QUANTITATIVE METHODS

Time Series Models

Time Series
Average Demand

Trend
Seasonal Variations Cyclic Variations

Random Variations

Auto Correlation

Time Series Models

Simple Moving Average

Weighted Moving Average

Exponential Smoothing

Simple Moving Average

This is basically short term time series model. It is used when demand is neither increasing nor decreasing rapidly The method depends on Average Value of past data moreover time duration should be specified

Simple Moving Average

Generalize:F(t)=D(t-1)+D(t-2)+..+D(t-n)/n Where F(t) is the forecast for the t Period D(t-1) is the actual demand in (t-1) Period N is the number of periods to be averaged

Weighted Moving Average

The Weight is given to the past data, So as to be more precise with the forecasting value

Weighted Moving Average

Generalize -: Ft=w1*Dt-1wn*Dt-n Where W1,W2..Wn are the weights given to the actual data for the periods t-1tn.respectively

Exponential Smoothing
It is based on the premise that the latest occurrence of data is more indicative of the future than the past occurrences.

Exponential Smoothing
Generalize - : Ft = Ft-1 + Constant (Dt-1 Ft-1) Where Ft is the forecast for the ith period Ft-1 was the forecast for the prior period Dt-1 was the actual demand for the period Constant can be Alpha which lies between 0 to 1

Query
A Firm uses simple exponential smoothing with constant = 0.2 to forecast demand. The forecast for the first week of January was 400 units, where as actual demand turned out to 450 units . Forecast demand for the second week of January will be?

Query
A XYX Hospital has experienced irregular, & usually increasing, demand for disposable kits throughout the hospital. The demand for a disposable kit in pediatrics for September was 300 units & for october,350 units. The old forecast procedure was to use last years average monthly demand as the forecast for each month this year. Last years average monthly demand was 200 units. Using 200 units as the September forecast & a smoothing coefficient of 0.7 to weight recent demand most heavily, the forecast for this month, October would have been (t=October)

Trend Adjusted Exponential Smoothing

Generalize - : Ft = Ft-1 + Constant 1 (Dt-1 Ft-1) Tt = Tt-1 + Constant 2 (Ft - FITt-1) Where Ft is the forecast for the ith period Ft-1 was the forecast for the prior period Dt-1 was the actual demand for the period Constant can be Alpha which lies between 0 to 1

Trend Adjusted Exponential Smoothing

Where Ft is the forecast for the ith period Ft-1 was the forecast for the prior period Dt-1 was the actual demand for the period Constant 1 can be Alpha which lies between 0 to 1 Constant 2 can be Beta for trend Tt is the trend forecast for the time period t FIT is the forecast including trend for period t
FITt-1 is the forecast including trend for period t-1

Query
The Average sale of cars for XYX Company for the last five months was 30. The average increase in car sales was 4 units per month. In the fifth month 31 units were sold. If Alpha = 0.2 and Beta = 0.3, What is the forecast for the sixth month..

CASUAL MODELS REGRESSION MODEL

It is a statistical technique for quantifying the relationship between variables. In simple regression analysis, there is one dependent variable (e.g. sales) to be forecast and one independent variable. The values of the independent variable are typically those assumed to "cause" or determine the values of the dependent variable.

For example Assuming that the amount of advertising dollars spent on a product determines the amount of its sales, we could use regression analysis to quantify the precise nature of the relationship between advertising and sales. For forecasting purposes, knowing the quantified relationship between the variables allows us to provide forecasting estimates

STEPS IN REGRESSION ANALYSIS 1.Identification of variables influencing demand for product under estimation. 2.Collection of historical data on variables. 3.Choosing an appropriate form of function 4.Estimation of the function.

REGRESSION EQUATION

Y=
Where

x
xx

Y= value being forecasted

= constant value
= coefficients of regression = independent variable

BENEFITS OF EFFECTIVE DEMAND FORECASTING HIGHER REVENUES

SALES MAXIMIZATION
REDUCED INVESTMENTS FOR SAFETY STOCKS IMPROVED PRODUCTION PLANNING EARLY RECOGNITION OF MARKET TRENDS BETTER MARKET POSITIONING IMPROVED CUSTOMER SERVICE LEVELS