Syndicate 4

Homework Ch-15
1

Operation Management: Demand Forecasting

Syndicate 4:
Jovian Johny : 29113310
Gde Wira Wibawa : 29113335
Mutiara Haridah : 29113365
Margareth Setiawan : 29113468
Christoper JSS : 29113528

1. Based on Appendix A, we could see that for all distributors, the three-week moving average
responds better in following demand trends than the five-week moving average, although the five-
week moving average is smoother.


Table 1.1. Comparison of MAD, MAPE, and TS for simple moving average model

Based Tabel 1.1. above, we could see that:
- The simple moving average forecast model is best applied to LA because it has the smallest
MAD, but this model is worst applied to Chicago because it has the largest MAD.
- The simple moving average forecast model is best applied to LA because it has the smallest
MAPE which means LA has 25% or 24% of demand forecast would be expected to have error. In
the other hand, this model is worst applied to Chicago because it has the largest MAPE (50% or
46%).
Based on Appendix B, we could see that forecast average is not keeping pace with any genuine
upward or downward changes in demand because many of changes in demand for each distributor
spread far from zero. Many of changes in demand are located above of forecast average. Moreover,
there are three tracking signals that nearest to zero such as Atlanta and Chicago. The worst ones are
Boston and LA.
So, from this, we conclude that simple moving average is not quite good model to forecast demand
for Alvatox Electronics. If we should choose, the three-week moving average is the best simple
Syndicate 4
Homework Ch-15
2

moving average model for Alvatox Electronics because it has the most of tracking signal with values
are nearest to zero.

2. Based on Appendix C, we could see that for all distributors, the simple exponential smoothing with
= 0.4 responds better in following demand trends than with = 0.2, although simple exponential
smoothing with = 0.2 is smoother.

Based on Table 2.1. below, we could see that:
- The simple moving average forecast model is best applied to LA because it has the smallest
MAD, but this model is worst applied to Chicago because it has the largest MAD.
- The simple moving average forecast model is best applied to LA because it has the smallest
MAPE which means LA has 22% or 24% of demand forecast would be expected to have error. In
the other hand, this model is worst applied to Chicago because it has the largest MAPE (50% or
46%).

Table 2.1. Comparison of MAD, MAPE, and TS for simple exponential smoothing
Based on Appendix D, we could see that forecast average is keeping pace with any genuine upward
or downward changes in demand because many of changes in demand for each distributor spread
quite close to zero. Moreover, there are a lot of tracking signals with values between -1 and 1 and
there are four tracking signals with values are closest to zero such as Atlanta, Chicago, and Dallas.
The worst ones are Boston and LA.
So, from this, we conclude that simple exponential smoothing is quite good model to forecast
demand for Alvatox Electronics. If we should choose, the smoothing constant 0.4 is the best simple
exponential smoothing model for Alvatox Electronics because it has the most of tracking signal with
values are closest to zero.


3. Based on Table 3.1. below, we could see that simple exponential smoothing with = 0.4, has the
lowest MAD. This lowest MAD could reduce the value of MAPE which means the lowest MAD could
reduce the percentage of error in demand forecast. We could see that the lowest MAPE is still held
by simple exponential smoothing with = 0.4 which only 9% error and the biggest one is only 14%.
This model is better than previous models that only hold the lowest value at 24%. So, the best
model is simple exponential smoothing.

Syndicate 4
Homework Ch-15
3


Table 3.1. Comparison of MAD, MAPE, and TS for simple moving average and exponential smoothing

From Chart 21. in Appendix E, we could see that many points of = 0.4 are located nearer to zero.
This means that smoothing constant 0.4 has the best following of changes in demand. So, we
conclude that simple exponential smoothing with single distribution is the best model to forecast
demand in Alvatox Electronics.


The advantages of this model are larger demand, reduced error percentage in demand forecast, and
the good following of changes in demand. The disadvantages are:
- larger MAD (which means larger deviation in demand forecast)
- forecast from aggregate demand does not represent forecast for each distributor. It is rather
accurate using multiple distribution to forecast for each locations.
Using single distribution, Alvatox Electronics should consider the cost of inventory, cost of
transportation, and the proximity of the distributors to wholesalers and retailers so that the cost of
storage could be reduced.