ME 6304

Production Planning and Control

Eng. Ravindu Lokuliyana

L2: Quantitative Forecasting DMME,
Faculty of Engineering,
Techniques University of Ruhuna.
01.Simple Moving Average Method

Description
• The average of demands from most recent
periods is taken as the demand for next time
period.
• No. of past periods to be used in calculations is
selected in the begging and kept constant
periods (such as 3 months moving average)

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Q) Detailed report of sold vehicles in ABC
company during the last year, has denoted in the
table. What will be the forecasted demand for
vehicles in next January?
a)Using 3 months average
b)Using 5 months average

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 Month Demand
January 95
February 100
March 87
April 123
May 90
June 96
July 75
August 78
September 106
October 104
November 89
December 83
January

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Answer:
Month Demand 3 Months 5 Months
Forecast Forecast
January 95
February 100
March 87
April 123 94
May 90
June 96 99
July 75
August 78
September 106
October 104
November 89
December 83
January
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Answer:
Month Demand 3 Months 5 Months
Forecast Forecast
January 95
February 100
March 87
April 123 94
May 90 103.3
June 96 100 99
July 75 103 99.2
August 78 87 94.2
September 106 83 92.4
October 104 56.3 89
November 89 96 91.8
December 83 99.6 90.4
January 92 92
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02.Weighted Moving Average Method

Description
• Unequal weights are assigned to the past
demand data while calculating the demand
forecast for next time period.
• Most recent data is assigned the highest weight
factor.

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Q) Following table shows the computation for the
3 months weighted moving average with a weight
of 0.5 assign to most recent value, a weight of 0.3
assign to next most recent value and weight of 0.2
assigned to the oldest of the demand value
included in the average.

Identify the weighted factors(a,b,c) and calculate

the forecasting value for the upcoming month.

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 Month Demand

01 120

02 130

03 110

04 140

05 110

06 130

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Answer:

Month Demand Forecast

Value

01 120
02 130
03 110
04 140 118
05 110
06 130
07

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Answer:

Month Demand Forecast

Value

01 120
02 130
03 110
04 140 118
05 110 129
06 130 119
07 129

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Exponential Smoothing Methods

Description
• Weights are assigned in exponential order.
• Weights decrease exponentially from most
recent demand data to older demand data
– Single Exponential Smoothing Average Method
– Double Exponential Smoothing Average Method

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03.Single Exponential Smoothing
Average Method

Ft+1 = .Dt + (1 - ).Ft

Ft+1 = Forecasted Value for Next Period

Dt = Actual Demand for Present Period
Ft = Previously determined forecast for present period.
 = Smoothing factor/weighting factor(0    1)

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Q) Demand for a particular product of ABC
company is shown in the table. Forecast the
expected demand for next January by using the
simple exponential smoothing average method.
a) =0.3
b) =0.5

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 Period Month Demand

01 January 37
02 February 40
03 March 41
04 April 37
05 May 45
06 June 50
07 July 43
08 August 47
09 September 56
10 October 52
11 November 55
12 December 54

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Answer:

Period Month Demand Forecast Forecast

(=0.3) (=0.5)
01 January 37 37
02 February 40 37
03 March 41 37.90

Ft+1 (Feb) =  .Dt + (1 - ).Ft

= 0.3x37 + 0.7x37
= 37

Ft+1 (Mar) = 0.3x40 + 0.7x37

= 37.90

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Answer:
Period Month Demand Forecast Forecast
(=0.3) (=0.5)
01 January 37 37 37
02 February 40 37 37
03 March 41 37.9 38.5
04 April 37 38.8 39.8
05 May 45 38.3 38.4
06 June 50 40.3 41.7
07 July 43 43.2 45.9
08 August 47 43.1 44.5
09 September 56 44.3 45.8
10 October 52 47.8 50.9
11 November 55 49.0 51.5
12 December 54 50.8 53.6
13 January 51.8 53.8
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04. Double Exponential Smoothing
Average Method

Description
• Assumption: Data doesn’t contain seasonal,
cyclic, repeating or irregular variation.
• Applicable only for the linear trend.

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 AFt+1 = .Dt +(1 - ).Ft+ Error
Ft+1 = .Dt +(1 - ).Ft
Error = Tt+1
Tt+1= β (Ft+1 - Ft)+(1 - β ).Tt

AFt+1 = Ft+1 + Tt+1

β = Smoothing Constant for trend
Tt+1 = Trend Error
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Q) =0.5, β=0.3
Period Month Demand
01 January 37
02 February 40
03 March 41
04 April 37
05 May 45
06 June 50
07 July 43
08 August 47
09 September 56
10 October 52
11 November 55
12 December 54
13 January

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Answer:
Period Month Demand Ft+1 Tt+1 AFt+1
(=0.5)
01 January 37 37 0 37
02 February 40 37 0 37
03 March 41 38.5 0.45 38.95
04 April 37 39.8 0.71 40.51
05 May 45 38.4
06 June 50 41.7
07 July 43 45.9
08 August 47 44.5
09 September 56 45.8
10 October 52 50.9
11 November 55 51.5
12 December 54 53.6
13 January 53.8
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 05. Linear Regression Forecasting
Method

Description
• Mathematical model which obtains the ‘line of best fit’
between the dependent variable(usually demand)
and independent variable.
• Also called as “Square Method”

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Q) Following data gives the sales of a company for
various years. Fit the straight line and forecast
sales for the years of 1998 and 1999??

Year Sales
1989 13
1990 20
1991 20
1992 28
1993 30
1994 32
1995 33
1996 38
1997 43

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 Answer:
Year Sales Deviation
(𝒚) (𝒙)
1989 13 (- 4)
1990 20 (- 3)
1991 20 (- 2)
1992 28 (- 1)
Origin 1993 30 0
1994 32 1
1995 33 2
1996 38 3
1997 43 4
257

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Answer:
Year Sales Deviation
(𝒚) (𝒙)
1989 13 (- 4) 16 (- 52)
1990 20 (- 3) 9 (- 60)
1991 20 (- 2) 4 (- 40)
1992 28 (- 1) 1 (- 28)
1993 30 0 0 0
1994 32 1 1 32
1995 33 2 4 66
1996 38 3 9 114
1997 43 4 16 172

Sales of year 1998 and 1999??

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Seasonal Analysis for Regression
Analyzing Method
• Defined due to periodical increase or decrease in
demand
• Use seasonal factor to adjust the forecast.

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Q)Following Table shows the demand for the
particular item in 4 quarters of the given years.
Find the demand for item in each quarter of year
1998.

Year\ Quarter 1 2 3 4
1995 12.6 8.6 6.3 14.2
1996 14.1 10.3 7.5 18.2
1997 15.3 10.6 8.1 19.6

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Answer:

1 2 3 4 Total

1995 12.6 8.6 6.3 14.2

1996 14.1 10.3 7.5 18.2

1997 15.3 10.6 8.1 19.6

Total

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Answer:

1 2 3 4 Total
1995 12.6 8.6 6.3 14.2 42 -1 -1 -42

1996 14.1 10.3 7.5 18.2 50.1 0 0 0

1997 15.3 10.6 8.1 19.6 53.6 1 1 53.6

Total 42 29.5 21.9 55.3 1487 0 2 11.6

• Define a linear equation.

• Find the forecast value for 1998.
• Find seasonal factors.
• Evaluate the seasonal values for year 1998.
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Measure of Forecast Accuracy

Description
• Demand forecast influences most of the
decisions in all the functions. Therefore it must
be estimated with highest level of precisions.
• Different types of errors are generally
considered as follows.
1. Mean Absolute Deviation (MAD)
2. Mean Square Error(MSE)
3. Mean Forecast Error(MFE)
4. Mean Absolute Percentage Error(MAPE)
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Measure of Forecast Accuracy

S
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Measure of Forecast Accuracy

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Example

Period Demand Forecast

1 150 165
2 160 165
3 165 165
4 175 165
5 180 165

Find MAD,MSE,MFE,MAPE ??

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Reasons for out of Forecasting

 Changing trend
 Change the appearance of the product
 Politics
 Weather Change
 Promotions

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