Assignment 2 Given the following data (a)Plot the data (b)Forecast for Sep. using linear regression (c)Forecast for Sep. using 5 period moving average.

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Assignment 2 Given the following data (a)Plot the data (b)Forecast for Sep. using linear regression (c)Forecast for Sep. using 5 period moving average (d)Forecast for Sep. using exponential smoothing. Alpha is.2 and forecast for march was 19 (e)Forecast for Sep. using Naïve method (f)Compute MAD for all

(a) Plot the Data

(b-1)Forecast for Sep Using Regression Linear Trend Equation, Regression, Lest Square Method are alternative names for the same method.

Linear Regression

b0 and b1

b0 and b1 and R^2 Using excel

(b-2)Forecast for Sep Using 5 Period Moving Average F 8 =MA 7 = (A 7 +A 6 +A 5 +A 4 +A 3 )/5 = ( )/5 F 8 =MA 7 = 19

(b-2)Forecast Using 5 Period Moving Average for All Periods

(b-3)Forecast for Sep Using Exponential Smoothing α =.2 and F(Mar) = 19 March is period 2 F 3 = (1-α)F 2 + α A 2 F 3 = (.8)19+.2(18) F 3 = 18.8

(b-3)Forecast for Sep Using α =.2 and F(Mar) = 19 Using the same formula, we compute F 4, F 5, F 6, F 7, and finally F 8 which is the demand for Sep.

(b-4)Forecast for Sep Using Naïve Method F (t +1) =A t F 8 =A 7 F 8 = 20 Forecast for all periods using Naïve Method

(c) Which Technique ? When comparing several methods using MAD, we need to use the same time horizon for all methods. We need to have actual as well as forecasts for all methods for all periods of MAD computations Here we have Actual for periods 1 to 7; that is 8 periods Regression for periods 1 to infinity Therefore, if regression was the only method under consideration, then I could have computed MAD over 8 periods. However, we have Five period moving average forecasts for periods 6 and 7; that is 2 periods Therefore, to compare all these methods, we can compute MAD only over 2 periods. But 2 periods is too short, so we forget moving averages. We have Naïve method forecasts for periods 2 to 7; That is 6 periods Exponential Smoothing for periods 2 to 7; That is 6 periods We can compare NM, ES, and Reg over 6 periods. We may also ignore period 2 because in exponential smoothing forecast for period 2 is just the same as actual demand for period 1. Here we compare NM, ES, and Reg over a 5 period time horizon. From period 3 to period 7

(c) Which Technique ? When comparing several methods using MAD, we need to do it over the same time horizon for all methods. Here we have moving average for 2 periods

(c) Which Technique ?

WorstBest However, we need to keep all methods, because we need more actual data. A MAD computed just 5 periods is not a reliable measure. It is better to have all methods for say more periods, and then identify the best method

F (t+1) = F t +  ( A t -F t ) Assignment 2: Problem 2(a) Exponential smoothing is being used to forecast demand. The previous forecast of 66 turned out to be 5 units larger than actual demand. The next forecast is 65. Compute  ? 65 = 66 +  (-5) 5  = 1  =

The 5-period moving average in month 6 was 150 units. Actual demand in month 7 is 180 units. What is 6 period moving average in month 7? Assignment 2: Problem 1 MA 5 6 = (A6+A5+A4+A3+A2)/5 MA 6 7 = (A7+A6+A5+A4+A3+A2)/6 MA 5 6 = (A6+A5+A4+A3+A2)/5 = 150 A6+A5+A4+A3+A2 = 750 A7 = 180 MA 6 7 = (A7+A6+A5+A4+A3+A2)/6 MA 6 8 = ( )/6 = 155