Forecasting Techniques

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Presentation transcript:

Forecasting Techniques Supplement to class notes

Simple Moving Average 3 month moving average: Sum the demand for the previous 3 periods; divide by 3 to get the forecast for the next period 5 month moving average: Sum the demand for the previous 5 months; divide by 5 to get the forecast for the next period

Weighted Moving Average 3 month weighted moving average: assign weights to each of the previous 3 periods demands; add the weighted demands Ex: period 1: .25; period 2: .35; period 3: .4 Demand period 1 = 75; demand period 2 = 90; demand period 3 = 125 75(.25) + 90(.35) + 125(.4) = 100.25 = forecast for period 4

Exponential Smoothing Choose smoothing factor between 0 – 1 The closer to 1 the more emphasis on more recent data (ex. 0.6) Forecast for period t = demand of previous period Forecast for period t+1 = (smoothing factor)(actual demand of period t) + (1 – smoothing factor)(forecast for period t)

Example of Exponential Smoothing Smoothing factor =.6