Question 01: Shipments (in tons) of welded tube by an aluminum producer
are shown below:
1. Compute a 3-year moving average
2. Using a weight of 3 for the most recent data, 2 for the next, and 1 for the
oldest, forecast shipments in year 12.
Solution 01:
Moving Average (03 Year) = [D9 + D10 + D11]/3 = [14+18+19]/03 = 17 Tons
Solution 02:
Weighted Moving average (03 Years)
= [(D9*W9) + (D10*W10) + (D11*W11)]/[W9 + W10 + W11]
= [(14*1) + (18*2) + (19*3)]/[1 + 2 + 3]
= 17.8 Tons
Question 02: The table below shows the monthly demand over 6 months period
for a product.
Months 1 2 3 4 5 6
Demand 120 130 110 140 110 130
(Units)
(A) Determine the forecast of Demand for the 7th month using 3-month Simple
Moving Average.
(B) If the weightage given for the demand for 6th, 5th, and 4th months are 0.5, 0.3
and 0.2 respectively, determine the forecast demand for 7th month using
weightage average method.
Solution A:
Moving Average (03 Months) = [D6 + D5 + D4]/3
= [130+110+140]/03
= 126.67 Units
Solution B:
Weighted Moving average (03 Months)
= [(D6*W6) + (D5*W5) + (D4*W4)]/[W6 + W5 + W4]
= [(130*0.5) + (110*0.3) + (140*0.2)]/[0.5 + 0.3 + 0.2]
= 126 Units
Exponential Smoothing Method
It is a sophisticated weightage moving average method that is still relatively easy to
understand and use. It requires only three items of data:
a. This Period Forecast (Ft-1)
b. The Actual Demand for this Period (A t-1)
c. Smoothing Coefficient (α) Smoothing Coefficient is constant and its value
ranged between 0 and 1. The formula used is:
Next Period Forecast = This Period Forecast + (α) (This Period Actual Demand –
This Period Forecast)
OR
Ft = (Ft-1) + α [At-1 – Ft-1]
Question 03: Patna Paints predicted the sales for a product as 150 Units for
August 2020. Actual demand for August 2020 was 158 Units. Using a Smoothing
Constant of 0.3, forecast demand for September 2020.
Solution 03:
F September = Ft = Need to Calculate
F August = F t-1 = 150
A August = A t-1 = 158
Smoothing Coefficient = Constant = (α) = 0.3
Solution 03:
F September = Ft = Need to Calculate
F August = F t-1 = 150
A August = A t-1 = 158
Smoothing Coefficient = Constant = (α) = 0.3
Ft = (Ft-1) + α [At-1 – Ft-1]
Ft = 150 + 0.3 [158 – 150]
Ft = 150 + 0.3 [08]
Ft = 152.4 = Either 152 or 153 Units
Solution:
F February 08 = Ft = Need to Calculate
F February 01 = F t-1 = 500
A February 01 = A t-1 = 450
Smoothing Coefficient = Constant = (α) = 0.1
Solution:
F February 08 = Ft = Need to Calculate
F February 01 = F t-1 = 500
A February 01 = A t-1 = 450
Smoothing Coefficient = Constant = (α) = 0.1
Ft = (Ft-1) + α [At-1 – Ft-1]
Week F t-1 A t-1 Ft
February 01 500 450 495
February 08 495 505 496
February 15 496 516 498
February 22 498 488 497
March 01 497 467 494
March 08 494 554 500
March 15 500 510 501
Values Given in Question:
Ft = (Ft-1) + α [At-1 – Ft-1]
F February 08 = Ft = Need to Calculate
F Feb 08 = F Feb 01 + α [A Feb 01 – F Feb 01]
F Feb 08 = 500 + 0.1 [450 – 500] = 495 F February 01 = F t-1 = 500
A February 01 = A t-1 = 450
F Feb 15 = F Feb 08 + α [A Feb 08 – F Feb 08]
F Feb 15 = 495 + 0.1 [505 – 495] = 496 Smoothing Coefficient = Constant = (α) = 0.1
A February 08 = A t-1 = 505
F Feb 22 = F Feb 15 + α [A Feb 15 – F Feb 15]
A February 15 = A t-1 = 516
F Feb 22 = 496 + 0.1 [516 – 496] = 498
A February 22 = A t-1 = 488
F Mar 01 = F Feb 22 + α [A Feb 22 – F Feb 22]
F Mar 01 = 498 + 0.1 [488 – 498] = 497
Ft = (Ft-1) + α [At-1 – Ft-1] Values Given:
A March 01 = A t-1 = 467
F March 08 = F March 01 + α [A March 01 – F March 01]
F March 08 = 497 + 0.1 [467 – 497] = 494
F March 15 = F March 08 + α [A March 08 – F March 08] A March 08 = A t-1 = 554
F March 15 = 494 + 0.1 [554 – 494] = 500
A March 15 = A t-1 = 510
F March 22 = F March 15 + α [A March 15 – F March 15]
F March 22 = 500 + 0.1 [510 – 500] = 501