Operation Research

Forecasting

1. The table below shows the demand for particular brand of microwave oven in a department
store in each of the last ten months:

Mont 1
h 1 2 3 4 5 6 7 8 9 0
Dema 2 3 2 3 3 3 3 3 3 3
nd 7 1 9 0 2 4 6 5 7 9
Using 3-month moving average, 3-month weighted moving average, and exponential smoothing
with a smoothing constant of 0.1. What would be your forecast for the demand in month 11?
Calculate the error.

ANSWER
Demand of 3-Month Moving 3-Month Weighted Exponential Smoothing
Month
Microwave Average Moving Average (alpha = 0.1)
January 27 27,00
February 31 27,00
March 29 27,40
April 30 29,00 29,33 27,56
May 32 30,00 29,83 27,80
June 34 30,33 30,83 28,22
July 36 32,00 32,67 28,80
August 35 34,00 34,67 29,52
September 37 35,00 35,17 30,07
October 39 36,00 36,17 30,76
November ? 37,00 37,67 31,59
The table given above is the forecasting result using excel in month 11 (November) using 3-
month moving average, 3-month weighted moving average, and exponential smoothing with
smoothing constant 0.1

Now, we calculate the error using mean squared error, mean absolute deviation, and mean
absolute percent error, to compare the error of the three forecasts.
 Operation Research
Forecasting
MEAN SQUARED ERROR
3-Month 3-Month Exponential
Demand of
Month Moving (Error)^2 Weighted (Error)^2 Smoothing (Error)^2
Microwave
Average Moving Average (alpha = 0.1)
January 27 27,00 0,00
February 31 27,00 16,00
March 29 27,40 2,56
April 30 29,00 1,00 29,33 0,44 27,56 5,95
May 32 30,00 4,00 29,83 4,69 27,80 17,61
June 34 30,33 13,44 30,83 10,03 28,22 33,37
July 36 32,00 16,00 32,67 11,11 28,80 51,82
August 35 34,00 1,00 34,67 0,11 29,52 30,02
September 37 35,00 4,00 35,17 3,36 30,07 48,04
October 39 36,00 9,00 36,17 8,03 30,76 67,86
November ? 37,00 37,67 31,59
Sum of Errors Squared: 48,44 37,78 254,67
Mean Squared Error: 6,92 5,40 36,38
Smallest Mean Squared Error: 5,40

Given above is the error calculation of the three forecasts using mean squared error. We can see
that the 3-month weighted moving average has the smallest error, therefore we prefer to use
the forecast that has been produced by the 3-month weighted moving average.

MEAN ABSOLUTE DEVIATION

3-Month 3-Month Exponential
Absolute Absolute Absolute
Month Demand of Microwave Moving Weighted Smoothing
Deviation Deviation Deviation
Average Moving Average (alpha = 0.1)
January 27 27,00 0,00
February 31 27,00 4,00
March 29 27,40 1,60
April 30 27,40 2,60 29,33 0,67 27,56 2,44
May 32 27,56 4,44 29,83 2,17 27,80 4,20
June 34 27,80 6,20 30,83 3,17 28,22 5,78
July 36 28,22 7,78 32,67 3,33 28,80 7,20
August 35 28,80 6,20 34,67 0,33 29,52 5,48
September 37 29,52 7,48 35,17 1,83 30,07 6,93
October 39 30,07 8,93 36,17 2,83 30,76 8,24
November ? 30,76 37,67 31,59
Sum of Absolute Deviations: 43,62 14,33 40,26
Mean Absolute Deviation: 6,23 2,05 5,75
Smallest Mean Absolute Deviation: 2,05

Given above is the error calculation of the three forecasts using mean absolute deviation. We
can see that the 3-month weighted moving average has the smallest error, therefore we prefer
to use the forecast that has been produced by the 3-month weighted moving average.
 Operation Research
Forecasting
MEAN ABSOLUTE PERCENT ERROR
3-Month Absolute 3-Month Absolute Exponential Absolute
Month Demand of Microwave Moving Percent Weighted Percent Smoothing Percent
Average Error Moving Average Error (alpha = 0.1) Error
January 27 27,00 0,00
February 31 27,00 12,90
March 29 27,40 5,52
April 30 29,00 3,33 29,33 2,22 27,56 8,13
May 32 30,00 6,25 29,83 6,77 27,80 13,11
June 34 30,33 10,78 30,83 9,31 28,22 16,99
July 36 32,00 11,11 32,67 9,26 28,80 20,00
August 35 34,00 2,86 34,67 0,95 29,52 15,65
September 37 35,00 5,41 35,17 4,95 30,07 18,73
October 39 36,00 7,69 36,17 7,26 30,76 21,12
November ? 37,00 37,67 31,59
Sum of Absolute Percent Error: 47,43 40,74 113,74
Mean Absolute Percent Error: 6,78 5,82 16,25
Smallest Mean Absolute Percent Error: 5,82

Given above is the error calculation of the three forecasts using mean absolute percent error.
We can see that the 3-month weighted moving average has the smallest error, therefore we
prefer to use the forecast that has been produced by the 3-month weighted moving average.

As all of the errors show that the 3-month weighted moving average has the smallest error, then
we prefer to use this method.
 Operation Research
Forecasting

2. The table below shows the demand for a new aftershave in a shop each of the last ten months:

Mont 1
h 1 2 3 4 5 6 7 8 9 0
Dema 2 2 3 4 4 4 4 4 3 3
nd 3 9 3 0 1 3 9 5 7 9
Using 3-month moving average, 3-month weighted moving average, and exponential smoothing
with a smoothing constant of 0.1. What would be your forecast for the demand in month 11?
Calculate the error.

ANSWER
Demand of 3-Month Moving 3-Month Weighted Exponential Smoothing
Month
Aftershave Average Moving Average (alpha = 0.1)
January 23 23,00
February 29 23,00
March 33 23,60
April 40 28,33 30,00 24,54
May 41 34,00 35,83 26,09
June 43 38,00 39,33 27,58
July 49 41,33 41,83 29,12
August 45 44,33 45,67 31,11
September 37 45,67 46,00 32,50
October 39 43,67 41,67 32,95
November ? 40,33 39,33 33,55
The table given above is the forecasting result using excel in month 11 (November) using 3-
month moving average, 3-month weighted moving average, and exponential smoothing with
smoothing constant 0.1
Now, we calculate the error using mean squared error, mean absolute deviation, and mean
absolute percent error, to compare the error of the three forecasts.
 Operation Research
Forecasting
MEAN SQUARED ERROR
3-Month 3-Month Exponential
Demand of
Month Moving (Error)^2 Weighted (Error)^2 Smoothing (Error)^2
Aftershave
Average Moving Average (alpha = 0.1)
January 23 23,00 0,00
February 29 23,00 36,00
March 33 23,60 88,36
April 40 28,33 136,11 30,00 100,00 24,54 239,01
May 41 34,00 49,00 35,83 26,69 26,09 222,43
June 43 38,00 25,00 39,33 13,44 27,58 237,86
July 49 41,33 58,78 41,83 51,36 29,12 395,23
August 45 44,33 0,44 45,67 0,44 31,11 193,00
September 37 45,67 75,11 46,00 81,00 32,50 20,28
October 39 43,67 21,78 41,67 7,11 32,95 36,64
November ? 40,33 39,33 33,55
Sum of Errors Squared: 366,22 280,06 1344,43
Mean Squared Error: 52,32 40,01 192,06
Smallest Mean Squared Error: 40,01

Given above is the error calculation of the three forecasts using mean squared error. We can see
that the 3-month weighted moving average has the smallest error, therefore we prefer to use
the forecast that has been produced by the 3-month weighted moving average.

MEAN ABSOLUTE DEVIATION

3-Month 3-Month Exponential
Absolute Absolute Absolute
Month Demand of Aftershave Moving Weighted Smoothing
Deviation Deviation Deviation
Average Moving Average (alpha = 0.1)
January 23 23,00 0,00
February 29 23,00 6,00
March 33 23,60 9,40
April 40 23,60 16,40 30,00 10,00 24,54 15,46
May 41 24,54 16,46 35,83 5,17 26,09 14,91
June 43 26,09 16,91 39,33 3,67 27,58 15,42
July 49 27,58 21,42 41,83 7,17 29,12 19,88
August 45 29,12 15,88 45,67 0,67 31,11 13,89
September 37 31,11 5,89 46,00 9,00 32,50 4,50
October 39 32,50 6,50 41,67 2,67 32,95 6,05
November ? 32,95 39,33 33,55
Sum of Absolute Deviations: 99,47 38,33 90,13
Mean Absolute Deviation: 14,21 5,48 12,88
Smallest Mean Absolute Deviation: 5,48

Given above is the error calculation of the three forecasts using mean absolute deviation. We
can see that the 3-month weighted moving average has the smallest error, therefore we prefer
to use the forecast that has been produced by the 3-month weighted moving average.
 Operation Research
Forecasting
MEAN ABSOLUTE PERCENT ERROR
3-Month Absolute 3-Month Absolute Exponential Absolute
Month Demand of Aftershave Moving Percent Weighted Percent Smoothing Percent
Average Error Moving Average Error (alpha = 0.1) Error
January 23 23,00 0,00
February 29 23,00 20,69
March 33 23,60 28,48
April 40 28,33 29,17 30,00 25,00 24,54 38,65
May 41 34,00 17,07 35,83 12,60 26,09 36,38
June 43 38,00 11,63 39,33 8,53 27,58 35,87
July 49 41,33 15,65 41,83 14,63 29,12 40,57
August 45 44,33 1,48 45,67 1,48 31,11 30,87
September 37 45,67 23,42 46,00 24,32 32,50 12,17
October 39 43,67 11,97 41,67 6,84 32,95 15,52
November ? 40,33 39,33 33,55
Sum of Absolute Percent Error: 110,38 93,40 210,03
Mean Absolute Percent Error: 15,77 13,34 30,00
Smallest Mean Absolute Percent Error: 13,34

Given above is the error calculation of the three forecasts using mean absolute percent error.
We can see that the 3-month weighted moving average has the smallest error, therefore we
prefer to use the forecast that has been produced by the 3-month weighted moving average.

Since all of the errors show that the 3-month weighted moving average has the smallest error,
then we prefer to use this method.