Table 1 HPF Demand in the last 12 periods Period Month Demand in '000 Period Month Demand in '000 1 January 37 7 July 43 2 February 40 8 August 47 3 March 41 9 September 56 4 April 37 10 October 52 5 May 45 11 November 55 6 June 50 12 December 54 The manager of the company wants to be certain enough OFC01 are available to complete orders promptly and they have adequate inventory in stock. During the last meeting, a number of forecast techniques have been discussed: Simple moving average n = 4 Weighted moving average with n=4 with the following weights from most recent periods: 0.4, 0.3, 0.2, 0.1 Exponential Smoothing with alpha = 0.2 Linear trend The manager would like to ascertain the best tools that he and his team can effectively manage the production processes. Among the above forecasting methods, which method should be used to forecast the demand for this product? Why? The manager was specifically interested in the Exponential smoothing technique; however, he was not sure how to select the alpha coefficient. He learned that the most commonly used values of alpha are in the range of 0.1 to 0.5. His friends from RMIT recommend he could test these values of alpha in the range of 0.3 to 0.5. Does he wonder if there is a way that he can find an optimal value of alpha? Please provide your recommendations to his concerns.
Table 1 HPF Demand in the last 12 periods
|
Period |
Month |
Demand in '000 |
Period |
Month |
Demand in '000 |
|
1 |
January |
37 |
7 |
July |
43 |
|
2 |
February |
40 |
8 |
August |
47 |
|
3 |
March |
41 |
9 |
September |
56 |
|
4 |
April |
37 |
10 |
October |
52 |
|
5 |
May |
45 |
11 |
November |
55 |
|
6 |
June |
50 |
12 |
December |
54 |
The manager of the company wants to be certain enough OFC01 are available to complete orders promptly and they have adequate inventory in stock. During the last meeting, a number of forecast techniques have been discussed:
- Simple moving average n = 4
- Weighted moving average with n=4 with the following weights from most recent periods: 0.4, 0.3, 0.2, 0.1
- Exponential Smoothing with alpha = 0.2
- Linear trend
The manager would like to ascertain the best tools that he and his team can effectively manage the production processes. Among the above forecasting methods, which method should be used to forecast the demand for this product? Why?
The manager was specifically interested in the Exponential smoothing technique; however, he was not sure how to select the alpha coefficient. He learned that the most commonly used values of alpha are in the
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