Forecasting Demand Using Moving Average and Exponential Smoothing

Introduction to Operations Management - Assignment 2
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* Demand for week 7 using a five-period moving average
Moving average is used to examine data trends for a certain period. It is mostly used to obtain the trends in economic data, sales data, and stock prices. A simple moving average gives equal weights to all the observations in the data set. A five-period simple moving average is computed by adding the demands for the last five periods and then dividing by 5.
Let Ft denote the forecast in period t and dt the demand in period t
Then,
Ft = (dt-1 + dt-2 + …….. dt-n)/n
Therefore, the demand for week 7 will be given by
F7 = (d6 + d5 + d4 + d3 + d2)/5
F7 = (524 + 561 + 738 + 515 + 598)/5
= 29365 = 587.2
Therefore the forecasted demand for week 7 using the five-point moving average is 587.2 units.
* Demand for week 7 using a 3-period weighted moving average.
Weighted moving average assigns weights to each observation, with greater weights given to the most recent data points. It is computed by multiplying the demands in the data set by a pre-determined weight and adding up the resulting values.
Let W1 =0.4, W2 = 0.4, W3 = 0.2
Weighted Moving average (3-period) = W1dt + W2dt-1 + W3dt-2
Therefore, the weighted moving average f...