Materials management

CHAPTER TWO
MATERIAL DEMAND FORECASTING
Introduction:
Every day managers make decisions without knowing what will happen in the future. They order
inventory without knowing what sales will be, purchase new equipment despite uncertainty
about demand for products, and make investments without knowing what profit will be.
Managers are always trying to make better estimate of what will happen in the future in the face
of uncertainty. Making good estimates is the main purpose of forecasting.

Forecasting is the art and science of predicting future events. It involves estimation of the
occurrence, timing, and/or magnitude of uncertain future events or levels of activities.
Forecasting may involve taking historical data and projecting them into the future with some sort
of mathematical model. It may be a subjective or intuitive prediction. Or it may involve a
combination of these-that is, a mathematical model adjusted by a manager’s good judgment.
Successful forecasting requires blending art and science. Experience, judgment, and technical
expertise will all play a role in successful forecasting. The purpose of forecasting activities is to
make use of the best available present information to guide future activities toward system goals.

Features Common to All Forecasts

 Forecasting techniques generally assume that the same underlying causal system
that existed in the past will continue to exist in the future
 Forecasts are rarely perfect; actual results usually differ from predicted values
 Forecasts for groups of items tend to be more accurate than forecasts for
individual items because forecasting errors among items in a group usually have a
canceling effect
 Forecast accuracy decreases as the time period covered by the forecast (the time
horizon) increases

Steps in the Forecasting Process

 Determine the purpose of the forecast
 Establish a time horizon

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 Select a forecasting technique

 Gather and analyze the appropriate data
 Prepare a forecast
 Monitor the forecast
Types of Forecasts
Economic forecasts address the business cycle by predicting inflation rates, money supplies,
housing starts, and other planning indicators.

Technological Forecasts are concerned with rates of technological progress which can result in
the birth of exciting of new products requiring new plants and equipment.

Demand forecasts are projections of demand for a company’s products or services.

Forecasts are often classified according to time period.

 Short range-up to 1 year

 Medium 1 to 3 years
 Long range-5 years or more

Approaches to Forecasting
There are two general approaches to forecasting: qualitative and quantitative. Qualitative
methods consists mainly subjective inputs, which often defy precise numerical description.
Qualitative methods involve either the extension of historical data or the development of
associative models that attempt to utilize casual variables to make a forecast.

Qualitative techniques permit inclusion of soft information in the forecasting process. Those
factors are often omitted or downplayed when quantitative techniques are used because they are
difficult or impossible to quantify. Quantitative techniques consist mainly of analyzing objective,
or hard, data. They usually avoid personal biases that sometimes contaminate qualitative
methods. In practice, either or both approaches might be used to develop a given forecast.

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Qualitative/Judgmental Methods
A qualitative forecast is one that is not based exclusively on a mathematical model. These
methods are usually based on judgment about the casual factors that underlie the sales of
particular products or services and on opinions about the relative likelihood of these casual
factors being present in the future. Judgmental methods are useful when historical data are not
available. In the absence of past data, statistical methods have no validity. Past data, even when
they exist, may not be representative of future conditions. Qualitative forecasts are the only
alternative available. Further, in these days of management science and computers, qualitative
forecasts assume greater relevance.

The most popular judgmental forecasting methods are: Individual Opinion, Executive committee
consensus, Delphi Method, Survey of sales force, Survey of customers, Historical analogy and
Market research.

Individual Opinion: One of the most simple and widely used methods of forecasting which
consists of collecting opinions and judgments of individuals who are expected to have the best
knowledge of current activities or future plans. Some opinion and judgment forecasts are largely
intuitive, where as others integrate data perhaps even some mathematical or statistical
expectations in to the work.

Executive Committee Consensus/Jury of Executives’ Opinion: Here, a committee of executives

from different departments is constituted and is entrusted with the responsibility of developing a
forecast. The committee may use many inputs from all parts of the organization and may have
staff analysts provide analysis as needed. Such forecasts tend to be compromised ones, not
reflecting the extremes that might be present, if individuals prepared them. However, that is the
most commonly used method of forecast.

The Delphi Method: First developed by Rand Corporation, Delphi is the most sought after
method of forecasts. The method seeks to eliminate the undesirable consequences of group
thinking which do exist when experts meet in committees. The Delphi method draws on a pool
of experts from both inside and outside the organization. Members are so drawn that, each one is
an expert in one aspect of the problem and none is conversant with all aspects of the issue. In
general, the method proceeds on the following lines:

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Each expert in the group makes independent predictions in the form of brief statements.

The coordinator edits and clarifies these statements.

The coordinator provides a series of written questions to the experts that include feedback
supplied by the other experts.

Steps 1 to 3 are repeated several times, till consensus is obtained. As many as six rounds
may be needed to reach the convergence.

Surveys of Sales force/Field Expectation Method: Individual members of sales force are
required to submit sales forecasts of their respective regions. These estimates are combined to
form an estimate of sales for all regions. Managers must then, transform this estimate into a sales
forecast to ensure realistic estimates. This is a popular forecasting method for companies that
have a good communication system in sales force and that have sales force that sells directly to
customers.

Survey of Sales force/User’s Expectation method: In this method, estimates of future sales are
obtained directly from customers. Individual customers are surveyed to determine what
quantities of the company’s products they intend to purchase in each future time. A sales forecast
is determined by combining individual customers’ responses, and where customers are limited in
number, this method is highly useful.

Historical Analogy: This method ties the estimate of future sales of product to knowledge of a
similar product’s sales. Knowledge of one product’s sales during various stages of its product
life cycle is applied to the estimate of sale for a similar product. For example, an assumption can
be made that color television would follow the general sales pattern experienced with black and
white television. Where a product is new, this method is particularly useful.

Market Surveys: In the market research method, questionnaires, telephone talks or field
interviews from the basis for predicting market demand for products. Market surveys are
ordinarily preferred for new products or for existing products to be introduced into new market
segments.

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Quantitative Methods

Time Series Forecasting

Time series is a collection of data of some economic variable or composite of variables recorded
over a period time- weekly, monthly, quarterly, or yearly. It is an arrangement of statistical data
in chronological order. An analysis of historical records- a time series can be used by
management to make current decisions and for long-term forecasting and planning. Time-series
models predict on the assumption that the future is a function of the past. In other words, they
look at what has happened over a period of time and use a series of past data to make a forecast.
If we are predicting weekly sales of an automobile, we use the past weekly sales for automobile
in making the forecast.

Time series analysis will have a variable, which is dependent, and another independent variable,
which is time. The time is independent variable because it does not dependent on the other
variable. The other variable becomes a dependent variable when it depends on time.

Decomposition of a Time Series Analysis

Analyzing time series means breaking down past data into components and projecting them
forward. A time series typically has four components: trend, seasonality, cycles, and random
variations.

The Secular Trend (T): is the smooth long-term direction of a time series. It is the movement
in a time series that generally continues in the same direction (upward, downward, or remain the
same overtime) over a long period. It refers to only smooth, regular, long-term movement of the
data and has nothing to do with sudden and erratic movements either in upward and downward
direction. The long-term trends of sales, employment, stock prices and other business and
economic series follow various patterns. Some move steadily upwards, others decline and still
others stay the same overtime. Example: Up ward trend of prices, incomes, population etc. Down
ward trend like deaths due to epidemics, bank interest rate, inflation rate

The Cyclical Variation (C): the second component of a time series is cyclical variation. The
wavelike movements in a time series with a period of oscillation of more than one year are called
cyclical variations. It is the rise and fall of a time series over periods longer than one year. A

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typical business cycle consists of a period of prosperity followed by periods of recession,

depression and then recovery. There are considerable fluctuations unfolding over more than one
year in a time series and below the secular trends. Example: In a recession, employment,
production, the Dow Jones Industrial Average, and many other business and economic series and
below the long term trend lines

The Seasonal Variation (S): this is the third component of the time series. These are patterns
of change in a time series with in a year. These patterns tend to repeat themselves each year.
Many sales, production, and other series fluctuate with the seasons. The unit of time reported is
either quarterly or monthly. Almost all businesses tend to have recurring seasonal variations. The
cause being, climate (natural cause) and customs, habits and conventions (man made causes).
Example: the sale of cooling devices like refrigerators, air conditioners will be more in summer
season and comparatively very less in winter season. The sales of woolen products like sweaters
will be more in winter season. An example of time series influenced by customs is extremely
high sales of clothes just prior to some festivals.

The Irregular, Random, or Erratic Variation: this is the fourth component of time series.
Time series is subjected to occasional influences, which may occur just once, or several times,
but without any pattern and regularity. These variations are called irregular, random, or erratic
variations or fluctuations. A random variation may last many months. Examples: High sales of
televisions due to world cup soccer, wars, earthquakes, floods, fires, strikes, lockouts, etc

The four time series models discussed in this chapter include naïve, moving averages,
exponential smoothing and trend projections.

I. Naive Forecast:

The simplest way to forecast is to assume that the forecast in the next period will be equal to
demand in the most recent period. Example: If the actual demand for Wednesday is 35, the
forecasted demand for Thursday will be 35 materials. However, the naïve forecast may take in to
account a demand trend. The increase or decrease in demand observed in the last two periods is
used to adjust the current demand to arrive at a forecast. Suppose that last week, the demand was
120 units and the week before it was 108 units. So, the forecast for next week would be 120+12
units=132 units.

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II. Moving Average:

As a tool of forecasting, the method of moving averages attempts to forecast values based on the
average of the values of past few periods. Successive values are calculated by considering the
new value and dropping the old one. To illustrate, a fourth-month moving average is obtained by
adding the demand during the past four months and dividing the sum by 4. With each passing
month, the most recent month’s data are added to the previous three months’ values, thereby
dropping the value of the earliest month. The formula for computing the simple moving average
is as follows:
n
∑ Di
MA n = i=1
n

Where:

n = number of periods in the moving average

Di = data in period i

To demonstrate the moving average forecasting method, we will use an example.

The Bright Company sells and delivers office supplies to various companies, schools, and
agencies. The office supply business is extremely competitive, and the ability to deliver orders
promptly is an important factor in getting new customers and keeping old ones. (Offices
typically order not when their inventory of supplies is getting low but when they completely run
out. As a result, they need their orders immediately.) The manager of the company wants to be
certain that enough drivers and delivery vehicles are available so that orders can be delivered
promptly. Therefore, the manager wants to be able to forecast the number of orders that will
occur during the next month (i.e., to forecast the demand for deliveries).

From records of delivery orders, the manager has accumulated data for the past 10 months.
These data are shown in Table 2.1.

Table 2.1 Orders for 10-month period

Month Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct.
Orders Delivered 120 90 100 75 110 50 75 130 110 90
per Month
Determine the forecast for November using 3- and 5-month moving averages.

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The moving average forecast is computed by dividing the sum of the values of the forecast
variable, orders per month for a sequence of months, by the number of months in the sequence.
Frequently, a moving average is calculated for three or five time periods. The 3- and 5-month
moving averages for all the months of demand data are shown in Table 2.2. Notice that we have
computed forecasts for all the months. Actually, only the forecast for November, based on the
most recent monthly demand, would be used by the manager. However, the earlier forecasts for
prior months allow us to compare the forecast with actual demand to see how accurate the
forecasting method is (i.e., how well it does).

Table 2.2 3- and 5-month averages

Month Orders per Month 3-Month Moving Average 5-Month Moving Average
January 120
February 90
March 100
April 75 103.3
May 110 88.3
June 50 95.0 99.0
July 75 78.3 85.0
August 130 78.3 82.0
September 110 85.0 88.0
October 90 105.0 95.0
November 110.0 91.0
Both moving average forecasts in Table 2.2 tend to smooth out the variability occurring in the
actual data. The extremes in the actual orders per month have been reduced. This is beneficial if
these extremes simply reflect random fluctuations in orders per month because our moving
average forecast will not be strongly influenced by them.

Notice that the 5-month moving average in Figure 2.1 smoothes out fluctuations to a greater
extent than the 3-month moving average. However, the 3-month average more closely reflects
the most recent data available to the office supply manager. (The 5-month average forecast
considers data all the way back to June; the 3-month average does so only to August.) In general,
forecasts computed using the longer-period moving average are slower to react to recent changes
in demand than those made using shorter-period moving averages. The extra periods of data
dampen the speed with which the forecast responds. Establishing the appropriate number of

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periods to use in a moving average forecast often requires some amount of trial-and-error
experimentation.

Figure 2.1 3- and 5-Month Moving Averages

140

120

100
Quantity Ordered

80 Order Per Month

3 Month Moving Average
60 5 Month Moving Average
40

20

0
1 2 3 4 5 6 7 8 9 10 11
Month

The major disadvantage of the moving average method is that it does not react well to variations
that occur for a reason, such as trends and seasonal effects (although this method does reflect
trends to a moderate extent). Those factors that cause changes are generally ignored. It is
basically a "mechanical" method, which reflects historical data in a consistent fashion. However,
the moving average method does have the advantage of being easy to use, quick, and relatively
inexpensive, although moving averages for a substantial number of periods for many different
items can result in the accumulation and storage of a large amount of data. In general, this
method can provide a good forecast for the short run, but an attempt should not be made to push
the forecast too far into the distant future.

Weighted Moving Average:

A careful analysis of the moving average method reveals that the moving average with a base of
n periods in fact an equal-weighted average with a weightage of 1/n to each of the preceding n
values and a zero weightage to all the previous values. Thus, in a 3 monthly forecast, the
immediately last three months’ values are given a weightage of 1/3 each and the remaining
values a weightage of zero. The moving average method can be adjusted to reflect more closely
more recent fluctuations in the data and seasonal effects. This adjusted method is referred to as a

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weighted moving average method. It involves making a forecast values by giving differential
weights to the values entering into moving average calculation. In this method, weights are
assigned to the most recent data according to the following formula:
n
WMA n =∑ W i Di
i=1

Where:

Wi = the weight for period i, between 0% and 100%

∑ W i = 1.00
For example, if the Bright Company wants to compute a 3-month weighted moving average with
a weight of 50% for the October data, a weight of 33% for the September data, and a weight of
17% for August, it is computed as:
3
WMA 3=∑ WiDi=(.50 )(90 )+(.33 )(110 )+(. 17 )(130 )=103 . 4
i=1 Orders

Also notice that this forecast is slightly lower than our previously computed 3-month average
forecast of 110 orders, reflecting the lower number of orders in October (the most recent month
in the sequence).

Determining the precise weights to use for each period of data frequently requires some trial-
and-error experimentation, as does determining the exact number of periods to include in the
moving average. If the most recent months are weighted too heavily, the forecast might overreact
to a random fluctuation in orders; if they are weighted too lightly, the forecast might under react
to an actual change in the pattern of orders.

Exponential Smoothing:

This is another time series forecasting technique where the forecast for the next period is
calculated as weighted average of all the previous values. It is based on the premise that the most
recent value is the most important for predicting the future value. Also, it presumes that values
prior to the current value are also relevant but in declining importance as we go back in time.
The weights decline exponentially as we consider the older values.

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We will consider two forms of exponential smoothing: simple exponential smoothing and
adjusted exponential smoothing (adjusted for trends, seasonal patterns, etc.). We will discuss the
simple exponential smoothing case first, followed by the adjusted form.

To demonstrate simple exponential smoothing, we will return to the Bright Company example.
The simple exponential smoothing forecast is computed by using the formula:

F t+1=αDt +(1−α )F t

Where:

Ft+1 is the forecast for the next period,

Dt is the actual value for the current period,

Ft is the previously determined forecast for the present day, and

α is a weight factor referred to as the smoothing constant

The smoothing constant,α , is between zero and one. It reflects the weight given to the most
recent demand data. For example, if α = .20,

Ft+1 = .20Dt + .80Ft

Which means that our forecast for the next period is based on 20% of recent demand (Dt) and
80% of past demand (in the form of the forecast Ft because Ft is derived from previous demands
and forecasts). If we go to one extreme and let α = 0.0, then

Ft+1 = 0Dt + 1Ft = Ft

and the forecast for the next period is the same as for this period. In other words, the forecast
does not reflect the most recent demand at all. On the other hand, if α = 1.0, then

Ft+1 = 1Dt + 0Ft = Dt

and we have considered only the most recent occurrence in our data (demand in the present
period) and nothing else. Thus, we can conclude that the higher α is, the more sensitive the
forecast will be to changes in recent demand. Alternatively, the closer α is to zero, the greater
will be the dampening or smoothing effect. As α approaches zero, the forecast will react and
adjust more slowly to differences between the actual demand and the forecasted demand. The
most commonly used values of α are in the range from .01 to .50. However, the determination
of α is usually judgmental and subjective and will often be based on trial-and-error

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experimentation. An inaccurate estimate of α can limit the usefulness of this forecasting

technique.

To demonstrate the computation of an exponentially smoothed forecast, we will use the

following example.

PM Computer Services assembles customized personal computers from generic parts. The
company was formed and is operated by two part-time Mettu University students, Mark and
John, and has had steady growth since it started. The company assembles computers mostly at
night, using other part-time students as labor. Mark and John purchase generic computer parts in
volume at a discount from a variety of sources whenever they see a good deal. It is therefore
important that they develop a good forecast of demand for their computers so that they will know
how many computer component parts to purchase and stock.

The company has accumulated the demand data in Table 2.3. for its computers for the past 12
months, from which it wants to compute exponential smoothing forecasts, using smoothing
constants (α ) equal to .30 and .50.

Month Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.
Demand 37 40 41 37 45 50 43 47 56 52 55 54
Table 2.3 Demand for Personal Computers

To develop the series of forecasts for the data in Table 2.3, we will start with period 1 (January)
and compute the forecast for period 2 (February) by using α = .30. The formula for exponential
smoothing also requires a forecast for period 1, which we do not have, so we will use the demand
for period 1 as both demand and the forecast for period 1. Other ways to determine a starting
forecast include averaging the first three or four periods and making a subjective estimate. Thus,
the forecast for February is

F2 = α D1 + (1 -α )F1 = (.30)(37) + (.70)(37) = 37 units

The forecast for period 3 is computed similarly:

F3 = α D2 + (1 -α )F2 = (.30)(40) + (.70)(37) = 37.9 units

The remaining monthly forecasts are shown in Table 2.4. The final forecast is for period 13,
January, and is the forecast of interest to PM Computer Services:

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F13 = α D12 + (1 -α )F12 = (.30)(54) + (.70)(50.84) = 51.79 units

Table 2.4 also includes the forecast values by using α = .50. Both exponential smoothing
forecasts are shown in Figure 2.2 together with the actual data.

Table 2.4 Exponential smoothing forecasts, α = .30 and α = .50

Period Month Demand α = .30 α = .50

1 January 37
2 February 40 37.00 37.00
3 March 41 37.90 38.50
4 April 37 38.83 39.75
5 May 45 38.28 38.37
6 June 50 40.29 41.68
7 July 43 43.20 45.84
8 August 47 43.14 44.42
9 September 56 44.30 45.71
10 October 52 47.81 50.85
11 November 55 49.06 51.42
12 December 54 50.84 53.21
13 January 51.79 53.61

Figure 2.2 Exponential smoothing forecasts

60

50

40
Actual
30 0.3
0.5
20

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13

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In Figure 2.2, the forecast using the higher smoothing constant, α = .50, reacts more strongly to
changes in demand than does the forecast with α = .30, although both smooth out the random
fluctuations in the forecast. Notice that both forecasts lag behind the actual demand. For
example, a pronounced downward change in demand in July is not reflected in the forecast until
August. If these changes mark a change in trend (i.e., a long-term upward or downward
movement) rather than just a random fluctuation, then the forecast will always lag behind this
trend. We can see a general upward trend in delivered orders throughout the year. Both forecasts
tend to be consistently lower than the actual demand; that is, the forecasts lag behind the trend.

Based on simple observation of the two forecasts in Figure 2.2, α = .50 seems to be the more
accurate of the two, in the sense that it seems to follow the actual data more closely. In general,
when demand is relatively stable, without any trend, using a small value for α is more
appropriate to simply smooth out the forecast. Alternatively, when actual demand displays an
increasing (or decreasing) trend, as is the case in Figure 2.2, a larger value of α is generally
better. It will react more quickly to the more recent upward or downward movements in the
actual data. In some approaches to exponential smoothing, the accuracy of the forecast is
monitored in terms of the difference between the actual values and the forecasted values. If these
differences become larger, then α is changed (higher or lower) in an attempt to adapt the
forecast to the actual data. However, the exponential smoothing forecast can also be adjusted for
the effects of a trend.

Adjusted Exponential Smoothing

The adjusted exponential smoothing forecast consists of the exponential smoothing forecast with
a trend adjustment factor added to it. The formula for the adjusted forecast is:

AFt+1 = Ft+1 + Tt+1

Where:

T = an exponentially smoothed trend factor

The trend factor is computed much the same as the exponentially smoothed forecast. It is, in
effect, a forecast model for trend:

Tt+1 = β (Ft+1 - Ft) + (1 - β )Tt

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Where:

Tt = the last period trend factor

β = a smoothing constant for trend

Likeα , β is a value between zero and one. It reflects the weight given to the most recent trend

data. Also likeα , β is often determined subjectively, based on the judgment of the forecaster. A

high β reflects trend changes more than a low β . It is not uncommon for β to equalα in this
method. Notice that this formula for the trend factor reflects a weighted measure of the increase
(or decrease) between the current forecast, Ft + 1, and the previous forecast, Ft.

As an example, PM Computer Services now wants to develop an adjusted exponentially

smoothed forecast, using the same 12 months of demand shown in Table 2.3. It will use the
exponentially smoothed forecast with α = .50 computed in Table 2.4 with a smoothing constant

for trend, β , of .30.

The formula for the adjusted exponential smoothing forecast requires an initial value for Tt to
start the computational process. This initial trend factor is most often an estimate determined
subjectively or based on past data by the forecaster. In this case, because we have a relatively
long sequence of demand data (i.e., 12 months), we will start with the trend, Tt, equal to zero. By
the time the forecast value of interest, F13, is computed, we should have a relatively good value
for the trend factor.

The adjusted forecast for February, AF2, is the same as the exponentially smoothed forecast
because the trend computing factor will be zero (i.e., F1 and F2 are the same and T2 = 0). Thus,
we will compute the adjusted forecast for March, AF3, as follows, starting with the determination
of the trend factor, T3:

T3 = β (F3 F2) + (1 - β )T2 = (.30)(38.5 37.0) + (.70)(0) = 0.45

and

AF3 = F3 + T3 = 38.5 + 0.45 = 38.95

This adjusted forecast value for period 3 is shown in Table 2.5, with all other adjusted forecast
values for the 12-month period plus the forecast for period 13, computed as follows:

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T13 = β (F13 F12) + (1- β )T12 = (.30)(53.61 53.21) + (.70)(1.77) = 1.36

AF13 = F13 + T13 = 53.61 + 1.36 = 54.96 units

Table 2.5 Adjusted Exponentially Smoothed Forecast Values

Month Demand Forecast (Ft +1) Trend (Tt +1) Adjusted Forecast (AFt +1)
January 37 37.00
February 40 37.00 0.00 37.00
March 41 38.50 0.45 38.95
April 37 39.75 0.69 40.44
May 45 38.37 0.07 38.44
June 50 41.68 1.04 42.73
July 43 45.84 1.97 47.82
August 47 44.42 0.95 45.37
September 56 45.71 1.05 46.76
October 52 50.85 2.28 53.13
November 55 51.42 1.76 53.19
December 54 53.21 1.77 54.98
January 53.61 1.36 54.96
Notice that the adjusted forecast is consistently higher than the exponentially smoothed forecast
and is thus more reflective of the generally increasing trend of the actual data. However, in
general, the pattern, or degree of smoothing, is very similar for both forecasts.

Linear Trend Line

When demand displays an obvious trend over time, a least squares regression line, or linear
trend line, can be used to forecast demand. A linear trend line relates a dependent variable,
which for our purposes is demand, to one independent variable, time, in the form of a linear
equation, as follows:

Y = a + bx

Where:

a = intercept (at period 0)

b = slope of the line

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x = the time period

y = forecast for demand for period x

These parameters of the linear trend line can be calculated by using the least squares formulas for
linear regression:

b=
∑ xy−n x̄ ȳ
∑ x 2−nx 2
a= ȳ−b x̄
Where: n = number of periods

x̄=
∑x
n
ȳ=
∑y
n
As an example, consider the demand data for PM Computer Services shown in Table 2.3. They
appear to follow an increasing linear trend. As such, the company wants to compute a linear
trend line as an alternative to the exponential smoothing and adjusted exponential smoothing
forecasts shown in Tables 2.4 and 2.5. The values that are required for the least squares
calculations are shown in Table 2.6.

Table 2.6 Least Squares Calculation

X 1 2 3 4 5 6 7 8 9 10 11 12 78

Y 37 40 41 37 45 50 43 47 56 52 55 54 557

XY 37 80 123 148 225 300 301 376 504 520 605 648 3,867

X2 1 4 9 16 25 36 49 64 81 100 121 144 650

Therefore, the linear trend line is

Y = 35.2 + 1.72X

To calculate a forecast for period 13, X = 13 would be substituted in the linear trend line:

Y = 35.2 + 1.72(13) = 57.56

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