311_session_14_trend_seasonality_hiroshi

311_session_14_trend_seasonality_hiroshi - Forecasting with...

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1 Forecasting with Trend and Seasonality BUAD311 Session 14 Hiroshi Ochiumi
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2 Previously. . The importance of forecasting Forecast Forecast is not a single number Error measure MAD Moving average Exponential smoothing Tradeoff: stability and responsiveness
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3 Objectives Aggregate-level Forecast Risk-pooling effect again! Trend forecast Seasonal forecast
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4 Forecasts and Probability Distributions: How many to stock? A firm produces Red and Blue T-Shirts Month/demand Red Shirts Blue Shirts January 909.9 1185.0 February 616.7 546.2 March 1073.3 1229.5 April 1382.9 1248.7 May 1359.5 1337.9 June 1519.9 1539.6 July 344.9 1300.8 August September
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5 Forecast for the Red Let’s open the spreadsheet. Develop forecasts using Exponential Smoothing with α = 0.3
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6 Forecasts and Probability Distributions Suppose the company stocks 954 Red T-shirts, the forecasted number. What is the probability the company will have a stockout, that is, that there will not be enough T-shirts to satisfy demand? The company does not want to have unsatisfied customers. So the company overstocks. Suppose the company stocks 1,026 units. What is the probability that the actual demand will be larger than 1,026?
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7 There is a Distribution Around the Forecasted Value Standard Deviation of Error  = 1.25*MAD Error is assumed to be NORMALLY DISTRIBUTED with  A MEAN (AVERAGE)  =  0 STANDARD DEVIATION  =  1.25* MAD
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8 How many to stock ) ( 96 . 1 MAD 1.25 954 - level stock Then 025 . 0 MAD 1.25 954 - level stock N(0,1) P level) stock MAD) N(954,1.25 ( level) stock demand November ( table the from P P = × = × = × = Suppose the company desires that the probability of  not being able to meet demand is 2.5%
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9 How many to stock 1892 954 MAD 1.25 1.96 level stock 96 . 1 MAD 1.25 54 9 level stock = + × × = = × - Note that MAD=383 in this example.
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10 Forecast for the Blue Similarly, we can develop forecasts for the Blue.
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11 Blue Product Inventory Level The stocking level, of the blue product, for November is: 1148+1.96*1.25*237=1728 Recall that: stock level = forecast mean + 1.96x1.25xMAD implies the probability of not satisfying demand is P( demand > stock level ) = 0.025.
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311_session_14_trend_seasonality_hiroshi - Forecasting with...

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