Forecasting

1. A Plastic product manufacturing company produces four types of product: Chair

(CH), Table (TB), Basket (BK), Bin (BN) and Cabinet (CB). Demand history of the
products (in thousand units) is given below.

2012 2013 2014 2015 2016 2017 2018 2019

TB 55 63 63 78 91 105 110
BK 18 19 23 27
BN 33 20 36 25 29
CB 30 33
CH 50 58 54 69 64 58 55 57

Forecast demand of each of the products for year 2020 and 2021 by using
appropriate methods. (If you need, then consider a smoothing constant = 0.7)

For CB

Naïve technique

Forecast for 2020, F2020 = 33 + (33 -30) = 33 + 3 = 36

Forecast for 2021, F2021 = 36 + (36 – 33) = 39

For BK

Incremental Addition

Forecast for 2020, F2020 = 27 + (27 – 18)/(2019 – 2016)

= 27 + 9/3 =27 +3 = 30 units

Forecast for 2021, F2021 = 30 + 3 = 33 unit

For BN

Simple average
Forecast for 2020 = (33 + 20 +36 + 25 + 29)/5 = 27.67 unit
Simple avg 2021 = 27.67 units
Moving Average

Forecast for 2020, F2020 = (29 + 25 + 36)/3 = 30 units

Forecast for 2021,F2021 = 30 units

Weighted Average

Business environment for the year 2020 would be 50% like 2019, 30% like 2018
and 20% like 2017

Forecast for the year 2020 = 0.5 x 29 + 0.3 x 25 +0.2 x 36 = 14.5 + 7.5 + 7.2
= 29.2

For TB

Linear Trend Equation technique

Y = mX + c

Y = Demand
X = time (year)

2012 2013 2014 2015 2016 2017 2018 2019

X 1 2 3 4 5 6 7
TB (Y) 55 63 63 78 91 105 110
XY 55 126 189 312 455 630 770

∑x, sum of X = 1 + 2 +3 -------- + 7 = 28

∑X2 , sum of X2 = 1x1+2x2 + + 7 x 7 = 140

∑Y , sum of Y = 565

∑XY = 2537

n=7
m = [∑X∑Y – n x ∑XY]/[( ∑X)2 – n x ∑X2]

m = (28 x 565 – 7 x 2537)/(28x28 – 7 X 140)

= 9.89

c = [∑Y – m x ∑X]/n

c = (565 – 9.89 x 28)/7 = 41.14

Linear trend equation Y = 9.89 X + 41.14

Forecast for 2020, Y 2020 = 9.89 x 8 + 41.14 = 120.26

Forecast for 2021, Y2021 = 9.89 X 9 + 41.14 = 130.15

Mean Absolute Deviation (MAD) for calculating error,

MAD = ∑I(A – F)I/n

2012 2013 2014 2015 2016 2017 2018 2019

X 1 2 3 4 5 6 7
TB (Y) 55 63 63 78 91 105 110
770
XY 55 126 189 312 455 630
100.3 110.2
F 51.03 60.82 70.71 80.6 90.49
8 7
IA - FI 3.97 0.18 7.71 1.4 0.51 4.62 0.27

MAD = 18.66/7 = 2.66

Adjusted Forecast for 2020 =120.26 ± 2.66

Adjusted Forecast for 2021 = 130.15 ± 2.66
 2012 2013 2014 2015 2016 2017 2018 2019
CH 50 58 54 69 64 58 55 57

Data >= 7, Pattern – ups and downs

Exponential Smoothing technique (Formal Technique)

Ft = Ft-1 + alpha x (At-1 – Ft-1)

Alpha = Smoothing constant, 0 < alpha <1

At-1 = Actual value of the previous period

Ft-1 = Forecasted value of the previous period

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CH (A) 50 58 54 69 64 58 55 57
F 50 50 55.6 54.5 64.7 64.2 59.9 56.4 56.8 56.26
AD
8 1.6 14.5 0.7 6.2 4.9 0.6
(IA-FI)

F2014 = F2013 +0.7 x(A2013 – F2013)

= 50 + 0.7(58 – 50) = 55.6
F2015 = F2014 +0.7x (A2014 – F2014)
= 55.6 + 0.7 (54 – 55.6) = 54.5
F2016 = 54.5 + 0.7 (69 – 54.5) = 64.7
F2017 = 64.7 + 0.7 (64 – 64.7) = 64.2
F2018 =64.2 + 0.7 (58 – 64.2) =59.9
F2019 = 59.9 + 0.7 (55 – 59.9) = 56.4
F2020 = 56.4 + 0.7 x (57 – 56.4) = 56.8

Forecast for the year 2020 is 56.8

Forecast for the year 2021= (56.8 + 57 + 55)/3 = 56.26

Forecasting error

Mean absolute deviation (MAD) = ∑(IA-FI)/n = 35.5/7 =5.07

Adjusted forecast for the year 2020 = 56.8 ± 5.07 (51.73 – 61.87)
Adjusted forecast for the year 2021 = 56.26 ± 5.07 (51.19 – 61.33)
2. Demand history of five different products of a company is shown below.

Products 1 2 3 4 5 6 7 8
X 27 23 32 26 30
Y 50 47
Z 38 42 55 57 65 70 76
S 33 29 25 22
T 40 36 42 32 30 44 48 38

Forecast demands of the products for the periods 9 and 10.