PRODUCTION MANAGEMENT 2023-2024

Solution HW1

12.2 a, b

● Forecast for April:

5.00+10.00+6.00
MA 3= =7.00
3.00
WMA 3 =(6.00)(0.55)+(10.00)( 0.33)+(5.00)(0.12)=7.20

Moving Average Weighted Moving Absolute Error

Month Demand Forecast Average Forecast |Dt −F t|
M A3 WM A 3 M A3 WM A 3
1 5 - - - -
2 10 - - - -
3 6 - - - -
4 8 7.00 7.20 1.00 0.80
5 14 8.00 7.58 6.00 6.42
6 10 9.33 11.06 0.67 1.06
7 9 10.67 11.08 1.67 2.08
8 12 11.00 9.93 1.00 2.07
(9) 10.33 10.77 - -

c.
1.00+6.00+0.67+ 1.67+1.00
¿
MAD of M A 3forecast 5.00
= 2.07
0.8+6.42+1.06+2.08+ 2.07
¿
MAD of WM A 3forecast 5.00
= 2.49

MA3 is more accurate (2.07 < 2.49)

12.3
o Quarter 4:
105+150+93
MA 3= =116.0
3

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e t =121−116=5.00

Three-quarter moving average

Year Quarter Demand
MA 3 et
1 105 - -
2 150 - -
1
3 93 - -
4 121 116.00 5.00
5 140 121.33 18.67
6 170 118.00 52.00
2
7 105 143.67 -38.67
8 150 138.33 11.67
9 150 141.67 8.33
10 170 135.00 35.00
3
11 110 156.67 -46.67
12 130 143.33 -13.33
4 13 - 136.67 -

b. Quarter 6:
105+150+93+ 121+ 140
MA 5= =121.80
3
e t =170−121.80=48.20

o For quarters 7 through 13, we apply the same way to get the
results.

Five-quarter moving average

Year Quarter Demand
MA 5 et
1 105 - -
2 150 - -
1
3 93 - -
4 121 - -
5 140 - -
6 170 121.80 48.20
2
7 105 134.80 -29.80
8 150 125.80 24.20
9 150 137.20 12.80
10 170 143.00 27.00
3
11 110 149.00 -39.00
12 130 137.00 -7.00
4 13 - 142.00 -

c.
Quarter 4:

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WMA 3 =0.50 ×93+ 0.33× 150+0.17 ×105=113.85

e t =121−113.85=7.15

Weighted three-quarter moving average

Year Quarter Demand
WMA 3 et
1 105 - -
2 150 - -
1
3 93 - -
4 121 113.85 7.15
5 140 116.69 23.31
6 170 125.74 44.26
2
7 105 151.77 -46.77
8 150 132.40 17.60
9 150 138.55 11.45
10 170 142.35 27.65
3
11 110 160.00 -50.00
12 130 136.60 -6.60
4 13 - 130.20 -

d.

Cumulative error Ε=5+18.67+52+ (−38.67 )+ 11.67+ 8.33 ¿ 32.00

of M A 3forecast
+35+ (−46.67 ) + (−13.33 )

Cumulative error Ε=48.20+ (−29.80 ) +24.20+12.80+27.00 ¿ 36.40

of M A 5forecast
+ (−39.00 )+ (−7.00 )

Cumulative error Ε=7.15+23.31+44.26 + (−46.77 )+ 17.60 ¿ 28.05

ofW M A 3forecast
+11.45+27.65+ (−50.00 ) +(−6.60)

- The three-quarter moving average forecast is more accurate than the five-
quarter moving average forecast (due to the property of moving average
forecast).

- The cumulative error of the weighted three-quarter moving average forecast is

smaller than that of the three-quarter moving average (28.05<32.00). Therefore,
the weighted three-quarter moving average forecast appears to be most
accurate.

- The result of cumulative error of three forecasts is a large positive value. This
shows that the forecasts are probably consistently lower than the actual demand,
or biased low.

12.5.

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a, b.

● For semester 4:
270.00+310.00+250.00
MA 3= =276.67
3.00

● There is no forecast on the first semester so the exponentially smoothed forecast

for semester 2: F 2=D1=270

Therefore, For semester 3:

F 3=α × D2+ ( 1−α ) × F2=(0.20)(310.00)+ ( 1.00−0.20 ) (270.00)=278.00

Moving Exponential Absolute Error

Students Average smoothing
Semester Enrolled Forecast forecast
|Dt −F t|
in OM
M A3 F t (α =0.20 ¿ M A3 Ft
1 270 - - - -
2 310 - 270.00 - 40.00
3 250 - 278.00 - 28.00
4 290 276.67 272.40 13.33 17.60
5 370 283.33 275.92 86.67 94.08
6 410 303.33 294.74 106.67 115.26
7 400 356.67 317.79 43.33 82.21
8 450 393.33 334.23 56.67 115.77
(9) 420.00 357.38

c.
13.33+86.67+106.67+ 43.33+56.67
¿
MAD of M A 3forecast 5.00
¿ 61.33
40.00+28.00+17.60+ 94.08+115.26 +82.21+115.77
¿
MAD of F t forecast 7.00
¿ 70.42

- It is clear that MAD of the three-month moving average forecast is smaller than
MAD of the exponentially smoothed forecast (61.33 < 70.42). Therefore, the
three-month moving average forecast appears to be most accurate.

12.7.
- There is no forecast on the first month so the exponentially smoothed forecast
for month 2:
F 2=D1=62.7

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● For month 3:
F 3=α × D2+ ( 1−α ) × F2=0.40× 63.9+ ( 1−0.40 ) × 62.7=63.18

Month Fund Price Exponentially smoothed forecast

1 62.7 -
2 63.9 62.7
3 68.0 63.18
4 66.4 65.11
5 67.2 65.62
6 65.8 66.25
7 68.2 66.07
8 69.3 66.92
9 67.2 67.87
10 70.1 67.60
11 - 68.60

❖ Adjusted exponentially smoothed forecast with α =0.40∧β=0.30

- The formula of adjusted exponentially smoothed forecast:
AFt +1=F t +1+ T t +1
Where:
F t+ 1=¿ exponentially smoothed forecast
T t +1=¿ exponentially smoothed trend factor
T t +1=β ( F t +1−F t ) +(1−β )T t
- There is no trend at the first point so: T 2=0
→ AF2=F 2=62.7
- Applying the formula of the exponentially smoothed trend factor to compute the
trend factor for months 3 through 11:

● For months 3:
T 3=β ( F 3−F 2 ) + ( 1−β ) T 2 =0.40 × ( 63.18−62.7 ) + ( 1−0.40 ) × 0=0.14

Exponentially Adjusted exponentially

Month Fund Price Trend factor
smoothed forecast smoothed forecasts
1 62.7 - - -
2 63.9 0 62.7 62.7
3 68.0 0.14 63.18 63.32
4 66.4 0.68 65.11 65.79
5 67.2 0.63 65.62 66.26
6 65.8 0.63 66.25 66.89
7 68.2 0.39 66.07 66.46
8 69.3 0.53 66.92 67.45

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9 67.2 0.65 67.87 68.53

10 70.1 0.38 67.60 67.98
11 - 0.56 68.60 69.17

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❖ Linear trend line forecast:

- The formula of linear trend line forecast: y=a+bx
Where:
Σx Σ xy−n xy
x= b=
n 2
Σ x −n x
2

Σy
y=
n a= y−b x
- We have a data table:

Month (x) Fund Price (y) xy x²

1 62.7 62.7 1
2 63.9 127.8 4
3 68.0 204 9
4 66.4 265.6 16
5 67.2 336 15
6 65.8 394 36
7 68.2 477.4 49
8 69.3 554.4 64
9 67.2 604.8 81
10 70.1 701 100
Total 55 668.8 3728.5 385

55 668.8
x= =5.5 y= =66.88
10 10

3728.5−10 ×5.5 × 66.88 a=66.88−0.61× 5.5=63.54

b= 2
=0.61
385−10 ×5.5

- Applying the formula of linear trend line forecast to compute the linear trend
line forecast for the fund price:
● For month 2:
y=63.54+0.61 ×1=64.15

Month Fund Price Linear trend line

1 62.7 64.15
2 63.9 64.45
3 68.0 65.36
4 66.4 65.97
5 67.2 66.58
6 65.8 67.18
7 68.2 67.79
8 69.3 68.40
9 67.2 69.01

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10 70.1 69.61
11 - 70.25
❖ Cumulative error and MAD:
Forecast errors of Forecast errors of Forecast errors of
Month Fund Price
ESF AESF LTLF
1 62.7 - - -1.45
2 63.9 1.2 1.2 -0.85
3 68.0 4.82 4.68 2.64
4 66.4 1.29 0.61 0.43
5 67.2 1.58 0.94 0.62
6 65.8 -0.45 -1.09 -1.38
7 68.2 2.13 1.74 0.41
8 69.3 2.38 1.85 0.9
9 67.2 -0.67 -1.33 -1.81
10 70.1 2.5 2.12 0.49
Total 14.76 10.73 0.00

Forecast Cumulative Error MAD

Exponential Smoothing 14.76 1.89

Adjusted Exponential Smoothing 10.73 1.73

Linear trend line 0.00 1.06

- Since the Cumulative Error of Linear trend line forecast is always near zero so it
is inappropriate to use Cumulative Error to evaluate the forecast accuracy in this
case.
- We should use MAD to compare the different methods.
- Because the smallest MAD belongs to the Linear trend line method. Therefore,
the Linear trend line forecast appears to be most accurate.