Mini-Case 1.

1: Inventory Planning
The NutsnBolts hardware store stocks some high-value
items and a large number of relatively low-value
components. Inventory is reviewed weekly, and orders
are placed with suppliers when inventory levels indicate
that current levels are too low. Most suppliers deliver
the low-value items within two weeks; some of the high-
value items may take four weeks for delivery. How would
you develop a forecasting system to predict the sales of
such items at the individual (SKU = stock-keeping unit)
level? How would you use such forecasts to plan future
purchases?

Use PHIVE to go through the necessary steps. For

purposes of the discussion, assume that that any
historical data you might need can be made available.
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Mini-Case 1.2: Long-term Growth
You work for a consulting firm that is bidding on a
contract to forecast the growth prospects of an
electronics company over the next five years. The
company has developed a specialized computer chip
that is used in highly sensitive medical equipment
and does not anticipate creating any new product
lines, although periodic improvements to the chip are
anticipated.
Write a short proposal describing how you would
develop such forecasts, using PHIVE as a guide. For
purposes of the assignment, assume that that any
historical data you might need can be made
available, but describe carefully the nature of the
data needed.
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Mini-Case 1.4: Adjusting for Inflation
The data file for U.S. retail sales
(US_retail_sales.xlsx) also contains monthly data
for the Consumer Price Index (CPI).

Create a series called real prices by dividing

sales by the CPI; then replicate Figures 1.2, 1.4,
and 1.5 for this series.

Compare your results with the three figures

provided in the text, commenting on major
differences. (Use the same seasonal adjustment
factors.)
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 Exercise 2.2
The following table contains data on railroad passenger
injuries in the U.S. (Rail_safety.xlsx) from 1991 to 2007.
Injuries represents the number of persons injured in the
given year, train-miles denotes the millions of miles
traveled by trains, and the final column is the ratio that
defines the number of injuries per 100 million miles traveled.
a. Create a scatterplot for injuries against train-miles.
b. Plot each of the three time series.
c. Does the level of injuries appear to be changing over time?
If so, in what way?
Exercise 2.3
An investor has a portfolio consisting of holdings in nine stocks
(Returns.xlsx). The end-of-year returns over the previous year
are, in increasing order,
-5.0, -3.7, 0.9, 4.8, 6.2, 8.9, 11.2, 18.6, 25.4
a. Compute the summary statistics (mean, median, MAD and S).
b. Just before the close of business in the last trading session of
the year, the company that had reported the 5.0 percent drop
declares bankruptcy, so the return becomes -100 percent. Re-
compute the results, and comment on your findings.
c. Are simple summary statistics relevant to this investor?
Exercise 2.10

The average temperatures (in F) in the day (20

January) of the presidents inauguration are shown in
the Inauguration.xlsx:
a. Summarize the data numerically and graphically.
b. Create a 95 percent prediction interval for the
inauguration of President Obama in 2009.
c. The actual value was 35F. Does that come as a
surprise, given the width of the interval?
Exercise 2.9

Use the data in Boulder.xlsx, sheet Data(2), to generate

forecast 12 months ahead; that is, the forecast corresponds to
the value for the same month in the previous year. Compute
the ME, MAE, RMSE and MASE for these forecasts. Repeat the
analysis, this time using the monthly averages.
a. Which set of forecasts appears to work better?
b. Is the comparison fair? (Hint: what do you know and when
do you know it?)
c. What conclusions would you draw about the choice between
two methods?
Mini-Case 2.1: Baseball salaries
As part of a project with the Graphics Section of the American
Statistical Association, Dr. Lorraine Denby compiled data on
baseball salaries. We focus on the data that relate only to
pitchers and their salaries for the 1986 season. The data are
included in the file Baseball.xlsx, and we wish to acknowledge
StatLib of the Department of Statistics at Carnegie Mellon
University for allowing us access to these data.

1. Summarize the data on salaries, using the measures

discussed in Section 2.4.

2. The data file also includes information on the number of

years a player has spent in the major leagues, his career
earned run average (ERA), the number of innings he has
pitched, and his career wins and losses. Generate scatterplots 8
Mini-Case 2.1: Baseball salaries
2. The data file also includes information on the number of
years a player has spent in the major leagues, his career
earned run average (ERA), the number of innings he has
pitched, and his career wins and losses. Generate scatterplots
of these variables with salary, and examine their correlations.

3. Older players often accept short-term lower paid contracts

toward the end of their playing careers. To allow for this
feature of the data, eliminate players with 12 or more years of
experience from the data set and rerun the analysis.

4. Summarize your conclusions.

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Mini-Case 3.1: The Growth of Netflix
The Netflix annual report for 2009 indicates that, as
of the end of 2009, the company had over 12
million subscribers and annual total rental revenues
in excess of $1.6 billion.
As a market analyst, you would like to know how
the company is faring in the marketplace and
whether it is likely to continue to grow at the same
rate.
Table 3.20 [Netflix_2.xlsx] provides the following
quarterly data over the period from quarter 1 of
2000 to quarter 4 of 2009:
o S = quarterly revenue (or sales, $ million)
o G = sales growth rate over previous quarter (percent)
o N = number of subscribers at end of quarter (000s) 10
Mini-Case 3.1: The Growth of Netflix
To assess the companys prospects, carry out the
following analyses and comment on the results:
o Develop forecasting methods for each of the
series S, G, and N, using data through quarter
4 of 2008. Then use your results to generate
forecasts for 2009 and 2010.
o What other factors would you wish to take into
account before making forecasts one quarter
ahead? Eight quarters ahead?

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