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Operations Management Principles Ip 2

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The objective of the report is to develop a forecast given the actual quantities for 23 periods (Refer Table I).

Table I ¨C Actual Quantities for Periods 1 to 23

Period Actual Quantity
1 429
2 222
3 276
4 167
5 266
6 305
7 430
8 415
9 388
10 368
11 220
12 457
13 267
14 277
15 242
16 590
17 147
18 566
19 267
20 361
21 338
22 351
23 217

The first step in the forecasting process is to choose a suitable forecasting technique. Since a forecast is required for the next period only, the techniques being considered are Moving average, Weighted Moving Average and Exponential Smoothing. (Stevenson, 2007, p.96) In order to make an appropriate choice the nature of the given data must be studied. For this a plot of the given data is drawn (Stevenson, 2007, p.96) and shown in Figure 1.

Figure 1 ¨C Plot of Actual Quantity



From the plot it is evident that the process is fairly stable, though there is significant variation about a central level. There is no consistent directional change. Nor does the quantity for any period seem to be dependent on the immediately preceding quantities. In this situation Weighted Moving Average and Exponential Smoothing techniques do not offer any advantage. In fact they may suffer the disadvantage of chasing the previous value. Hence the Moving Average technique is appropriate and will be adopted. (Stevenson, 2007, pp.72-6)

In order to ascertain the optimum number of periods the moving averages will be calculated using 3 periods, 4 periods and 5 periods. The final selection will be made based on suitable measures of error. Since for a 5 period moving average the calculation will begin from period 6, period 6 is chosen as the starting period for other calculations as well. For each period the forecasted quantity for period 24 is determined. The moving averages are tabulated in Table II.

Table II ¨C Results of Moving Average Calculations

Period Actual Quantity MA with 3...