ME403N: PRODUCTION PLANNING & CONTROL

ME403N: PRODUCTION PLANNING & CONTROL

Problems on Forecasting

Q1.

Handy Inc. produces a solar powered electronic calculator that has experienced the following monthly sales history for the first four months of the year, in thousands of units:

January	23.3	March	30.3
February	72.3	April	15.5

a.	If the forecast for January was 25, determine the one-step ahead forecasts for February through May using exponential smoothing with a smoothing constant of
b.	Repeat the calculation in part (a) for a value of . What difference in the forecasts do you observe?
c.	Compute the MSEs and MADs for the forecasts you obtained in part a and b for February through April. Which value of gave more accurate forecast based on MSE and MAD?

Q2.

The following adaptive response rate exponential smoothing method has been suggested. Along with smoothing the original series, also smooth the error and the absolute error according to the equations

and define the smoothing constants to be used in forecasting the series in period t as

The forecast made in period t for period (t+1) is obtained by the usual exponential smoothing equation using as the smoothing constant. That is,

a.	Explain why this makes exponential smoothing more responsive to change.
b.	Apply this technique to problem 1, using MAD compare the two forecasting techniques. Assume that (the observed error in January) and . Use 0.1 (verify)
c.	Under what circumstances will this method give better forecasts and under what circumstances would it give worst forecasts?

Q3.

Two employees Ram and Shyam have been having a forecast contest for the past 12 months. Each has been using no-trend exponential smoothing with . Ram has been calculating his forecasts monthly, whereas Shyam updates his weekly. Three months ago there was a substantial drop in demand. Prior to that time, demand had been fluctuating around 200 per week, but now it is near 100.

a.	Who is more likely to have an accurate forecast, given the recent drop? Why?
b.	Would your answer change if Shyam used an ? Why? Why not?