Demand Forecasting

1. An organization is in the process of setting up a forecasting system for better planning of its
activities. The data on actual demand for their product in the last few months are as shown in
table.

Month Demand
January 779
February 802
March 818

i). Calculate forecast for April using the following techniques: a). Naïve approach b). 3 months
moving average
Naïve approach:
FApril = AMarch Similarly, AMay=AApril
3 months moving average:
FApril = (AJan+AFeb+AMarch)/3 Similarly FMay= (AFeb+AMarch+AApril)/3
ii.) Calculate the 5 months moving average if actual sales in April and May were 898 and 902
respectively.
FJune= (AJan+AFeb+AMarch+AApril+AMay))/5, AJuly=(AFeb+…….+AJune)/5

(In general, n month moving average,

iii). Taking weights 0.2, 0.3 and 0.5, calculate the forecast for April and May using 3 months
weighted moving average method.
FApril = (w1*AJan+ w2*AFeb+ w3*AMarch)/Σw

(Give highest weight to most recent data and lowest

weight to oldest data)
iv). Taking smoothing constants of 0.3, 0.5 and 0.7 (α=0.3, α=0.5 and α=0.7), calculate the
forecast for April using exponential smoothing method. (Take 3 months moving average as
the forecast).
FApril = FMarch + α (AMarch-FMarch) or FApril = (1- α) FMarch + α AMarch
v). Calculate the forecast for April using linear regression/linear trend projection.
Ft = a + bt (ie., y=a+bx)

vi). Calculate MAD, RSFE and tracking signal (TS) to calculate the accuracy of the forecast.

RSFE=Σ (Actual sales-Forecasted sales)