
Therefore, the regression model is
This implies that for each one unit increase in x
y = 4 + 1x, or (or $100 in ads), sales increase by 1 unit (or
$1,000)