The Famous Shoes Company are trying to use different methods to forecast the dem

Question

The Famous Shoes Company are trying to use different methods to forecast the demand for its
best-selling shoes. Three methods are implemented: three period moving average, three period
weighted moving average (w1=0.5, w2=0.3, w3=0.2), and exponential smoothing (alpha=0.3).
Use the following data for daily sales to arrive at a recommendation:

1. What is the forecast sale for period 11 if they use three period moving average, three
period weighted moving average, and exponential smoothing?
2. What is ME, MSE, MAD, and MAPE if they use three period moving average, three
period weighted moving average, and exponential smoothing?
3. According to the previous calculations, which method is better?

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Explanation / Answer

1. The forecast sale for period 11 if they use three period moving average, three
period weighted moving average, and exponential smoothing

Calculation example: Weights are  (w1=0.5, w2=0.3, w3=0.2)

Therefore forecast for period 11 = 0.5 * 26 + 0.3 * 24 + 0.2 * 39 = 28

(Note: for the first period forecast is assumed as 35)

2.  ME, MSE, MAD, and MAPE if they use three period moving average, three
period weighted moving average, and exponential smoothing

3. As the most of the error measures are lower for exponential smoothing model therefore exponential smoothing model is better.

Day Demand (actual, A) 3 month moving avg. 1 35 2 47 3 46 4 39 42.67 5 26 44.00 6 33 37.00 7 24 32.67 8 39 27.67 9 24 32.00 10 26 29.00 11 (forecast) 29.67

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