Original Problem

The sale for Meersburg Grocery for 9 weeks is give. Estimate the sales for 10 th and
11th weeks using exponential smoothing constant as Alpha=0.2
Week 1
2
3
4
5
6
7
8
9
Actua 110
102
108
121
112
105
114
106
115
l
Sales
Reference: Pg. no.-122 Production and Operations Management Joseph S. Martinich
Modified Problem
The demand for a CFLs in each of the last five months is shown below.
Month
1 2 3 4 5
Demand ('00s) 13 17 19 23 24
Use a two month moving average to generate a forecast for demand in month 6.
Apply exponential smoothing with a smoothing constant of 0.9 to generate a
forecast for demand for demand in month 6.
Which of these two forecasts do you prefer and why?
Solution
The two month moving average for months two to five is given by:
m2 = (13 + 17)/2 = 15.0
m3 = (17 + 19)/2 = 18.0
m4 = (19 + 23)/2 = 21.0
m5 = (23 + 24)/2 = 23.5
The forecast for month six is just the moving average for the month before that i.e. the
moving average for month 5= m5 = 23.50.
Applying exponential smoothing with a smoothing constant of 0.9 we get:
M1 = Y1 = 13
M2 = 0.9Y2 + 0.1M1 = 0.9(17) + 0.1(13) = 16.60
M3 = 0.9Y3 + 0.1M2 = 0.9(19) + 0.1(16.60) = 18.76
M4 = 0.9Y4 + 0.1M3 = 0.9(23) + 0.1(18.76) = 22.58
M5 = 0.9Y5 + 0.1M4 = 0.9(24) + 0.1(22.58) = 23.86
As before the forecast for month six is just the average for month 5= M5 = 23.86
To compare the two forecasts we calculate the mean squared deviation (MSD). If we
do this we find that for the moving average

MSD = [(15 - 19) + (18 - 23)+ (21 - 24)]/3 = 16.67

and for the exponentially smoothed average with a smoothing constant of 0.9
MSD = [(13 - 17) + (16.60 - 19) +(18.76 - 23)+ (22.58 - 24)]/4 = 10.44
Overall then we see that exponential smoothing appears to give the best one month
ahead forecasts as it has a lower MSD. Hence we prefer the forecast of 23.86 that has
been produced by exponential smoothing.