Class 11 - AGENDA • HOMEWORK 4 ON T: DRIVE, DUE OCT. 1...

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Unformatted text preview: AGENDA • HOMEWORK 4 ON T: DRIVE, DUE OCT. 1 • QUIZ 3 ON TUES. • MORE FORECASTING þ Form of weighted moving average þ Weights decline exponentially þ Most recent data weighted most þ Requires smoothing constant ( α ) þ Ranges from 0 to 1 þ Subjectively chosen þ Involves little record keeping of past data Exponential Smoothing Exponential Smoothing Last period’s forecast + α (Last period’s actual demand – Last period’s forecast) Ft = Ft – 1 + α (At – 1 - Ft – 1) where Ft = new forecast Ft – 1 = previous forecast α = smoothing (or weighting) constant (0 ≤ α ≤ 1) Exponential Smoothing Example Predicted demand = 142 Ford Mustangs Actual demand = 153 Smoothing constant α = .20 Exponential Smoothing Example Predicted demand = 142 Ford Mustangs Actual demand = 153 Smoothing constant α = .20 New forecast = 142 + .2(153 – 142) Exponential Smoothing Example Predicted demand = 142 Ford Mustangs Actual demand = 153 Smoothing constant α = .20 New forecast = 142 + .2(153 – 142) = 142 + 2.2 = 144.2 ≈ 144 cars Effect of Smoothing Constants Weight Assigned to Most 2nd Most 3rd Most 4th Most 5th Most Recent Recent Recent Recent Recent Smoothing Period Period Period Period Period Constant ( α29 α(1 -α29 α(1 -α292 α(1 -α293 α(1 -α294 α = .1 .1 .0 9 .0 8 1 .0 7 3 .0 6 6 α = .5 .5 .2 5 .1 2 5 .0 6 3 .0 3 1 Impact of Different 225 – 200 – 175 – 150 – | | | | | | | | | 1 2 3 4 5 6 7 8 9 Quarter Demand α = .1 Actual demand α = .5 Impact of Different 225 – 200 – 175 – 150 – | | | | | | | | | 1 2 3 4 5 6 7 8 9 Quarter Demand α = .1 Actual demand α = .5 þ Chose high values of when underlying average is likely to change þ Choose low values of when underlying average is stable Choosing The objective is to obtain the most accurate forecast no matter the technique We generally do this by selecting the model that gives us the lowest forecast error Forecast error = Actual demand - Forecast value = At - Ft Trend Projections Fitting a trend line to historical data points to project into the medium to long-range Linear trends can be found using the least...
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This note was uploaded on 10/30/2011 for the course BUS 451 taught by Professor Bilbrey during the Spring '11 term at Anderson University SC.

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Class 11 - AGENDA • HOMEWORK 4 ON T: DRIVE, DUE OCT. 1...

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