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Forecasting (Review)
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What is Forecasting?
Process of predicting a future event. It is making statements about events whose actual outcomes have not yet been observed.
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Medium-range forecast
3 months to 3 years Sales and production planning, budgeting
Long-range forecast
3+ years New product planning, facility location, research and development
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Forecasting Approaches
Qualitative Methods
Used when situation is vague and little data exist
New products New technology
Quantitative Methods
Used when situation is stable and historical data exist
Existing products Current technology
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time-series models
Naive Approach
Assumes demand in next period is the same as demand in most recent period
e.g., If January sales were 68, then February sales will be 68
Moving average =
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Exponential Smoothing
Form of weighted moving average
Weights decline exponentially Most recent data weighted most
Exponential Smoothing
New forecast = Last periods forecast + (Last periods actual demand Last periods forecast) Ft = Ft 1 + (At 1 - Ft 1)
where Ft = new forecast Ft 1 = previous forecast = smoothing (or weighting) constant (0 1)
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MAPE =
i=1
100|Actuali - Forecasti|/Actuali
n
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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 squares technique
^ = a + bx y
^ = computed value of the variable to where y be predicted (dependent variable) a = y-axis intercept b = slope of the regression line x = the independent variable
2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 16
b=
xy - nxy x2 - nx2
a = y - bx
2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 17
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Industrial Engineering
Examples
The following gives the number of pints of Type A blood used at Woodlawn Hospital in the past six weeks. Week of August 31 September 7 September 14 September 21 September 28 October 5 Pints Used 360 389 410 381 368 374
a) Forecast the demand for the week of October 12 using a three-week moving average. b) Use a three week weighted moving average, with weights of .1, .3, and .6, using .6 for the most recent week. Forecast demand for the week of October 12. c) Compute the forecast for the week of October 12 using exponential smoothing with a forecast for August 31st of 360 and = 0.2.
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Industrial Engineering
Examples
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Industrial Engineering
Examples
The Undergraduate Hospital is considering the purchase of a new ambulance. The decision will rest partly on the anticipated mileage to be driven next year. The miles driven during the past five years are as follows. Year Mileage 1 3,000 2 4,000 3 3,400 4 3,800 5 3,700 Forecast the mileage for next year using a two-year moving average. Find the MAD for your forecast in part (a). Use a weighted two-year moving average with weights of .4 and .6 to forecast next years mileage. (The weight of .6 is for the most recent year.) What is the MAD of this forecast? Compute the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000 miles, and =0.5.
a) b) c)
d)
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Industrial Engineering
Examples
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Industrial Engineering
Examples
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Industrial Engineering
Examples
The following gives the number of accidents that have occurred on Florida State Highway 101 during the last four months Month January February March April Number of Accidents 30 40 60 90
Forecast the number of accidents that will occur in May, using least squares regression to derive a trend equation.
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Industrial Engineering
Examples
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Industrial Engineering
Examples
The number of transistors (in millions) made at a plant in Japan during the past five years follows. Year Transistors 1 140 2 160 3 190 4 200 5 210 a) Forecast the number of transistors to be made next year, using linear regression. b) Compute the Mean Squared Error when using linear regression.
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Industrial Engineering
Examples
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