PART A: Introduction and Methodology
Chapter 7 presents methods of forecasting, order management, and customer service. Please review again the concepts of Chapter 7 and also study Appendix 7. The appendix explains how to determine the "activity-based costing" system. Also, Table 7.1 shows one method to adjust demand using weights, depending upon the reliability and importance of the data from previous months. Compare how the projected demand was determined using the "simple moving average" and a "weighted moving average." In this particular example, more "weight" or reliability was given to the data from the past month.
PART B: Application (please scroll down to see all the instructions)
You got the following information of sales (demand) for four products:
Product Alpha Product Omega Product Gama Product Beta
Last Month 1300 2500 800 180
Two Months Ago 1250 2670 950 25
Three Months Ago 1100 3200 1230 110
Four Months Ago 920 4230 1300 12
Five Months Ago 1230 2990 1390 55
Six Months Ago 1520 2130 1456 9
Determine the forecasted demand for the coming month by using the simple moving average (similar to the textbook example) and a weighted moving average. This time and due to seasonal sales, you will assign a higher weight to the demand that is the farthest from the present time -that is, sales tend to have a six-month cycle; so the most reliable data is from the past. Make sure that adding the weights will always be one (or 100%). Examine the numbers and, in addition to the two methods, determine your own forecast. Create a spreadsheet with your calculations and conclude. these two methods provide a reliable number? Would you like to have an educated guess of the demand for this month just by looking how these numbers behave?