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Man Science Note 5

This document introduces three forecasting models: moving average, exponential smoothing, and trend projection. It provides examples of each using past monthly sales data for Del Monte Catsup. The moving average model forecasts based on the average of a set number of past periods, assuming equal importance. Exponential smoothing includes past forecasts in new forecasts by applying a smoothing constant. Trend projection forecasts linearly based on an apparent trend over time as the independent variable. George, the marketing manager, uses each model to forecast future catsup sales. The moving average of the past three months forecasts December sales at $25,700. Exponential smoothing with a 80% smoothing constant provides monthly forecasts. Trend projection applied to the linear sales trend

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Gianelle Mendez
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132 views5 pages

Man Science Note 5

This document introduces three forecasting models: moving average, exponential smoothing, and trend projection. It provides examples of each using past monthly sales data for Del Monte Catsup. The moving average model forecasts based on the average of a set number of past periods, assuming equal importance. Exponential smoothing includes past forecasts in new forecasts by applying a smoothing constant. Trend projection forecasts linearly based on an apparent trend over time as the independent variable. George, the marketing manager, uses each model to forecast future catsup sales. The moving average of the past three months forecasts December sales at $25,700. Exponential smoothing with a 80% smoothing constant provides monthly forecasts. Trend projection applied to the linear sales trend

Uploaded by

Gianelle Mendez
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FORECASTING MODEL:

 Forecasting is the scientific way to predict a future event.


 Starting with certain assumptions based on the management’s experience, knowledge,
and judgement.
 Forecasting is a planning tool which helps management in its attempt to cope with the
uncertainty of the future.
For this lesson we will be introduced with the following assumptions:
1. The future event is determined by the past.
2. Past data are available.
This lesson will introduce three models presented in different problems:
1. Moving average
2. Exponential smoothing
3. Trend projection
MOVING AVERAGE MODEL:
 Moving average is the simplest form of forecasting, very effective when sales are
relatively steady overtime.
For this section, Moving Average will be presented with the following conditions:
1. There is a historical record of actual events.
2. The forecast is based on a determined number of past periods.
3. The past periods have equal importance.
EXAMPLE 1: Del Monte Catsup I
George, the marketing manager of Del Monte Catsup, wants to forecast the sales of catsup on a
monthly basis. He was able to monitor the monthly sales and is planning to use the immediate
past three months as the basis for his projection.
This year, the sales for the month of January is $8,000, February is $15,000, March is $17,000,
April is $16,000, May is $16,000, June is $23,000, July is $20,000, August is $25,000,
September is $28,000, October is $21,000, November is $28,000, and December is $29,000.
The figure is shown in the table below:
Thus, $25,700 sales forecast for December this year.

EXPONENTIAL SMOOTHING MODEL:


 Exponential Smoothing is a form of moving average technique that includes the past
forecast in the new forecast.
For this section, Exponential Smoothing will be presented with the following conditions:
1. There is a historical record of actual sales.
2. There is a historical record of past forecasts.
3. The smoothing constant is known.
EXAMPLE 2: Del Monte Catsup II
George, the Marketing Manager of Del Monte Catsup in example 1, wants to include past
forecasts in the new forecasts. He thinks that the smoothing constant is 80%. What is the
forecast on the monthly sales?
Thus, the monthly forecast sales are:
January is $8,000 May is $16,100 September is $24,100
February is $8,000 June is $16,000 October is $27,200
March is $13,600 July is $21,600 November is $22,200
April is $16,300 August is $20,300 December is $26,800

TREND PROJECTION MODEL:


 Trend projection is a linear forecasting technique with time as the independent variable.
For this section, Trend Projection will be presented with the following conditions:
1. There is a historical record of actual sales.
2. There is an apparent linear trend in the figure over time.

EXAMPLE 3: Del Monte Catsup III


George, the Marketing Manager of Del Monte Catsup in examples 1 and 2, wants to forecasts
the monthly sales for the next year. He thinks that there is a linear trend of sales over time.
Figures were summarized in table below.
Should George use the trend projection technique? What is the forecast on the monthly sales
next year?
Thus, the sales forecast for next year are:

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